“The best way forward or the NEST way forward?”

If you are an employer and you have made a decision, there is no liability—that is clear in the legislation. If you have decided to go with NEST rather than NOW: or People’s, there is no liability that can fall on you as an employer”.

Charlotte Clark . head of private pension strategy-DWP

The Department have stated unambiguously that employers are not liable for their choice of AE pension scheme. Legal experts, however, have told us there could be grounds for legal action if employers cannot demonstrate due diligence. -Frank Field- Chair of DWP Select Committee

Every day we get employers coming to http://www.pensionplaypen.com who have been told to use NEST. It is what the head of DWP’s private pension strategy team considers the safe option, it is “the Government Scheme” and it has already consumed some £460m of public money becoming what it is?

But what is NEST?

Is NEST the default option? Do employers who cannot make a choice find themselves in NEST? No they don’t.

Is NEST a safe harbour? Nowhere in legislation is there a statement that backs up what Charlotte Clark claims. Safe is not a safe harbour.

Is NEST the best pension, only time will tell, but NEST has some very distinct features that could make it better or worse than its rivals.

Compulsory Restrictions that make it different

NEST currently runs under a number of compulsory restrictions. It has had to adjust its charging structure from the mono-charge that prevailed since the introduction of stakeholder pensions. This was to satisfy the EU that it had a means to pay back its debt to the tax-payer and was not operating under an unfair competitive advantage.

Similarly, for the early years of its existence (and until April 2017), NEST has operated a no transfers in/no transfers out policy. It cannot take more than £4,900 in total contributions per member, per year.

Voluntary quirks that make it different

NEST operates a number of its services in a very non-consensual way.

  1. It’s default investment strategy is designed to dampen volatility for those with many years to retirement. This also dampens potential growth for youngsters. This reverse lifestyle is justified on a behavioural basis, it is assumed that were youngsters to find out their investments were volatile, they would give up on NEST, pension saving and go and do something different instead
  2. It does not have discretionary death benefits, so if you die with a NEST pot and have a reasonable amount of estate, your beneficiaries will pay IHT on your NEST pot, this would not be the case if you were in the usual discretionary trust operated by NEST’s rivals.
  3. NEST has chosen to be a relief at source and not a net pay scheme. By and large this favours those contributing on low earnings but is not as good for those on high earnings. Other mastertrusts (People’s and Supertrust) give employers the choice of tax regime and even the opportunity to split schemes.
  4. NEST deliberately operates a low-touch , hi-tech, member and employer support centre. It prides itself (rightly) in having extremely user-friendly self service support facilities. While this is laudable, it doesn’t suit all employers and employees. (see Pension PlayPen support surveys passim)
  5.  Nest (unlike some rivals)  will not (for money laundering reasons) accept employers with a non-UK bank account. This has been an issue for a number of employers with workers based in the UK but who have an overseas HQ . Employers in Ireland (with workers in Northern Ireland) and employers with off shore payrolls are typical of organisations which struggle to use Nest (thanks Kate Upcraft for this).

The general point is the same, all these distinguishing features are sensible and define NEST as “something different”. But they don’t necessarily make NEST better, NEST is right for a lot of employers but there are many employers for whom NEST is not right.

To argue as the DWP does that there can be no liability if an employer decides to go to NEST has no justification either in a legal or in common sense. 

Employer liability

In a very narrow sense, Charlotte Clark may be right, it is hard to see the Pension Regulator suing an employer for using NEST. But regulatory fines are only one part of the equation. Here’s a quick list of the potential litigants that could go to court against an employer over the choice of NEST

  • the employee claiming NEST was inappropriate for his or her needs
  • the employees as a class – claiming the employer failed to conduct due diligence
  • an employee’s representative – a union – acting on behalf of employees accross a group of employers
  • a purchaser of the business who has been given warranties that the workplace pension was chosen properly

To suppose that these risks are groundless is to ignore the evidence in the USA and other countries where just such litigation is happening today.

Employers face impairment in the value of their business , should litigation commence and they will suffer if employees feel aggrieved.

As for business advisers, while they cannot be sued by the Regulator for advice to use NEST, they should be heedful of the former Pension Minister who pointed out the DWP Select Committee that

anyone advising an employer would “be ill-advised” to formally recommend a scheme.

(Pension PlayPen doesn’t tell employers what to do, we help employers make and document their informed choice).

Commercial arguments that need to be thought about

If you had a choice between investing in an enterprise carrying £460m of repayable debt or one without, you would choose the

debt-free enterprise, purely on the grounds that the debt would need to be repaid before you saw your money back or earned any dividends.

There is a pervading argument that NEST’s debt doesn’t matter, that it is public money and that that money can be written off. I do not buy that argument, nor should Britain.

NEST has set its stall out as a commercial alternative to NOW, Peoples Pension and other workplace pensions and it has received grants (in addition to the debt) to meet its public service obligation.

There exists within NEST’s terms and conditions the right to take money from employers where NEST is unable to manage the relationship commercially without a fee. Employers entering NEST on the basis that “NEST is free” are being naive, uncommercial and if that is what they are being advised, we suggest they speak to their advisers about what they mean.

NEST is currently free to employers, but there is no certainty it will remain so. There is no plan to write off the debt and the National Audit Office are pressing NEST for a commercial plan that shows how it intends to repay the debt to the taxpayer.

Competitive arguments

Monopolies, especially Government monopolies are not seen – in our capitalist world as a good thing. There are some of my friends and colleagues who see the world through another lens and think that NEST should be a state monopoly but they are not democratically elected to decide on policy. Policy has been made in this country by those who were elected and that policy says that employers are required to choose a pension.

As a result of that requirement to choose, new providers came into the market and old ones stayed as workplace pension providers.

They are there to provide something different from NEST and they do.

They are there to be innovative and they are

They are there to keep NEST on its toes and they have.

Finally, they are there either to make their shareholders a profit or to deliver mutual benefits to all involved in the enterprise that supports the workplace pension. This they may or may not do.

To a large extent the capacity of those running non-Governmental pensions (without Government subsidy) depends on their being able to compete in an open market and not in a market skewed towards the Government Pension.

People’s rights

Finally there is a philosophical argument around choice. When Auto-Enrolment was first proposed, many of the decision makers in the DWP wanted there to be only one auto-enrolment pension- NEST.

I remember speaking to Hugh Pym, then chief economic reporter for the BBC in 2012 and him telling me his understanding was the only pension you could auto-enrol into was NEST.

The public often confuse auto-enrolment and NEST to the point that the DWP’s original vision has become self-fulfilling. It is true, many small firms are using NEST as their workplace pension provider for auto-enrolment.

But a very large number are choosing not to use NEST for a whole load of reasons.

  • Some take a very reasoned approach and choose another provider as better for their staff and their business
  • Others take an unreasoned approach and reject the idea of investing in a Government backed enterprise.
  • Others are ushered into other pensions by those with alliances with other providers

Whatever the reason for not choosing NEST, those who do, should not be told that they have created more liability for their businesses by doing so.

They are simply exercising their right to choose. A right that has been granted democratically by act of parliament and a right that should not be curtailed by the DWP.


It’s common sense that to make auto-enrolment to work over time, we need to get contribution levels up. It’s common sense that people will only accept more and more of their salary being siphoned into a workplace pension, if they trust that workplace pension.

The workplace pension is not chosen by the employee (whose money is invested) but by the employer. If the employer chooses NEST because he’s told it’s “no-risk” by his accountant or the Government, he hasn’t engaged in the positive aspects of saving for the future.

The employer will have trouble explaining why he chose NEST to staff and staff will have trouble working out why they should bother with this NEST pension about which the boss hasn’t a clue.

Employers are asked to choose a pension, not in a random way, nor on the basis of it being “no-risk” but as a fiduciary, acting in the best interests of staff. The DWP position is antithetical to engagement , it encourages employers to disengage with the workplace pension.

Whether this is out of blind loyalty to NEST or because the DWP is more interested in compliance than outcomes I don’t know, but either way, there is no tenable argument for dumbing down the employer’s decision in the way the DWP is doing.

A call to action to the DWP

Whether on philosophic grounds, commercial grounds, competitive grounds or purely on grounds of suitability, employers have the right to choose a pension. Not only have they the duty to choose a pension.

Though legislation does not say this, it is expected of employers – there being no reason why they wouldn’t – that they should try to choose the best pension for their staff and their business. This is because we regard the employer as having a fiduciary care of staff which extends to things such as staff welfare in the workplace, compliance with wage legislation, the collection of income tax and a host of other employer duties we could call “fiduciary”.

I have no idea why the DWP want to promote NEST as they are doing. I think it is wrong of them and I think the DWP Select Committee think so too.

Frank Field concludes the section of his Select Committee’s recent report with a call to action for the DWP,

We recommend DWP use their response to this report to make a clear and comprehensive statement about an employer’s potential liability. DWP should also confirm where liability will fall if a scheme performs badly or fails. This would provide reassurance to small and micro-employers choosing a scheme.

We hope that the new Pension Minister Richard Harrington is making that a priority and that he is shown this article as an argument for the promotion of choice in a more reasoned way.


Richard Harrington – the new Pension Minister


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Workie off balance-Frank to the rescue!

An everyday story of kleptocratic mismanagement

Here is an extract from the recently published conversation between the DWP Select Committee (Frank Field & Co) and the DWP (under new management).

You are always supposed to read the source material first, so I’ve laid it out as it was published. My little rant is set out at the bottom!

Selecting the right scheme

Employers are responsible for selecting the appropriate AE pension scheme for their employees.

Employers are free to choose any qualifying pension scheme that is willing to accept their custom in order to comply with their automatic enrolment duties. TPR told us that selecting a scheme is one of the most significant challenges for smaller employers:

Concerns include finding a scheme that will accept them, ensuring they make the best choice of scheme for their employees, addressing the risk of challenge from their staff if the scheme is not well run, and making sure that the scheme they choose works with their payroll software.57

32.CIPP highlighted a particular concern among employers about future legal action against them by employees if it appears they selected an inappropriate scheme or could not demonstrate they had taken adequate steps to choose an appropriate one.

58 The Minister (Ros Altmann) told us that anyone advising an employer would “be ill-advised” to formally recommend a scheme.

59 For the smaller employer, reliant upon their payroll bureau or external accountant, there is a distinct lack of clarity regarding where a potential liability for “advice” would fall. They assured us, however, that employers themselves would not be liable for poor scheme performance. Charlotte Clark said

“If you are an employer and you have made a decision, there is no liability—that is clear in the legislation. If you have decided to go with NEST rather than NOW: or People’s, there is no liability that can fall on you as an employer”.60

33.Whilst this answer appears definitive, legal experts suggested the situation may be more complicated. Tristan Mander, a pensions lawyer at Ward Hadaway, said “it would be unwise to interpret such a statement as providing a safe harbour for employers, as it only addresses one source of legal obligations”

.61 His view was that employers will need to be able to demonstrate that they took adequate steps to ensure they selected an appropriate pension scheme:

The courts are very unlikely to decide that arrangement B ought to have been chosen over arrangement A, as that is qualitative decision that is outside of their remit, but they are now likely to find that an employer failed in its duty to follow proper process in taking its decision and hence they will find the employer liable for any loss suffered directly as a result.62

34.Catherine McKenna, Global Head of Pensions at law firm Squire Patton Boggs, told us that there was uncertainty about who would compensate employees for poor scheme performance:

For example should it be the fund provider, the IGC [Independent Governance Committee] if they failed to identify and report poor governance or the employer for failing to appraise the IGC’s adequate monitoring of the default fund?63

She said that clarity was needed on where liability would fall and that DWP should confirm to employers that “engagement and compliance with the minimum governance standards is sufficient to discharge them of liability for poorly performing or failed default funds.”64

35.In her evidence to us the Minister said that employers needed to be very careful to choose a decent scheme for their employees.

65 Tristan Mander told us that “the need to suggest such due diligence implies by itself the potential for liability.”

66 He told us that employers need not go to extreme lengths in choosing a scheme but that they should exercise good decision-making hygiene, take proportionate steps and record their genuine attempts at finding the most appropriate arrangement to utilise, should anyone challenge their decision in future.67

36.The Department have stated unambiguously that employers are not liable for their choice of AE pension scheme. Legal experts, however, have told us there could be grounds for legal action if employers cannot demonstrate due diligence.

We recommend DWP use their response to this report to make a clear and comprehensive statement about an employer’s potential liability. DWP should also confirm where liability will fall if a scheme performs badly or fails. This would provide reassurance to small and micro-employers choosing a scheme.

Kleptocracy  at the DWP

I’ve read this a few times and come to the same conclusion on each occasion. Much as I like Charlotte Clark, she is dead wrong on this business of choosing a pension. I attribute this to an overly protective mother-hen relation with NEST.

NEST is the baby of the DWP and it’s midwives were Charlotte Clark and Helen Dean (now NEST CEO). I am not calling on either to “kill their baby”, but I don’t think she (or Helen)  are best placed to opine on NEST’s safe harbour status.

NEST is a good choice for most employers, a bad choice for some and for a very few, it may be the only choice.

It is not or the DWP to state If you have decided to go with NEST rather than NOW: or People’s, there is no liability that can fall on you as an employer.

That is not in the legislation and any employer who relies on that as an argument, will have “failed in its duty to follow proper process in taking its decision”.

The DWP have highlighted a flaw in the DWP’s approach to workplace pensions. It is the flaw that leads to the crumby choose a pension pages on tPR’s website. If the DWP doesn’t make it clear that there is material risk in not following due process, that NEST is not a safe harbour and that in many cases NEST is not the best choice, then it itself will be open to litigation.

Don’t let Workie become WASPI!

DWP should be only too aware – from the problems it has with WASPI -that sticking its head in the sand and hoping the problem will go away, is not the way to deal with the situation.

The DWP know perfectly well that the private sector is providing resource for employers to choose a pension in an appropriate way and that that resource is now readily available to employers at a reasonable cost.

Rather than stick by its pet scheme (NEST), the DWP should accept that NEST is just one of many good choices and promote choice rather than NEST as the big success story.

In doing so , they will be promoting the employer’s right to choose what is best for staff. This should lead to greater engagement by the employer in its “Workie” and this in turn should lead to greater promotion of workplace saving to employees.

The DWP Select Committee, Power in the darkness -right on!

Well done Frank Field and his gallant crew. Calling for clarification on choice is exactly the right thing to do. Well done for challenging the DWP’s mother hen act with their NEST egg. Well done to Tristan, Catherine , Andy and the CIPP and well done the former Minister.

The consequences of hundreds of thousands of employers sleep-walking into workplace pensions are unknown. Staff have a right to know not just where their money is invested, but why the employer made that choice.

It is difficult for civil servants, for whom gold plated pensions are laid on by the Government, to understand these dynamics, but not impossible. I hope that they will take up the challenge of the Select Committee and that, when they do, they will come and talk to Pension PlayPen.

Power in the darkness

Right on

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Get off your boat, get back to the Regulator, go and write a whacking big cheque.

Philip green

(Sir) Philip Green

A paraphrase of Frank Field’s advice to (Sir) Philip Green, after the publication of a damning report into the failure of governance that Green created in his 15 years in charge of BHS.

Here is his press comment

“One person, and one person alone, is really responsible for the BHS disaster. While Sir Philip Green signposted blame to every known player, the final responsibility for up to 11,000 job losses and a gigantic pension fund hole is his. His reputation as the king of retail lies in the ruins of BHS. His family took out of BHS and Arcadia a fortune beyond the dreams of avarice, and he’s still to make good his boast of ‘fixing’ the pension fund. What kind of man is it who can count his fortune in billions but does not know what decent behaviour is?”

The 60 page report published today by the joint DWP and BIS committees is not going to be the end of the matter. But painful as it sounds, about all that we as a nation can do to restitute the 11,000 jobholders and the 20,0000 in the BHS pension scheme, is take away Green’s knighthood.

Such is the danger of running business on trust and through trusts. The Pension Fund trust that Green sponsored is short a minimum of £570m and by 20th August all BHS stores will be standing empty. The cost of Green’s actions will be felt by those who have least while the boats keep coming, a new one only this month.

Social justice?

This is the first big test for Theresa May’s social justice agenda. If this is not social justice writ large accross the July sky – what is?

A failure of regulation?

Green was able legitimately to flout good corporate governance in return for an easy life in the South of France. He handed over BHS to Chappell with a minimum of fuss for the consequences and was able to do so without the Pension  Regulator even knowing. This came as a surprise to me as I had assumed that I’d supposed the company needed to get “clearance” for such a major change , apparently not.

The report criticises tPR for being slow (it took them four months to respond to BHS proposal for a 23 recovery period. But the report does not blame tPR for the mess nor its clear up. It points out

TPR is, however, yet to receive a single detailed proposal for resolution or an adequate offer to the schemes

Or a failure of corporate governance?

To my mind, the Pensions Regulator stood in a queue waiting her turn to speak. The rules that control the transfer of ownership to fit and proper people did not work. The damage was done well before we got to the pension scheme. Green and his lawyers had found a way to offload BHS and its debts and the law was his friend.

A failure of trust?

The actions of our corporate leaders are governed by an ancient system of trust law that assumes that businessmen will not behave like medieval robber barons. By and large it works and Britain benefits from the light touch.

However, when a Green or a Maxwell takes it in their mind to ignore fiduciary duties, it is dependent on those who are expert and can see what is going on to cry foul.

I know, from writing this blog, that should you point fingers at bad governance, you will get little praise and plenty of dirty looks. You do not get the help of the authorities, you get the attention of lawyers.

A need for a more open and transparent way of doing business.

I do not want to see Britain abandon its finely honed and well balanced system of corporate and pension governance. I want to see it strengthened by ensuring that more people can see what is going on and that bad actions can be exposed without the fear of threats.

We are a civilised country, we should be proud of it. Our country has no place for the vulgar and morally bankrupt Green. He and his Topshop models can pedaloo around the Med, but no decent British person will wish him luck.

We can look to Scandinavia to see better governance at work. We can look to some of our close neighbours in Europe, especially Germany and the Netherlands. Whether we are in the EU or not, we can work to bring our standards of transparent good governance to the standards of these countries.

We cannot and should not abandon the Greens. Field is right, this is not the end of the story. The consequences of their actions are felt by the ordinary people who were “getting by” and now are struggling.

I hope that we will see social justice at work and firm and decisive action taken from the top down. Over to you Theresa.


green shild stamps

Green sheld


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Wake up to the PPF!


It was good to oversleep and wake up not to the lark (metaphorical here in EC4), but to Alan Rubenstein purring about his Pension Protection Fund.

  • Pension Protection Fund figures published yesterday show the lifeboat scheme has £4.1bn surplus and a funding ratio of 116%.
  • The Pension Protection Fund now has £23.4bn in assets.
  • 10,005 new members entered the PPF in 2015/16, making a total of 225,500 deferred and pensioner members.
  • Between 1 April 2015 and 31 March 2016, 47 new schemes were brought into PPF with combined claims of £475.9m compared with £322m in 2014/15.
  • Of the £2.4bn total compensation the PPF has paid since it was established in 2005, £616m was paid out in 2015/16.
  • Despite this the PPF reckon “We are sufficiently robust to continue to pay compensation to pension scheme members who need it for as long as required”
  • The PPF forecasts it will achieve financial self-sufficiency by 2030 in 93 per cent of scenarios.

(thanks to Jo Cumbo’s twitter feed for this)

A benchmark for NEST

By any measure, the PPF is one of Britain’s pension success stories. One of the tasks ahead of new Pension Minister Nick Harrington is to explore the future of NEST. My views on what NEST should and shouldn’t do are set out in my response to its recent call for evidence.

Despite being in la maison du chien for my criticism of NEST’s CIO for fronting the IA Advisory Board, I hope that NEST regard me as one of their fans (I am). I want NEST to be as good as the PPF (it currently isn’t) and here are my suggestions for Nick Harrington, learned from the PPF.

  1. NEST needs a target for self-sufficiency, as adopted by the PPF. NEST currently owes the DWP £460m , that debt does not need to crystallise but it shouldn’t be written off (as NOW’s £50m loan from its Danish parent appears to have been). NEST needs a financial plan and a target for getting rid of its debt.
  2. The PPF is not dependent on intermediaries. It has brought its fund management in house , is not dependent on third party administration and has keen control on its strategy , costs and execution. The same cannot be said for NEST, which outsources its asset management, funds administration and member record keeping. NEST should consider following the PPF and maybe even merging its investment function with the PPF.
  3. The PPF’s reporting is clear , concise and focussed on the job in hand. NEST’s reporting is erratic and without the same focus. The simple measures with which the PPF reports (see above) are consistent and intelligible. NEST needs to develop a reporting structure with the same consistency and clarity.

The future of the PPF


Alan Rubenstien of PPF

Of course the PPF is not competing, it is complimenting. NEST on the other hand is competing for market share and competing hard.

Some industry commentators (Kevin Wesbroom at the fore) have suggested that the PPF should actually compete for the running of failing occupational pension schemes and be allowed to take over the management of the assets and liabilities of an occupational scheme and continue to receive funding from sponsors (and members).

The PPF has not jumped at the chance and there are many actuaries , investment consultants, administrators, lawyers, auditors, custodians etc. who would regard the opening of the PPF’s gates to live schemes as a step too far.

But I think more consideration should be given to this idea.The precedent has been set within the LGPS with the pooling of assets to create greater economies of scale. The inefficiencies of the large network of small DB plans is obvious, there is too much intermediation for the good of sponsor or member and the expensive infrastructure small schemes carry is at risk of breaking the back of scheme solvency.

The future of NEST

HElen dean nest

Helen Dean- CEO of NEST

With NEST , things are the other way round. While NEST has yet to achieve the efficiencies of the PPF it is trying to sell its way out of its public debt by taking on assets already in the private sector.

I believe that this is a good thing for it to do but not before it has

  1. Worked out its financial plan and set firm targets for absolute self-sufficiency (repayment of the debt)
  2. Reduced its intermediation by sacking most of its fund managers and bringing some or all of  its administration in-house
  3. Found a way to report to the market which is as clear and useful as the PPF.

I expect that there are a few other things it needs to do as well, such as getting rid of the lawyers who threaten me with Ultra Vires nonsense.

NEST could become Britain’s first and greatest collective “decumulator” of DC pots – or – to speak in English – our default way of spending our pension.

I wouldn’t be against that. The PPF has shown that a competently managed State Enterprise can succeed and NEST has all the makings of being the next PPF.

But it needs to be clear in purpose and (like the PPF) sensitive to the environment in which it operates. NEST is not (as is the PPF) one of one. It is one of many and competes for its inflows with some pretty good competition.

NEST’s USP is not that it is a better pension (it’s good but not that good) , it is that it carries the public service obligation (for which it has been given money).

Post April 2017, NEST will compete with the rest of the market . It has the advantage of having had £460m of our money as a loan and will continue to benefit from that money, however, like the PPF, it needs to prove it is worth the public’s money.

Thank goodness for the PPF

It was good to oversleep and good to be reminded of Alan Rubenstein’s good stewardship as I opened my ears!

It is good to have the PPF and it’s good to have NEST. NEST and PPF should be working closer and NEST should be sitting at the PPF’s feet and learning.

There is a strong argument for the two funds sharing services as well as best practice and I have a misty long term vision is to see pooling of assets between the two.

Most importantly , we should celebrate our successes and the PPF is one. If Richard Harrington want encouragement , he should be aware that it’s not just auto-enrolment’s that’s working.


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So when will Workie go robo?


Channel 4 did a Dispatches this week on the perils for employers in choosing a pension. I think I am off Dispatches’ Christmas Card list since telling them that annuities weren’t a rip-off at the back of 2013. In any event I wasn’t asked for my views, haven’t seen the program and am grateful to Husky Finance who appeared to have flown the flag for informed choice.

Regulatory pass the parcel!

On the same day the program was screened, I received a call from the FCA querying why I wished to take part in their “robo-advice”pilot. I explained that http://www.pensionplaypen.com was a way to help small and micro employers choose a workplace pension and – as the decisions being taken, impacted individual people- I wanted to inform and be informed by what the FCA were up to.

The nice man from the FCA suggested I might better be having the conversation with tPR . I explained that the nice man at tPR had suggested I had the conversation with the FCA. In short, neither tPR or FCA see it as part of their regulatory remit to regulate what advice or guidance is given to small employers on how to choose a workplace pension.

Let’s not dumb down workplace pensions

The standard view of the workplace pension, is Workie, a giant cartoon character who is appearing on your screens interrupting BAU in car mechanics, hairdressers and public parks.

I like the awareness campaign, but this is not the warm up for the AE Olympics, this is the real thing. Every week some 50-100 employers choose a workplace pension using http://www.pensionplaypen.com and they do not choose on fluffiness, hair colouration or ponderosity (ponderousness?).

Even at robo-prices (£199 folks), Pension PlayPen is ignored by most employers, the majority of whom are scooting off to the big master trusts without leaving any audit trail on how they came to take this retirement shaping decision for their staff.

It’s a bit like taking your maths exam and not showing your working. If you get the right answer- fine, but what if you don’t!

Employers choosing a Workie without showing their working are being dumb to themselves and exposing themselves to their current staff and future generations of staff as numpties.

So my view of workplace pensions and Workie aren’t quite congruent. I would like Workie to lead those about to stage auto-enrolment to places like Husky and Pension PlayPen so that people don’t get Workie- but the right Workie.

Pension choice is already digital- robo- it’s happening!

It is in the FCA’s and tPR’s best interests to study what is going on when employers make decision on workplace pensions. We now have anonymised data of tens of thousands of employers who have either used our workforce assessment (free) or our choose a pension service.

That data shows remarkable things about what employers value and why. It shows the time and effort that employers and their advisers take in making a decision and most importantly , it provides a big data-set on what decisions employers are actually taking.

Pension PlayPen  does not take money from insurers to be included, we cannot be accused of bribery as our research comes from an independent actuarial source- First Actuarial. Our choice process (algorithm) is independently audited and we have been subject to intense scrutiny as a result of third party due diligence.

We want tPR and the FCA to take Workie Robo and we’ll show them how. We are proud of our technology and we’re proud of the workplace pensions that sit on our platform.

People stop moaning – help is at hand.

I haven’t watched the program, but the thread on our linked in group started by the wonderful Steve Brice, suggests that the program moaned a lot about the lack of choice for employers – and means to make a choice.

I do not have a magic wand that can advertise Pension PlayPen to all 1.6m (my estimate) employers still to buy a Workie. I rely for publicity on those organisations that give a monkeys about employers getting the right workie. TPR continue to run a website which tells people choices are available but gives people no means to make that choice.

The FCA continue to run “Project Innovate”, the innovation hub, sandbox and whatever but their focus is on non-advised at retirement decision making 

If Dispatches cannot be bothered to talk to me- then I can’t be arsed to talk with them- they are supposed to be investigative journalists- i am not spending money (and putting prices up) to hire a PR team.

If the FCA cannot find a way to incorporate workplace pension decision making into Project Innovate, then I don’t think they are being innovatory at all!

And if tPR can’t take Workie-Robo, what chance the millions of employers they are supposed to be helping, making informed decisions?

Workie will go robo!

But in case anyone is in any doubt, Workie will go robo, it may not be thanks to Government , it certainly won’t be thanks to the investigative journalists of the Dispatches team, but it will be thanks to the vision of some very important people in payroll and accountancy.

Because there is no stopping auto-enrolment, nor auto-decision making on workplace pensions. Because – in the end – people will see sense and the right thing will happen.

Watch this blog – Workie will go robo very soon indeed.

taps on pension playpen


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No! Pension Minister!

caroline nokes 2

Our new parliamentary under-secretary Richard  Harrington


 Did she jump – was she pushed?

Speaking on Vanessa Feltz’s LBC show this morning  (goo.gl/LQ99b8 1:17:20-1:31:21) , Ros Altmann said it was a bit of both.

The events since her “resignation” suggest that the role of Pensions Minister was a luxury Theresa May felt she could do without – there will be no pension minister going forward. This blog charts how events have turned out and suggests that the door is now open for the Treasury to take the P out of the DWP.


Baroness Ros Altmann, CBE

House of Lords, London SW1A 0PW

The Rt. Hon Theresa May

Prime Minister

10 Downing Street, London SW1A 0AA 15 July 2016

Dear Theresa,

Congratulations on your appointment as our new Prime Minister and I am so delighted that our country will have the benefit of your wisdom, good sense and experience.  I believe you have the qualities most needed – not least your determination to pursue policies in the long term interests of the country as a whole.

I am honoured and grateful to have had the opportunity to serve in Government and look forward to continuing to advise on pensions, finance and later life policies from the House of Lords benches.

As an economist and investment professional who has been involved in all aspects of pensions for nearly 40 years, I am at heart a policy expert, rather than a politician.  I have spent my entire career trying to help as many people as possible enjoy better later life incomes, encouraging consumer protection and social justice.  

As a Minister, I have tried to drive positive long-term changes on pensions from within Government and ameliorate some of the past mistakes which I have cautioned against.  Unfortunately over the past year, short-term political considerations, exacerbated by the EU referendum, have inhibited good policy-making.  As the country heads into uncharted waters, I would urge you and your new team to enable my successor to address some of the major policy reforms that are needed to improve pensions for the future.

It is vital that we continue to roll-out the successful auto-enrolment programme to ensure all employers offer pensions to their staff.  Regardless of the economic challenges, everyone will need to have some money set aside for later life and pensions are the best way to do so.  We must, too, address the crisis in social care funding and help people provide for potential care costs as well.  In order to help fund this, we should look to develop a ‘one nation’ lifetime pension.

A ‘one-nation’ pension – long overdue reform of pension tax relief:  Our present ineffective and complex incentive structure for pension saving costs over £40billion a year.  It favours the highest earners disproportionately, while leaving lower earners seriously disadvantaged.  We need a radical overhaul of incentives, which can offer more generous help than basic rate tax relief, but as a straightforward Government pension contribution for all, and would end the discrimination against Britain’s lowest earners who are forced to pay at least 20 per cent more for their pension than higher paid workers.  This ‘one nation’ pension would see withdrawals taxed in later life, so that people have a behavioural incentive not to spend the money too soon.

A major review of Defined Benefit pension scheme funding and affordability:  We must urgently assess the future of our Defined Benefit pension schemes.  Given the risks of diverting corporate resources to one favoured group of workers, the need to ensure adequate resources for younger generations’ pensions, the time is right to properly consider the issues facing employers trying to support Defined Benefit pension schemes and potential use of pension assets to boost economic growth.

Fair treatment for women and better communication on State Pensions:  On the issue of women’s state pension age, whilst I respect the democratic decision taken in 2011 by our Parliament, I am not convinced the Government adequately addressed the hardship facing women who have had their state pension age increased at relatively short notice.  They were not adequately informed.  I also believe we must devote resource to widely communicating and publicising the coming changes to state pension age for both men and women.

I remain deeply committed to helping our great country make better pensions policy for the British people and to planning ahead for the long-term future of our ageing population.  I stand ready to help my successor and to offer my policy expertise.   As you set a new course for our country at this very difficult time, I wish you every success.

Yours truly,

Ros Altmann

This is the Ros Altmann’s resignation letter. She will be succeeded by Richard Harrington


Her Ministerial obituary

I am very sorry to see Ros Altmann go, though she may be able to do as much good from the Lord’s benches as she was allowed to do from her position of office.
She was made to make policy but not as a politician. She made no policy in her fifteen months in office though the Pensions Bill is in the making.
During her tenure, she put on hold two of Steve Webb’s ideas, the Defined Ambition and Pot Follows Member initiative which stand like half completed buildings.
During her time , the New State Pension arrived and so did the problems for some women over state pension inequality.
During her time, companies with defined benefit schemes continued to fail.
The major reform she wanted to see, that of our pension taxation system, has not been put to parliament, instead there has been further strengthening of the ISA product with the LISA product.
The idea of a “one nation pension”, mentioned in her resignation letter appears to be flat rate, EET and still-born.
Like Ros herself, the one nation pension taxation system never found a voice. The statements she will be remembered for are those she made for herself, the first at the point when Ian Duncan-Smith resigned, the second at the point of her resignation.

Ros Altmann’s appointment – A brave experiment or a cynical stunt?

The experiment has failed but there are positives. The Pension Auto-Enrolment project continues to prosper, the PPF is going from strength to strength and we look to be making progress through the Treasury towards a pension dashboard.
There are a number of initiatives that struggle on , largely unloved, secondary annuities are still on the table, we are slowly working towards some definition of value for money with which we can measure the performance of our workplace pensions and the Pension Regulator’s DC code is moving forward governance of occupational schemes (including workplace master trusts).
But pensions are assailed by “bad ju-ju”, most especially by scammers looking to “liberate” our good pensions into their back pockets. Pension Wise exists but is not doing all that it set out to do and will need more help if it is to provide the first line of defence, let alone put pension savers on the front foot.
The FCA’s recently published terms of reference for the Retirement Outcomes Review show how un-joined up FCA and tPR regulation still is. The Treasury are more than ever in the ascendency and – as we suspected would happen at her appointment, Ros Altmann’s positioning has simply left the door open.

A smooth handover?


Taking the P from DWP

 As Paul’s tweet shows, there is  confusion about what happens next (suggesting that the DWP weren’t prepared for succession)
Ros Altmann’s departure would have left  the Pension Ministry to either Penny Mordaunt or Damian Hinds .  Despite reports in the pension press that Penny Mordaunt has the post, we were left waiting for an official announcement.
Penny is mainly known for jokes about cocks, appearing on Splash and for comments on Turkey’s likely joining the EU. She is to be Minister for the Disabled

Penny Mordaunt

Damian Hinds is either less or better known (possibly both), he is to be Minister for Employment
damian hinds

Damian Hinds

Caroline Nokes couldn’t get the job , but she is charged with welfare delivery and is an under-secretary.
caroline nokes

Caroline Nokes

Which leaves us with the extravagantly attired Richard Harrington -parliamentary under-secretary for pensions,  PENSION MINISTER! – but not a minister of state,

Richard Harrington

What pensions knowledge there is in parliament , is within the Pensions Select Committee and in the Lords but as the comments below point out, that’s not saying a lot.
In a well judged piece in the Daily Mail, Rachel Rickard-Strauss laments the loss of Altmann and expresses concern that Richard Harrington is not being given the leg up a full Minister of State would have got.
Let’s hope that Richard Harrington ,our new Pensions under-secretary will be supported by the excellent DWP policy team headed by Charlotte Clark. Just as we need an opposition to Conservatism, we need an opposition to the Treasury. Right now, we don’t have either.
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Walk walk walk – not talk talk talk


I have just read an article by Sophie Baxter that puts numbers to the failure of David Cameron to create a one nation Government. It explicitly draws parallels with Cameron’s oration to the nation on entering #10 six years ago. It may even remind us of the abstractions of Margaret Thatcher as she quote St Francis Assisi.

It excited that nervous sense of unease that developed in my stomach as I heard Theresa May talk last night about social justice. We have been here before and nothing much has changed.


I won’t rehearse Sophie’s arguments, but I will draw specifically on my experience of working in financial services in the years since the coalition.

For all the promises of a fairer and more consumer centric pension system, little has changed (for the better)

  • the great defined benefit schemes, forty years in the making, have crumbled as a result of low market returns, negative gilt yields and mark to market valuations
  • the annuity system that underpinned defined contributions has collapsed and been replaced with the freedom to take financial advice, be a fiscal muppet or try some DIY retirement income fix.
  • the costs of our pension saving remains unknown, know fraudsters stalk the savings of the most vulnerable, a financial institutions convicted of fraud administers our national retirement savings plan

Worst of all, our retirement savings system persists in offering tax hand outs to the rich and little or nothing to the poor. We give 45% tax relief to our wealthiest but we don’t even pay the promised savings incentives to the poorest in the net pay system.

This is allowed to happen by the great pension authorities, the DWP, tPR, PLSA, PMI and FCA.

Today the last of these, the FCA has published the terms of reference for its Retirement Outcomes Review.. We will be responding to it forcefully.

We can’t rely on the past to make good the future

Yesterday a senior member of the Investment Association wrote to me , hours before Theresa May got up to speak with these words.

I’ve never fully understood why and when it became so personal between you and the IA, but it’s a shame. 

It is not a shame. What is a shame is the abject lack of accountability of those like me who have been priviledged with a good education, inherited wealth and all that society could give, to help create a fair society for those who are coming behind us.

The point of the Transparency Task Force was not to cause civil insurrection , or to exercise the personal demons of Henry Tapper, but to make it easier for those who own the pension rights, whether insurers, trustees or private individuals – to understand and take control of the costs of money management.


What I have seen in Government (particularly since May 2015) is the failure of those in a position of power, to exercise that power for the benefit of what Theresa May yesterday called social justice.

The burning injustices that May referred to yesterday do not go away by having an easy time at the Investment Association. The difference between “just managing” and not managing , can be down to the amount taken out of our lifetime of savings. It can be down to not getting a Government incentive on your pension contributions, it can be down to having a proper plan to spend the money saved for retirement.

Since 2015, this Government has taken away the opportunity many of us  were giving our time to (at nobody’s expense but ourselves) to create a collective way for people without the means to pay for advice, without a DB pension, to avoid an annuity, cash or drawdown. I am referring to the blocking of progress towards a CDC solution for “decumulation”.

The aims to reform tax relief to make for a fairer means to spend our nations money were deferred from last year’s autumn statement to this year’s budget and then shelved in favour of not upsetting the public before the referendum.

The promise of a fair system of workplace pensions resulting from the OFT report has been all but extinguished with what little hope we had for a proper way of understanding value for money buried by a timid FCA, a plethora of greedy consultants and the dead hand of the Investment Association.

Braver and Stronger

If we are to have that fairer society that Theresa May talked of, we will need to be braver and stronger than we have been till now.

That means doing stuff, not talking about it. NEST should do something about lending their CIO to give credibility to the IA’s filibustering (rather than threatening me with Ultra Vires writs).

Ros Altmann should reinstate the CDC regulations writing so we can have a proper default for spending our DC pots by 2019.

Hammond should dust off the proposals left dusty on George Osborne’s top shelf and  institute a root and branch reform of the taxation system which so unfairly underpins pension saving.

Above all , we should turn the hearts and minds of our nation of small business to the advantages of workplace pensions, what it brings them as employers and how their staff can benefit from the work they do , the money they earn

This cannot be done with words, it must be done with actions. I will continue to do my bit through http://www.pensionplaypen.com and through promoting the great work of my employer First Actuarial.

Do I think things can better?

They cannot get any worse than the disaster of the last 14 months.


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What rights do banking customers still have?


I received a letter out of the blue from Scott Miller, Head of Customer Services at Barclays. It’s a pro-forma and it included a new credit card, if it hadn’t, I’d have not read it.


Not so great I thought, so I looked this Scott Miller up on Linked In and found we had a number of people in common, so I sent him a linked in mail.


Over the last week I got a letter from you about my i24 card, which is now a Barclays Infinite Card.

I signed my agreement with another company but i24 transferred to you some years ago. Since the transfer, the original point of the card has been diminished to the point that it became just another credit card. I guess I stayed with you , because life is too complicated to change.

But your letter has prompted me to ask some questions.

Firstly , I am changing from mastercard to visa – I bought mastercard – what does this mean?

Secondly, I am going to have to change all my payment processes that depended on my using mastercard- this is very inconvenient – I did not ask for this – why must I do it?

Thirdly, what is happening to my existing benefits with i24 – travel lounge, insurance, cashback, concierge and is the amount I have to pay for Infinite the same as for i24?

I am sure that in my mail somewhere is the answer to these questions, but I don’t have time to read your unsolicited mail – whichI get every week. I want to be treated fairly and it may be that I am being treated fairly but I am confused.

I don’t want to ask questions to your Mumbai call operators with their telephone scripts , the call-backs that never come and their lack of accountability. I don’t have time to go through the complicated robotics to speak to the right person.

Instead I want to speak with you Scott Miller, Head of Customer Services and ask you what you think I will gain from having to switch to Infinite. So can you please call me on 07785 377768 or mail me at henry.h.tapper@gmail or simply respond to this linked in mail.

I am a keen blogger and have posted this mail to my site, I hope that we can conduct this correspondence in a pleasant way so that the more general issues I raise about TCF, the rights of customers and the capacity of us as individuals to deal with other individuals is maintained.

Perhaps we can also get linked in!

I haven’t heard back from Scott but I only sent this 5 minutes ago and it’s early in the morning. I will publish our correspondence as I genuinely don’t know what rights I have to what I bought or whether I am simply bound to accept whatever I am given (or hand back the card).

The interesting thing is that I don’t really see the point of retail banking going forward. PayPal is so much easier and I suspect cheaper. The reason I bought this card was I was told originally that if I had a problem I would not have to deal with an overseas call centre and that I’d get a personal service.

Those promises went out the window years ago, The new card- which looks identical to my First Direct debit card,was never part of the script.

Old skool banking

I’d like to think I was part of a banking revolution and that there was an upside to “infinite”, but Scott’s letter itemises only the payment protection insurance that all cards have by law. What makes me laugh is – despite me paying my bills by DD from my bank account, Barclays send me my cashback by cheque!

Here’s the latest one, together with a £50 note – just in case you don’t remember them either! (actually the note is really a serviette but don’t worry about it!


I had lunch with a nice man from the HSBC on Friday and we discussed the point of HSBC to retail customers. They have the excellent First Direct and I pointed out that First Direct do everything I want from a bank and more. I also pointed out how exasperated they get when they have to do things the HSBC way.

My conclusion is that big banking needs to become small banking. I love going to Metrobank, I look forward to speaking to First Direct and I very much hope I will be able to have a constructive conversation with Scott Miller to get answers to my questions.

If you have banking queries of this nature, I’d be interested to hear your views. Please post in comments so we can keep a little dossier. I am not saying Barclays is crap, but I suspect that what is happening to me, happens to a lot of people, and that we are made to feel like crap.

That’s not what should be happening, and Scott- I hope it’s something you can help put right!

Barclays cropped

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Tactical transparency from the Investment Association


The Investment Association’s terms of reference


Professional Pensions reports that the Investment Association (IA) have appointed senior pension figures to advise the it on a new disclosure code for investment costs.

Helen Morrisey, the paper’s editor is optimistic

I’m sure the process will be challenging but I have no doubt this panel, which also includes representatives from the Local Government Association and the Transparency Task Force, are up to the job of helping to create something that enables schemes to have a truly informed view about what they are paying to who. I wish them luck!

I am not optimistic.

I would have sooner made Tony Blair editor of the Chilcott Report than put the IA in charge of a disclosure code for investment costs.

The Investment Association represent the interests of the fund management industry and (since its merger with the investment wing of the ABI) the insurers. It’s job is to represent its members interests and those interests are to generate profits for shareholders, bonuses for senior managers and to do so out of the funds of unit holders and policy holders.

There could be no clearer conflict of interest.

In order to absolve themselves from these conflicts , the IA are setting up an independent committee. Independence is critical for transparency but this committee is neither independent or transparent.

Firstly it needs an independent chair

Mark Fawcett , CIO of NEST is to be chair of this group, he is not the right person for the job.

I like Mark Fawcett – he is a clever man and I’ve endorsed him many times (see his Linked in profile). However he is not (IMO) – the person for this job.

His high profile role lends the IA advisory board a quasi-governmental authority. It has no authority, the IA is a lobbying association for the funds industry.

NEST is itself in need of greater transparency and I have been very critical of some decisions that it has taken – especially in its appointment of State Street as its funds administrator.

Mark cannot be both advisor on and consumer of an advisory code

Secondly it will be operating under a code of secrecy.

So far we have a press release

Independent Panel to Advise IA on next-generation disclosure for investment costs”

There’s a list of the great and the good to sit on the committee but nothing of any substance.

When Con Keating asked TTF supremo Andy Agethangelou for the committee’s terms of reference, Andy had to admit that he was bound to silence!

Can there be anything more absurd than a confidentiality agreement governing the leader of the Transparency Task Force? Andy appears to have signed his own gagging order against my advice.

Keep your friends close and your enemies closer.

So long as that confidentiality agreement is in place, Andy cannot represent the TTF in this, he can only represent himself, as he has no mandate from the TTF to speak for us.

Thirdly, the Investment Association are not to be trusted .

It is only a year since they booted out their own CEO- Daniel Godfrey– for demanding that the IA adopt a fully transparent code.  Daniel Godfrey is now in the FCA and hopefully will get more luck overseeing the production of the current market review into the funds industry!

The last time the IA put together a voluntary code (in 2012), standards of disclosure actually fell. It is now harder than ever for us to find out how much we are actually paying for fund management. I have little doubt, that with a fair wind, the IA would kick transparency not into touch, but over the fence and into the river.

This leopard has not changed its spots. It is a ruthless organisation that has a decades long history of obfuscation, filibustering and general bad behaviour. It is the enemy of good funds governance and should be excluded from any discussion over codes of conduct.

Too big for the private sector

Taken together, the appointment of Mark Fawcett as Chair, the secrecy surrounding the dealings of the committee and the appalling track record of the IA, make this Committee toxic. It does not have my support even though Andy Agethangelou, in all else -does.

The FCA are reported as wanting the private sector to sort this problem out for itself, but there is no way it can. Even with the TTF and financial consumer groups working together, we would be throwing peanuts at an elephant. The funds and insurance industry laugh at our puny efforts and patronise us with this committee to string the process out a few more years.

The only way that we will see true disclosure is by Government requiring it. It should form the basis of the new charge cap due to arrive in April 2017 (for workplace pensions), it should override MIFID and Prips (both of which look to be post-BREXIT irrelevances). Full disclosure should be the consequence of the call for evidence from the FCA in April 2015 and the outcome of the current market review of fund managers and investment consultants, currently drawing to a conclusion.

It took the Dutch Central Bank to make things happen in the Netherlands and it will take the FCA/Treasury/tPR/DWP to make things happen in the UK.

If any good comes out of this farcical initiative from the IA, it is to show how weak the private sector is in putting its house in order. We need Big Government to intervene, we need proper Regulation with a big R and we need it now.


The Investment Association’s terms of reference

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Property , liquidity and the merit of doing nothing

aviva 3

News that Standard Life , M&G (the Pru) and Aviva have put up the shutters on their property funds is dominating the headlines. We are used to being able to move our money around the market with “impunity”.

I put that “impunity” word in there , because the word is little understood and often misused. It means “without punishment” and if a property fund investor can sell units in a property fund without punishment, it is because of “liquidity”. Liquidity being created either by someone wanting to buy those units or by their being cash in the fund which can be drawn on to meet the demand for a cash pay-out.

What is happening now is that there are not as many buyers and sellers and there is insufficient cash in the fund to meet expected future pay-outs. Rather than sell properties, which is expensive and takes time, the three property fund managers have decided it’s time for a lock-in.

There is nothing wrong with this, there is nothing unusual about this, it should not be headline news- there should be no panic – no run on property and this should be reported responsibly. Let’s hope that people keep calm.



Philosophically, any investment confers property rights on the investor. In practice, most of us haven’t a clue what we own when we write a cheque in favour of a fund manager (did I really say “write a cheque”, that too is an archaic formulation designed to create physicality).

We do not know what we own and have no connection with the profits generated by our investments, we simply see statements telling us of our wealth.

The attraction of property is the tangibility of the investment. One commentator on Radio 5 this morning said that retail property investors are “emotional”, meaning- I think- that they buy and sell with their hearts. I think another word is “engaged”.

Engaged investors want to be in or out of an investment based on fear and greed, in times of greed they fear not being invested, in times of fear, they are greedy for the safety of cash, either way – engaged investors tend to be driven by emotion and they engage with their property rights (to buy and to sell).

It is this small group of engaged investors (and their advisors) who are creating the demand to sell property. I don’t have the numbers, but I suspect that the majority of selling is being done by the discretionary fund managers (DFMs) who buy and sell on behalf of their wealthy clients and use property funds as a form of diversification.

aviva investors


in times of fear, people get greedy for cash (except for Paul Lewis who is always greedy for cash). Now is a time of fear and some DFMs are trying to get liquid rather than holding property. This is odd, as the reason you diversify beyond debt and equities is to create a non-correlated source of return (property often rises when shares fall and vice versa).

I suspect that the reason for people seeking liquidity is that they are trying to beat the market by timing the withdrawal from “property” ahead of what is supposed to be a property crash. This flight to liquidity is exactly the opposite of what long-term investors are taught to do (see Warren Buffet/Terry Smith etc.).

This kind of herd like behaviour is precisely how people (or animals) get trampled on. It is why institutional investors sit on their hands and wait for the panic to subside.

Because when people get greedy for liquidity, the price to “get out” jumps. The cost of liquidity is seen in huge spreads between the buy and sell price. These spreads are no longer published, they are built into the unit price and materialise in your getting less for your unit sale than you imagined.

man from pru

the way we were


The value of doing nothing

There is currently great value in doing nothing, sitting on your hands, remaining calm. This is exactly because our emotions – our intuition – our sentimental side- says “get out”.

But the shopping centre in which your property fund invests isn’t going to stop collecting rents, the warehouse isn’t going to stop storing goods and that office block isn’t going to say goodbye to its tenants. Demand for retail/office/warehouse space may dip and prices may fall back, but the likes of Aviva, M&G and Standard Life aren’t investing in houses made out of straw, the big bad Brexit wolf isn’t going to blow these houses down.

The reason people should invest in property funds is because of the underlying value of property as a means of generating commercial or residential space which is useful for people to work or live in. That value remains – all that impacts short term volatility in the unit price is demand for work or living space.

The great advantage property funds have , is that people can envisage what it is the property fund invests in (even when the actual investment may no more than a derivative!). People know what they are buying into.

People have less ease understanding the purchase of an equity and even less understanding of how to value a bond. I wish that those who act as advisors to retail investors would be clearer about how investments work and about property rights. Too many wealthy people I talk to, tell me of their wealth managers capacity to “hedge”, diversify” and “leverage”. Too few can tell me where their wealth is invested.

I suspect if we knew where our money was, we would be more inclined to leave it there, for that is what investors, investees and the country needs. We need to understand the value of doing nothing.


Since this article was written, a number of other funds have been suspended including Columbia Threadneedle’s, Aberdeen’s and Hendersons’s.

One fund that hasn’t been suspended is LGIM’s. Here is what L&G has to say


Good Afternoon,

In light of recent news, we would like to take this opportunity to convey to our investors that the UK Property Fund remains well positioned in terms of liquidity and asset management initiatives.

Currently the Fund retains over 20% of its NAV in liquid assets – the majority of which is held in cash. In addition to this, the Fund has a pipeline of sales initiatives which will increase its cash position if needed and has a well-diversified investor base.

The UK Property Fund is managed by a very experienced team and continues to receive strong support from rating agencies and advisers alike.   We would like to invite you to join us for a webinar on Friday, 8 July from 9:30am when Matt Jarvis, Senior Fund Manager of the UK Property Fund will cover the following:

  • The current positioning of the UK Property Fund.
  • The Fund’s allocation to liquid assets.
  • Fair Value Pricing and why it is necessary.
  • Some recent examples of ongoing asset management initiatives within the portfolio.





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

Brexit not AExit

keep calm and auto-enrol


Disruption of auto-enrolment happened way before the recent referendum and is set to continue as one of the many unintended consequences of a leave vote.

The ambitious legislative reforms put in place by the coalition’s pension minister Steve Webb were pruned only months into the new administration when Ros Altmann called time on Defined Ambition and Pot Follows Member. It was claimed that these policies had fallen victim to austerity (the DWP simply didn’t have the lawyers to go round) but many pension commentators sensed the dead hand of the Treasury and their obsession with the ISA as its savings plan of choice.


These fears proved correct when after a year of consultation, the Treasury announced it was binning its plans to reform the taxation of pensions in this year’s budget. The excuse this time was “market volatility”, though who now remembers the stock market turbulence of the first quarter? In reality, the Treasury were battening down the hatches in readiness for the June referendum. Talk in Westminster was that nothing radical could risk our continued membership of the EU.


So the first 14 months of the new administration has seen a retreat from the Coalition’s radical reforms, the deferral of the tough choices on tax-relief and now the breakdown of normal Government following a plebiscite that went horribly wrong.


What little cheer pensions have had, has been around the introduction of the new state pension, the ending of contracting out and a movement to a new simple way to understand state retirement benefits. And of course the continuing successful roll-out of auto-enrolment which is now entering its fourth year.


But all in the auto-enrolment garden isn’t rose, indeed some of the roses are thought to be developing canker which is why the DWP has been allowed a small but significant Pensions Bill. Ros Altmann is using the Bill as a chance to introduce some much needed regulation around small master trusts, many of which are seen as unfit for the purpose of carrying worker’s retirement dreams through the next four or five decades.


The smooth passage of this Bill to enactment in April 2017 looks like being the next in what is coming a queue of pension policies that don’t quite make it to implementation.


Pension legislation is front-end loaded with difficulty for politicians. It is very rare for a policy to give a quick win (pension freedoms being the exception that proves the rule). Typically, legislative change caused grief today and delivers well after the politicians term of office has expired.


Small wonder then that we currently have neither a pension minister or a shadow pension minister in the house of commons! The difficult truth is that pensions are the Treasury’s political football and Her Majesty’s opposition has been through three pension ministers in little more than a year.


So despite the heroic efforts of the accountancy and payroll professions to help Workie out, the research and development teams from the private and public sectors have been thwarted in creating a long-term solution to the structural issues that beset workplace pensions.


We still have pot proliferation rather than pots following members

We still have no mass market alternative to annuities

We still have no solution to the nonsense of net pay and relief at source taxation systems

We still have a plethora of master trusts with no obvious means of survival.


So the next time you are called upon to help an employer set up a workplace pensions (whether yours or a client), it’s worth considering just what the outcome of the great AE experiment is likely to be.


I share with the Government an enormous optimism for auto-enrolment’s potential, but I am growing tired of seeing the retirement plans of generations to come being put at risk by short-termism in Westminster.


The coalition government of 2010-15 was a golden era for workplace pensions, it looks like this Government will be reverse alchemists, turning gold to lead.


We have exited Europe through a series of political blunders. If we are not careful we will find ourselves out of love with auto-enrolment for failures of a similarly political nature.

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Women rock

It should come as no surprise to anybody that the two leading candidates for our next prime minister are women. Leadsom and May have survived the BREXIT disaster with their dignity intact and integrity intact.

I would have no worries having Andrea Leadsom as my Chancellor and Theresa May as my Prime Minister .  Leadsom would also make a good Prime Minister.  The idea of this country being governed by women comes as a pleasant prospect after the male dominated “debate” we have just had.

The enormous unlocked potential of female leadership has still to be properly recognised in this country. But as we move from a plutocracy to a meritocracy , we men cannot avoid the obvious conclusion that “women rock”.

My favourite BBC gaffe of recent days is their much tweeted comment


The world moves to the beat of the 19th and 20th centuries when women were subject to this kind of nonsense as a matter of course.

I want to listen to women because they bring a fresh intelligence to the male thought-hegemony that has dominated my world for my past 54 years.

And I am so immersed in that world that I continue to behave like Sid the Sexist, without knowing it! Angela Rayner – who this week is Shadow Secretary for Education, boxed my ears to referring to her as “Colin Meech’s woman” only last Tuesday!

One of the reasons that women rock- is that they can forgive and forget male idiocy like mine! We are all as bad as each other and need re-education!

And so for business as for politics?

Equate the boardroom with the cabinet and the door’s now open, we have yet to see the arrival of equal gender boardrooms but this is a matter of time. The equilibrium will happen as we move towards a meritocracy.

The idea that companies, like countries , can be managed by women, is slowly seeping into our DNA.

The glass ceiling is not being shattered, it is slowly being dismantled. This is not a revolution as I imagined it would be when I was at college, this is an evolutionary progression.

But political and business leadership are just the start. The deepest inequalities between men and woman persist in our social world – in the day to day decision making which regularly relegates the emotional intelligence of women to a distant second place.

Mea Culpa

For us men, recognising that women are natural leaders is not a natural activity. Many of us have sexism hard coded into our brains. We need new circuit boards but we are not going to get them overnight. Instead we are going to have to see the neurological plumbing re-arrange itself over time.

In the meantime- to my female readers – “mea culpa”! And to my male readers, here’s the message

“women rock”.

the sooner we can re-wire – the better!


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Back to business



It will be interesting, when the Pensions Regulator comes to publish its statistics, to see whether the past few days will represent a downward spike in engagement over auto-enrolment. Certainly our stats at Pension PlayPen suggest that less decisions were taken last week then for several weeks before – but ours is too small a sample.

Business needs rules, the source of the rules – Government- needs to be respected. The current failure of Government to govern is worrying. Such a lead can lead to a more general lawlessness.

Auto-enrolment is an ongoing process, we are still only in the foothills, the peaks of 2017 are in view but we don’t need to be dismissing the sherpas right now.

All over Britain , kids are taking exams at the end of term, soon we will be heading abroad and economic slowdown will continue through to September.

With this sense of unreality engendered by the situation in Westminster and in Europe, it is easy to see Britain taking the forebodings of Remain as a self-fulfilling prophecy. There will be nothing easier than to see Britain slip into recession, it doesn’t take any work at all!

I am attracted to business-like people and the talk of Andrea Leadsom is that of a business person. It is why I like Ros Altmann, not just as a person but as a Minister – she is business-like (an advantage she has over her predecessor).

It is now incumbent on those who have created this mess – the politicians – to get their heads down and really get to work. I am actually going to the Conservative Party conference in October and I look forward to seeing some work done there (unlike last year).

Right now – I am sitting on a boat – four miles East of Henley – awaiting day five of the regatta. The highlight (for me), the battle for the Princess Elizabeth Cup between George Osborne’s St Pauls School and David Cameron’s Eton.

While the toffs slug it out on the river, an army  of migrant workers will be serving the blazoured multitude on the bank. What a metaphor for where we are!

Here are the highlights of day four, including St Paul’s amazing comeback against Melbourne!



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The Coalition worked- this doesn’t!

A tale of two Governments

In 2010, after a shock result, Britain found itself Governed by a ConLib coalition. No one gave it much chance of working but it di, The Clegg/Cameron coalition brought considerable benefit to the country and was something of a “golden administration” for pensions.

In 2015 we had another election, this time it gave us a conservative majority (another shock). The markets reacted positively and we looked set fair for five stable years of further recovery from the financial crisis. HOW WRONG COULD WE BE.

The supposed weakness of the coalition was its strength, Nick Clegg and his team kept the conservative party focussing on what mattered – Britain – and away from local feuding.

Since the dissolution of the coalition we have had Britain has seen the most bitter internal division since the War of the Roses (I discount the Civil Was as that was fought on religious grounds). The disintegration of BAU Government over the past three months and the absurd “what do we do now” position we find ourselves in, is a consequence of an unwanted and unloved debate on a subject we know little about and cared less.

As with any war, the people who will be hurt most will be the civilian population and the most vulnerable were (and are) being hit hardest. I am writing to friends in my company who are of Eastern European debate to tell them they are wanted and wanted very much. But a substantial number of the people working in Britain today, will not get such comfort.

The efforts of society to drive out rascism and other forms of intolerance have been set back. It is now politically acceptable to blame the hard working for being hard working and to blame those who have risked much to work in Britain , for being foreign.

The decency of the coalition has been replaced by the new nastiness.

I sensed the change when I went to the Tory party conference last October. The ring of steel was surrounded by angry protestors, inside there was much drinking and self-congratulation but little progressive policy-making. Already the need to help the country had been replaced by a determination to “help yourself”.

As for pensions, instead of the social policy of Steve Webb, we had the “self-empowerment agenda of Harriet Baldwin. The Treasury had walked off with the trophy cabinet and were melting down the hard-won policies of CDC and pot aggregation in favour of dumbed down savings policies that had more do do with re-election than social purpose. The Pension Minister did not make it to Manchester, locked like Rapunzel in her Tower, the key in IDS’ pocket.


Altmann repressed

Can we learn this lesson?

The balancing influence of the Liberals on Conservatism kept the one nation, “all in it together” vision to the fore. Once it had been lost, the Conservatives disintegrated. Now they have no leadership, no vision and no short-term plan to get us out of the mess which their disastrously mis-managed referendum has got us into.

Sadly, rather than acknowledge the role of the Liberal party, the Conservatives decided not just to drop the pilot, but shoot him too. Almost all the great Liberal politicians of the coalition (Cable/Clegg/ Webb et al.) are now no more than commentators, not even commanding a seat in the house.

The ungrateful contempt with which coalition politics has been dismissed by this conservative administration, has no justification. For we can now look back at 2010-15 as a time when politics worked and look at the current Government as an example of how politics does not work.

I am a Liberal and a liberal. I believe in working together, of co-operation. I will support Tim Farron but I will also support this Government in any attempt it makes to reach out to those who it has so harmed and rebuild trust. I will support attempts to reach out to Europe, to Europeans working in Britain and to those who have voted in the referendum who now feel bewildered and betrayed.

Where’s George

George Osborne is lost, he has no credible position. He is the architect of his own downfall and his contemptuous attitude to the people of Britain renders him contemptible. He has only one word that I will listen to. That word is “sorry”. If he can admit he is sorry (as Cameron has) then – as Cameron has been, we can forgive and move on. We may even be able to move on with Osborne in charge of the money (he is competent if not trustworthy).

However, we cannot move on till we have checks on his behaviour. We cannot go back to the situation we have found ourselves in over the past year, where a Conservative Government behaves with such total disregard for the people of the country.

I hope that whatever is left of the Labour party, after they have had their playground fight, will regroup and come to the table. I hope that they will join hands with Tim Farron and the tiny rump of Liberal MPs and then go to Government and offer to help. We need something like a Government of National Unity at this time.

We need something like the coalition we enjoyed until so recently.



I’m afraid so

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A decision that may hurt the EU more.


My prodigal brother Albert (aka Mincer) has been advising his followers on twitter to bet on “leave” – notably over the days leading up to the referendum when we all had concluded “remain” a racing certainty.

Screen Shot 2016-06-25 at 06.36.18

Screen Shot 2016-06-25 at 06.36.51

He was right and the bookies were wrong, so I decided to take a little more notice of his tweets and was struck by this which appeared yesterday.

Screen Shot 2016-06-25 at 06.37.13

Will Europe implode?

Whatever the dream of the European Union, it has never been dreamed over here. Apparently one of Google’s most searched items yesterday was “what is the EU?”.

I very much doubt , if you asked the man in Lens/Augsburg or Pisa what the EU meant to him, you’d get much consistency (or substance). There seems to be a gap between the articulation of the dream in Strasburg and Brussels and the perception of the EU by those not living it.

The question is whether Britain will ignite lated Europhobia, draw the remaining 27 countries together or simply leave to massed indifference.

Judging by the reaction of European people both inside and outside of “dreamland”, indifference looks the least likely option. Many Brits will be surprised by how important they appear to be to the folks accross the channel.

Rather like active fund management, the EU is talked up as indispensable till a Warren Buffet comes along and shows just how unlikely it is to create value from an abstract notion.

Warren Buffet

But like active management, the EU has always been very useful as something to cheer when things go right and jeer when things go wrong. Blaming Brussels is a past-time not just of the Brits and (like active management) Brussels is a luxury item which diverts many from the fundamental problems of their local economies.

I think there is a good chance that calls from within the major European players (especially France and Italy) , for freedom from the perceived millstones of the weaker nation states, will grow louder.

Plebiscites, as Cameron has found are easy to grant but not so easy to control. The threat of contagion is very real and the damage may already have been done.

Will anything actually change?

The other part of Mincer’s tweet that has exercised me , is the question of change in the UK. Cameron has made it clear he doesn’t want to press any buttons to leave while at the helm and that he won’t leave the boat till October. That means that the deadline for exit is October 2018 at the earliest, which is a long time away, for those who want immediate freedom.

Much will depend on the respect that Cameron is given and if the UK Brexiteers are as keen to say goodbye to Cameron as Brussels is to Britain, then the timeframe may be shorter, but any thought of a decree absolute before this time 2018 looks unlikely.

At a formal level we will not be free from the EU for some time, the question is whether much will change in the meantime.

There is real fear among many recent immigrants I know , that their jobs and even their residency permissions may be terminated immediately. This is not fantastical. For all the words from Tory Grandees, it is the barking of UKIP and their everyday campaigners who cause this fear.

I very much hope that we will not turn upon our immigrant population and make them unwelcome. I am sure, in my genteel world, this won’t happen, but I’m not the one who feels threatened by them, my biggest worry is that we will make life so unpleasant for them, that they leave- and take our reputation for tolerance with them.

In practice, firms like mine have benefited from the influx of European graduates willing to work hard and be patient and they have brought standards up among our home-grown graduate intake. I can only speak as I find, our business would be the poorer without ready access to brilliant European students.

I suspect at the professional end of the immigrant job market, nothing is likely to change, but I fear for the livelihoods and lifestyles of those without professional qualifications, who may lose what little protection they currently have.

Power 4

And what of the multi-nationals?

JP Morgan and Airbus were quick to issue pre-prepared press releases threatening job cuts as “changes to business strategy”. We have got used to this kind of behaviour and I don’t think that the nation will be any more scared of corporate reprisals as they appear to have been by the punishment budget threatened by our (current) Chancellor.

Since we are likely to be staying in till October 2018+, knee-jerk closures look unlikely. Most large employers will sit on their hands and watch, changing strategy is an expensive business.

And what of Government?

Here we will see most change (IMO) but only in terms of the faces. The Tory party conference in 2016 will look very different from 2015 and is likely to be considerably less cocky.

George Osborne and his various strategies look to be pretty well underwater. If he is to be re-floated, he will need a very considerate cabinet and a tolerant public.

The big Treasury projects waiting to be enacted – the LISA/PISA/WISA plan, the changes to pension taxation – even the Treasury/FCA FAMR proposals, are all now under threat till we see what kind of Treasury we get going forward. Osborne was a controlling Treasurer with a considerable tenure, if he leaves, I doubt that his successor will drive these projects with the same vigour.


And what happens in the Treasury, will happen elsewhere. I suspect that there will be major change to reflect the failure of Project Fear and the shambolic state of UK Government since this disastrous referendum took over.

It is hard to remember that Nigel Farage has no political office and that the party he represents has only one representative in parliament (none in the Lords). Whatever his PR antics, Farage has little practical way to influence policy.

In practice then, I see inertia in public policy over the next three months and a great deal of noise from politicians. All this at a time when Britain should be at the height of policy making (a year in to a new parliamentary term).

The power we never thought we had

I haven’t heard of read this, but I sense that we have rather over-estimated the impact of BREXIT on Britain and underestimated it on Europe. We may well have done more harm to the EU than we have to ourselves.

This is not me being revisionist , I am sad we did not stay. But I am not going to complain, I am going to make the most of what the new world offers me and find opportunities.

I will not be listening going forward to any filibustering from the fund industry (or the regulators) about “waiting for Europe”. I will reach out to our friends in the Commonwealth , the US and the Far East with greater confidence and I will not be ashamed to show my passport at European airports.

We have decided and I agree to live in this new world. I suggest that we use the power that some of us did not realise we had, to best effect.




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All change – UK votes to leave


I write at 6 am, at exactly the point when “vote leave won”.

There will be many blogs written trying to make sense of the vote, this will not be one of them.

I voted remain and at mid-day yesterday, I was bragging that there was (on Betfair predicts) an 88% chance that I would win. I was so wrong!

At around mid-night, my partner and I accepted that the votes in Sunderland and Newcastle weren’t bucking a wider trend. my Betfair app was as out of keeping with the unfolding reality as I was!

Screen Shot 2016-06-24 at 07.21.32

What is this?

This is the great kick in the whatnots that this country has been waiting to deliver to the ruling minority in Westminster and the City since it all went horribly wrong in 2008.

72% of us voted,  the biggest turn-outs being in the Brexit areas. This was no fluke, this was democracy in action.

The Scottish are already calling for independence and the right to maintain in Europe. So is Sinn Feinn.

The pound has fallen 10% overnight, the stock market is expected to follow suit. I have been walking the streets of the City, taxis are rushing people to their desks, this is a financial crisis.

My memory of the weekend is walking down streets in Thames Ditton where almost every detached property had a remain sticker in its window. The economic prospects for the wealth of the families within, now looks tarnished.

There was a rainbow breaking over Gateshead, the town that links Sunderland and Newcastle.

Whatever this is, this is democracy in action.

And for intergenerational fairness.

This table tells its own story, I don’t suspect we’ve heard the last of this.


And in Europe

This is a sad day for Europe.

The reality is that Europe feels it needs the UK rather more than the other way round. Ordinary families in Poland and other European countries are now in fear for the millions of their compatriots in the UK. No announcement has been made of their status as UK residents but  the tone of our debate has made them unwelcome.

Just how difficult this will be for the European super state is one of the great questions we now have to consider.

And for British politics

This has been a disastrous referendum, I said this yesterday and today. It has not been carried out in a decent way and it has massively backfired on its architects. It has not been good for the Labour party or the Unions and it is heartbreaking for the few remaining Liberals ( of whom I am one).

The new politics will be very different. We will have new leaders and we will have new policies.

Stop press+++ David Cameron resigns within an hour of announcement+++Stop press

Before this vote, George Osborne threatened us with a punishment budget if we voted as we did. The chance of him carrying out this threat look slim.

And for pensions

On 13th June 2016, Andrew Warwick-Thompson Head of Policy at the Pensions Regulator wrote to me rejecting my request to set up a meeting between him and leading figures in the Transparency Task Force.

We note that it is the FCA’s view that this (transparency) will be best achieved as a pan-European initiative (e.g. PRIPS, amongst others) as many UK investment managers operate across Europe, indeed many operate globally.

Pensions, as almost every area of public policy will now have to adjust to a new reality, that we are no longer subject to European initiatives  and are now self-determining.

The immediate impact of this vote on pension scheme deficits is likely to be mixed, assets will fall (disastrous for those in draw-down) but liabilities may fall too – if inflation kicks in.

Where do we go from here?

This is the political consequence of austerity. We have thrown out the post-war consensus in exchange for a very uncertain future.

We have no choice but to accept this astonishing development and we will have to move forward.

I am not going to shout in anger at the people who voted differently than me nor shout at Nigel Farage and others whose views I do not share.

Like tens of millions of others, I will go to work today and put in my shift.


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SMEs pay for pension advice -but not to IFAs


One of the oddest aspects of auto-enrolment is the disappearance of the IFA. There are exceptions of course but when it comes to the core enterprise of the IFA, advising , implementing and nurturing workplace pensions, the IFA is nowhere to be seen.

The much heralded army of small employers have arrived but most financial advisers are most inconspicuous. This has prompted one of my journalist friends to ask me in publicScreen Shot 2016-06-22 at 06.40.12

Behind this simple question were further questions

1)    Advisers are concerned about the margin crunch (and commission loss) on workplace pensions. So how can they deliver corporate advice on pensions and make it cost-effective?

2) What are the long-term benefits for advisers in engaging more with workplace pensions – and with younger workers in particular?

These are questions for the 2017 auto-enrolment review and they do not have simple answers. There is no switch that can turn  commission back on, and as I’ve written on this blog before, it is counter intuitive to spend money to get your staff to save money. Given the choice, most employers would sooner pay more into their employee’s pension pot.

How is the FCA answering these questions?

The Financial Advice Market Review is currently asking what help is needed from financial advisers and I do not hear concern about the lack of financial advice for small employers on workplace pensions as a major theme,

The average age of financial advisers is generally accepted as around 55, there are very few young advisers and a large proportion of those advising could better be called wealth managers than financial planners.

Indeed the idea of advising young savers how to build the pensions wealth that the next generation of financial advisers can manage is pretty well bottom of the agenda for most of the advisers I speak to. The customer , like the adviser, is advancing in years and is more interested in how to retain wealth than save more.

How is the Pension Regulator answering these questions?

The Pension Regulator issues an information pack to employers preparing to stage auto-enrolment, it includes this advice on choosing workplace pensions


If you press the link you will find this rather vague help when you click on “find an adviser”.

If you have an accountant, they may be able to help you find a scheme or a financial adviser that can help.

You can also use the Money Advice Service retirement adviser directory, which contains advisers who can help you choose a pension scheme for automatic enrolment.

To check if an adviser is authorised by the Financial Conduct Authority, search the FCA register.

Financial advisers are an afterthought for the Regulator.

Does this matter?

IFA’s off chasing the mass affluent’s wealth,

employers being nudged into NEST

and no questions being asked.

This is the shocking state of the market. The 1.5m employers currently considering their options are being given next to no help at all.

The Government has set up NEST which must accept all employers that ask to join it- other pension schemes are also available.

Does it matter- of course it matters. As Simony points out – there is virtually no engagement with NEST , nor with saving more than the minimum , nor with the outcomes of the choice which the employer has.

If we are to build a platform for future saving where employees and employers are happy to have substantial proportions of their earnings diverted into workplace pensions, then we need to get employers and employees engaged with where the money is going.

Where can this engagement come from?

I see no reason why IFAs will want to get involved in helping employers with choosing pensions or employees in saving into them, they are better off managing wealth.


Where I see interest in workplace pensions and in the business of pension planning is among those who pay us our salaries, whether in-house or through bureaux. Typically these people are not financial advisers though they are trusted by those who get paid by them over their money.

These people need to be empowered to talk with staff about how pensions work, what staff need to do to get proper pensions and how to go about doing this as efficiently as possible.

In trying to answer Simone’s questions , I realised that the next generation of financial advisors are not already in the workplace- and nobody knows it!

Employers pay for their staff to get paid, if pensions is deferred pay, they are already paying payroll for pensions. If an employer wants to engage with pensions it will be through payroll not through IFAs. Payroll are the new IFAs.

What needs to be done.

I firmly believe that the answer to the problems of engagement rests with payroll. At present payroll people are being given dismal messages by Government about pensions

The Government has set up NEST which must accept all employers that ask to join it- other pension schemes are also available.

It is time this message changed. It is time the Government started encouraging payroll to take the choice of pensions seriously and start selling the benefits of pension savings to their staff.

In my opinion, payroll is ready for this challenge.


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The still small voice of the (BHS) pensioner


A woman walks past a BHS store in Leicester

A woman walks past a BHS store in Leicester

I think back now to the people with whom I worked in BHS – by and large decent and hard-working folk, who had little prospect of ever being well-off unless they won the lottery or their Premium Bond came up.  Retailing often involves long and unsocial hours, and can include hard physical work of unloading boxes, moving counters and racks etc.  Those who worked in BHS did least a 40 hour week, often working at weekends and sometimes in the evenings, and were paid wages that were never going to make them rich – for many just above the living wage.  Yes, they did get a staff discount on merchandise they purchased from the store, but this was the one and only “perk”.  Many of the staff were, and are, women, and a considerable number were part-time, to fit in with family responsibilities.

I contrast therefore those who are now earning approximately £15,000 or £16,000 per annum with the £5m that Philip Green is reputed to have spent on one of his big birthday parties in an exotic foreign location.  The cost of such a party represents about 333 working years’ salary for a BHS member of staff.

Written evidence of Lin Macmillan to the BHS Enquiry

Worlds apart

Philip Green gave oral evidence to the enquiry last week, he seemed plausible, he made promises, he came across as a reasonable man who had been let down by Dominic Chappell. In the game of pass the parcel, he was keen to be part of a pension solution not the author of the problem.

But as Lin Macmillan’s evidence makes clear, the world of Philip Green is so far from that of most of his shop workers, that the Select Committees considering evidence have every reason to distrust Philip Green.

Yesterday Philip Green is reported to have taken possession of a £46m private jet 

Green jet


The abuse of office

If you look behind the curtain and listen to the Chair of the BHS pension trustees (I know him to be an upright man) then you see the almost impossible conflicts placed upon him and his colleague. Documents published yesterday show how the man to whom Green sold the pension scheme abused his trustees

Another document shows how the promises that Philip Green’s holding company, Arcadia, watered down the support it was giving its pension scheme (the document is structured as a succession of drafts, each of which shows the Arcadia covenant deteriorating.

Rather like God with Elijah, the still small voice speaks through the earthquake wind and fire. The truth resonates above the bluster.

Giving the members back their voice

The reason we are having this enquiry is so the voices of the trustees , pension scheme members and ordinary members of staff can be heard. Thanks to the Committee (and the FT’s  Jo Cumbo, who put these documents on twitter), I know the views of those who do not shout loud and do not have a lawyer to brief them on every nuance.

The BHS problem goes even deeper than the corporate values that have been broken, it goes to the heart of what we expect from business owners towards their staff.

At some stage last century, we decided we did not want unions in the private sector and we allowed their power to diminish to a point where they are all but an irrelevance in disputes like this.

Without the union’s voice, who will speak for the member, other than the trustees and the odd Lin Macmillan, who speaks as a member of the Kirk (the Church of Scotland)


Lin Macmillan

If it were not for Lin Macmillan you would not be reading this article and Philip Green would be a little more comfortable working out what he does next.

Society has a way of speaking through the earthquake, wind and fire. We know that through recent events in Yorkshire. We need to listen to the still small voice.

1 Kings 19:11-13King James Version (KJV)

11 And he said, Go forth, and stand upon the mount before the Lord. And, behold, the Lord passed by, and a great and strong wind rent the mountains, and brake in pieces the rocks before the Lord; but the Lord was not in the wind: and after the wind an earthquake; but the Lord was not in the earthquake:

12 And after the earthquake a fire; but the Lord was not in the fire: and after the fire a still small voice.

13 And it was so, when Elijah heard it, that he wrapped his face in his mantle, and went out, and stood in the entering in of the cave. And, behold, there came a voice unto him, and said, What doest thou here, Elijah?




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Don’t tell me “this feels momentous”


We need a leader not a loser

Does this feel momentous to you?

If we remain in the EU, as the bookies tell us we will, we will be  where we were before this sad sorry saga began, with diminished credibility. If we leave, we will be back at square one – as David Cameron put it last night. Either way, we will have lost and not just lost face, we have lost Jo Cox.

I will vote and vote with conviction and I urge you to do so, whatever your conviction. We owe Jo Cox that as her tribute.

Who wins out of this? Certainly not the political parties. If we remain, we have secured little by the referendum and if we leave we will have, according to our Chancellor, at best more austerity and at worst another recession. There is no sunny upland for us to aspire to either way.

Certainly not the economy, whatever structural faults which were present before  we put decision making on leave prior to the budget, are still present. We have lost time by biding time.

Certainly not the British people who have seen fractious debate tip over into violence at home and abroad. We have put on our worst face to the world and our credibility after this appalling debate is surely diminished as a nation. Both sides invoke the spirit of Churchill to their sides, but they might as well call on King John.

This civil war that benefits no-one

This horrendous three months of unnecessary civil war has been humourless (the court jesters – Farage and Johnson aren’t funny any more, “remain” is a bore.

It has also been confusing. We are being asked to vote with precision on statistics that nobody trusts. The institutions of business, the Bank of England , the CBI , the FSB and IOD are ignored as we decide this “momentous” decision on little more than the flip of a coin.

Nobody can feel happy taking a decision on something as momentous as our constitutional and economic future, with so little hard fact and so much overt prejudice to guide them.

I read this tweet and ask myself today- what I asked when the referendum was announced



I do not think we will get a satisfactory outcome on Friday of this week;-why?  I don’t think most of us will have voted with sufficient confidence to know whether our view has won or lost. In this world the best lack all conviction while the worst are filled with a passionate intensity.

I am told that by voting remain, I am failing to engage imaginatively with what leave might look like. But I see in leave the economic equivalence of an over-hasty divorce without even the pleasure of an adulterous alternative.

I am told by voting remain, that I am making a rational decision based on the economic and political success that being in the EU has brought us. But I see no-one within Government suggesting I enjoy that success. Instead I see airports in lock-down against terrorism and a country closing in on a decade of economic austerity.

We are terrorising ourselves out of the happiness we should be enjoying.  I would put up with more economic pain if I felt “leave” brought us together with the world. I would put up with loss of control if I felt remain led to harmony with ourselves and our neighbours.

Britain has changed but the conduct of this debate hasn’t

The British people deserve a leader who can deliver a State of the Union address that is inspirational and unificatory. We should be proud of our country, not ashamed of it.

Nowhere do I feel more ashamed than when I share the streets with people of so many countries of origin and cannot celebrate. Yesterday I was at that most British of institutions, a friendly cricket match, I was in the minority in speaking English as my first language but that did not lessen the experience! Indeed it made it better!

My friend Jenny went to Brixton market for her lunch yesterday for much the same pleasure. I work and play alongside people whose origin is diverse but I regard them all as as British as I am. Many of them came to this country at the time when Enoch Powell was anticipating rivers of blood- it hasn’t happened.


The level of debate

We need to feel comfortable in our new skin

To me, the way forward does not lie in our settlement with Europe, but in our settlement with ourselves. We have learn to feel comfortable in our skin, our new skin. Britain has moved on from the days following the war, and from our entry into the common market. We are a different place (in my view a much better place) than the country I grew up in in the 1970s.

To a large extent that is because we have been part of the world, not detached from it. This morning I heard this point made by Richard Scudamore, who is in charge of our Premier League. When we entered the Common Market in 1973, an immigrant footballer was almost unknown, today, our Premiership thrives and our national teams are full of players from every background.

Whether we stay in or leave the EU, nothing will change this week, we will still have failed to engage with the change that has happened in our society. I am voting not to pull up the drawbridge, but to open our country to the positive influence of global culture and a global economy.

I look to leadership, a moral spokesperson  – and she is dead.


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Please vote – out of respect.

If you read no other article this weekend, read this by the Fleet Street Fox. It says what I was trying to say in an amateurish way yesterday, it talks of Jo Cox’s death as a wake-up call to those of us who care about society to get up and vote at the referendum and connect with our British society.

My blog yesterday ended

Yesterday I wrote on this blog that I would vote to remain in Europe reluctantly. I was reluctant because I felt bullied and that both options were dismal.

Jo Cox supported the “Remain” campaign during the 2016 referendum on Britain’s membership of the European Union.

I will no longer vote reluctantly.

This has been interpreted as me campaigning for Remain, it is not. It was me waking up to my responsibility to participate in the social enterprise of voting. Jo Cox thought it worth going into parliament and President Obama thought it worth phoning Brendan Cox from his aeroplane.

A man is in a prison cell, his life ruined for ruining a life of another -for many others. Hate does not solve anything and hating the man who killed Jo Cox will not solve anything, that is why I  admired what Brendan Cox said on the day of his wife’s death.

The hate we are seeing on the Euro-terraces is not solving anything , nor is the violence on social media , nor is the abuse being dished out between politicians. Anyway – read the article.

This referendum is not turning out well.

Infact it is turning out to be a disastrous political mistake by the Conservative party (now the Government). I guess that they saw the vote as a way of bringing the conservative party and the nation together but it has done anything but.

It has not created reasoned debate, instead it has polarised people. On the one hand are those who rightly see Britain’s economic interests best served by remaining. On the other, those who see our capacity to determine our future without recourse to our European partners as paramount. Both positions are reasonable and we should be able to decide in a reasonable way.

This bitter civil war of words, is not being conducted in a reasonable way.

It is being conducted through bullying by the big beasts (mostly men) who warn us of the dire consequences of not following them. Neither can admit that this decision is finely balanced. Because of that, people are drawn into confrontation and it is not fanciful to say that the violence in the language is reflected in violence in actions.

The mistake of having this referendum was that we do not have the political leadership in place to conduct this debate in a reasonable manner. Our political leadership has been so destabilised by the various frauds exposed over the past few years that Gogglebox has replaced Question Time as the voxpop of our household!

We seem to have two ways of responding – violent laughter and violent abuse. The middle way of reasoned debate – the way of Jo Cox, simply doesn’t get  airtime.

I was asked, by someone in parliament , to use this blog to promote the case for Remain (on economic grounds) and I haven’t. I don’t want to influence other people’s decisions though I am happy to put my own position on the line (see above).

Whatever the decision of the country, I will accept it as my decision. That is because I am part of the British Society. If we vote to remain, I will abide by European rules as we will be part of European Society too (in a judicial as well as social sense).

I have great sorrow when I think of the death of Jo Cox and I have cried over her death, for her family and for the vulnerability we all have to senseless hate.

I would urge those of us who believe in the things that Jo Cox believed in not to raise our voices but be more eloquent by being quiet.

This hatred that has manifested itself in Birstall, is latent in Britain and we know it. We need to pacify and restrain it, not fuel it with angry words.

When we walk-and I hope we will all walk- into the booth in five days time, I hope we will bring to our decision the conviction of Jo Cox. Whichever way we vote, let’s vote. If we don’t we’ve called time on the values this woman represented.

Jo cox


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Cash beats shares for capital gains (but not for pensions).

Paul Lewis has produced a brilliant study that shows how the outcomes of investing a capital sum in cash would have been better than investing in shares over the past 21 years.

Paul is right, the numbers do  not lie and I’ve included the whole of his press release published this morning on this blog. Simon Read’s excellent analysis is widely available (BBC version here).

I had the chance to critique his work over the past few weeks and ducked the challenge, choosing to pass the research to my colleague Derek Benstead who is both cleverer and more articulate on investment matters.

Rather than paraphrase Derek’s argument, I have published his comments on Paul’s research which appear in the final part of this blog.

To summarise; our view is that Paul Lewis is right, but that shares are still the best investment when regularly saving for a retirement income.

  1. Investing a lump sum into shares and converting that lump sum back into cash IN ONE GO – is risky and usually not worth it.

  2. Trickling money into shares and trickling it out again (as income) is usually worth it, if the space between the trickles is long enough.

  3. People who invest to disinvest are probably better in cash (unless they are thinking 25 years +) and are ISA bound.

  4. People who save regularly for a regular income many years hence are probably better in shares and are Pension bound.


(press release only – full research here)

Paul Lewis

Paul Lewis speaks

Money in best buy cash savings accounts would have produced a higher return than a FTSE100 shares tracker over a majority of investment periods since 1995.

That is the shock finding of new research using best-buy cash data which has never been available before.

The results challenge the traditional view that putting money in a savings account is the poor relation of investing in shares.

The analysis also found that since 1995 investments in funds that track the FTSE 100 would have lost money up to a third of the time over investment periods from one to eleven years. Cash in a savings account always ends up higher than it started.

The new research compared returns from a simple tracker fund – which follows or ‘tracks’ the FTSE100 index of shares in our biggest hundred companies – with cash that is moved each year into a best buy one year deposit account with a bank or building society – sometimes called a ‘one year bond’. The tracker has dividends reinvested and the cash is reinvested each year with the interest earned.

It found that money put into this ‘active cash’ beat the total returns on the tracker in 57% of the 192 five year periods beginning each month from 1 January 1995 to the present. The tracker won in just 43% of periods. For some longer time periods the result were even more marked. For example, for investments made over the 84 fourteen year periods from 1995 cash beat shares 96% of the time.

The research was done by financial journalist and presenter of Radio 4’s Money Box programme Paul Lewis. He gained access to best-buy cash data back to 1995 from the financial information publisher MoneyFacts. Data back to 1995 has never been made available since it first appeared in the monthly MoneyFacts magazine. He says this data makes the research unique.

“This analysis of the new data shows that people who prefer the safety of cash can make returns that beat those on tracker funds in a majority of time periods.

“It also confirms that the risk of making losses on a shares investment is very real. Over any investment period from one to five years from 1995 to 2015 there was about a 1 in 4 chance or greater that the value of the investment would fall. Even over nine or ten years the chance of losing money was around one in ten. Few advisers know those odds still less inform their clients of them.”

“I have long suspected that the merits of cash were underplayed by traditional research which compares poor cash rates with often exaggerated gains on investments in shares.”

The new analysis produces different results for three reasons.

  • It uses a real tracker fund so the gains or losses are after all charges
  • It uses new data on best buy cash accounts which has never before been collated and 
  • It moves savings once a year into the latest best buy – what Lewis calls ‘active cash’.

Further analysis of the data shows that for many starting dates from 1 January 1995 investing in shares over any possible period from one year upwards would have produced a lower return than using properly managed best buy cash. That is true for example for the whole of the two years from 1 October 1999 to 1 September 2001 and for four months from 1 October 2007 to 1 January 2008. Money invested on the first of any month on those dates and left for any period from 1 year to the maximum possible 15 or 16 years would have done better in cash than shares.

There are fewer comparable times when shares produced a higher return over every possible investment period:- 1 November 2008 to 1 September 2009 is the longest run and two earlier dates are 1 October 2002 and 1 October 2003.

Overall for investment periods of five years or more there are 38 starting dates when cash would always have produced a better return but only 24 starting dates when that was true of shares.

Lewis adds: “Cash is not right for everyone in all circumstances. But for a cautious person investing for periods of up to 20 years this research indicates that well managed active cash beat a FTSE100 tracker more often than not. And unlike a shares investment it can never lose anyone money.”

Money invested in best buy cash over the whole 21 year period from 1 January 1995 to 1 January 2016 would have produced an average annual compound return of 5.0%. Over the same period the tracker would have produced a compound annual return of 6.0%. The 1% difference is far lower than the 3% to 8% typically quoted for the ‘risk premium’ of investing in shares.

Derek Benstead on why Paul is right and why shares are still best for pension investing

Derek Benstead

Derek Benstead responds


Paul Lewis’s comparison of the historical performance of cash and shares is interesting.  It is interesting precisely because it is a historical comparison.  My preferred starting point is to look at history and see what I can learn from it.  I would rather look at history than at an actuarial or an investment model.  Modelling is very hard to do well.  Financial models are at risk of producing an unrealistic representation of the real world.  A difficulty of financial management illustrated by a model may only be a consequence of unrealism in the model, it might not be highlighting an actual problem in the real world.

Also to be avoided is the giving of an opinion without evidence, perhaps an inherited opinion, learned from others and not checked out.

So, I am very supportive of the notion of looking at historical data as a first port of call to see what we can learn.

I have assumed that Paul is thinking of individual, not institutional investors.  He has used an equity fund which is subject to “retail” levels of charges rather than “institutional” charges.  So most of my comments relate to an individual making decisions about where to save.

Having looked at Paul’s analysis, what would I conclude from it?  That equity performance is very unreliable.  Equities cannot be relied upon to outperform cash over 5 or 10 year periods.  There is even 1 period of negative return on equities over 11 years.

It is dangerous to be committed to making large transactions in equities at a single date.  A large investment in equities in 1999 when the market was very high would not do well, and performance over any period ending in 2009 will also be poor.  As Paul points out, it can take a long time for equities to recover from a trough (up to 42 months), which is a long time to wait to make a disinvestment.  I dare say it is also possible to explore the opposite point, of how long can it take for equities to come down from a boom so it is more worthwhile making a new investment.

If I received a large sum of money all at once (perhaps from a sale of a small business, or an inheritance) then spent it all at once 5 years later (say on a nice house), I expect I would leave the money in cash over those 5 years, and I imagine many people would do the same.  I don’t think I would want to run the risk of needing to disinvest from equities to buy the house at a time the equity market was low.  I also have the risk of investing at the start of the 5 years at a time the market is high, and the problem of making the judgement of whether the market is high or not.

Paul has pointed out in previous correspondence that professionals do not have a track record of adding value from asset allocation decisions, so the average man in the street is not going to be able to either.

In many cases, people will accumulate money gradually and spend it gradually.  So with no knowledge of what an expensive or cheap equity market looks like, one can save gradually into equities and spend gradually from equities.  At times the market will be high and that month’s investment won’t buy many shares, but this will be offset by times when the market is low and an investment buys more shares.  It requires no skill to buy shares at an average price if the money is trickled in gradually over a long period of time.  And conversely for disinvestment.  But this trickle in – trickle out process takes a long time both to pay money in over a wide range of equity market conditions and likewise to withdraw it over a wide range of conditions.

If I am saving for a deposit on a house, it may take a long time to save the deposit, so I could perhaps trickle money into equities, but I would still want the money all at once at the time of buying a house, and to be in equities at that time would not be wise.  It’s probably wisest to save for a house deposit in cash.

I expect the first resort for most people making savings is to save in cash. It is good to have cash on hand to replace a car, maintain a house, tide over a period of ill health or redundancy. If someone starts to save into equities, then I expect this is because they have enough cash savings and want to seek to earn more on money they don’t expect to touch for a long while.  In which case the criterion that equities need time is met.  And there is unlikely to be a need for a forced disinvestment at a bad time.

I have a mortgage, cash savings, and a DC pension invested in equities and property.  This isn’t as illogical as it sounds.  If I paid all the cash into the mortgage I wouldn’t have emergency money on hand, and I have DC pension savings because my employer contributes and it would be stupid to miss out on the employer’s contribution.  The only equity investments I have are in the DC pension.  They arise from trickled in money that I cannot presently withdraw (I’m not quite 55) and do not expect to withdraw from for years yet.

The best way for an individual to get exposure to equity investment is by membership of a defined benefit pension scheme which is open to new entrants.  A defined benefit scheme of longstanding receives income from its assets and contributions which it spends on benefit payments.  There is broad balance in the cash flows in and out and the DB pension scheme has little need to either buy or sell assets.  The risks of buying or selling assets at bad times are avoided.  Of course, open private sector DB schemes are few these days, and the sorry story of the exaggerated appearances of cost and risk arising from poor advice based on poor valuation and investment models is a tale for another time.

Paul’s analysis uses 21 years of data.  I would not use this quantity of data to make inferences for periods over 10 years.  Once the period being examined exceeds more than half the length of the data, there will be years in the middle of the data in appearing in all periods.  As the period lengthens, there is increasing constraint on the start date getting nearer and nearer to 1995 and the end date nearer to 2016.  I would not use this data to make inferences about cash v shares over periods of more than 10 years.  I wouldn’t make the specific point about the boundary between cash and shares being 18 years.  18 years out of 21 is far too constrained and affected by events in the late 90s and 20teens.

I wouldn’t use this data to make inferences about the difference between the expected returns on equities and cash for the next 10, 20 years.  For the next few years, interest on cash is likely to be lower than for much of the past 21 years.

The comments I have made focus on the unreliability of equity performance.  It suffices to look at the unreliability of equity performance only to make strong points about whether and how to invest in equities.  This unreliability means it is best not to make large transactions in equities.  It is best not to have forced timing of large transactions in equities.  It is good to have cash on hand to draw upon if needs arise.  Whatever the long run performance difference between equities and cash for the next 10, 20 years or more, it’s clear from this data that one can’t rely on equities outperforming cash over a 10 year period.  If we trickle money in to equities over 10+ years and trickle it out again over 10+ years, we’re easily looking at a time span of three decades from start to finish.

Paul Lewis will have as much knowledge as anyone of the dangers of “get rich quick” and “something for nothing” schemes and scams. Equity investment is not a get rich quick scheme.  Equity investment is a get rich slowly scheme from money you can spare.

Derek is an actuarial consultant at First Actuarial


Happy now?

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Linked in – the predator’s playground


I suspect that your view of the $26bn (£18bn) cash valuation of Linkedin by Microsoft, will depend on whether your a linked in predator or linked in  prey.

Linkedin is the Serengeti of the social media world, a (cyber) space where the hunters and the hunted eye each other suspiciously. It is also a fecund space where relationships are born and maintained and for those who know how to use it, a source of considerable commercial advantage.

A semi-regulated wilderness


I will admit to being someone who has and will use Linkedin for commercial advantage. You are most likely reading this article from LinkedIn where I am conspicuous.

Once on linked in , it is virtually impossible to leave. No one has published the number of dead souls amongst its 430m participants, but i know a few of my profiles are deceased, it’s also social media’s Hotel California.

Linked In’s weakness is its revenues. In February 2016 Linkedin’s shares fell43.6% in a single day – wiping $10bn  from its valuation as a result of an earnings report.

I use Linkedin as a premium user (there are several more expensive packages), paying extra allows me to annoy more people and be more snoopy, it makes me a super-predator.

I guess those people who are Linkedin to me and reading this, will be reading with disquiet. However there is a limit to my predation. Every now and again I get sent to the Linkedin sin bin for being too predatory and have to lay off sending connections till I have calmed down.


Organised chaos


While most people find some mastery of Linked in over time, a high percentage of Linkedin users come once and never again. Numbers of my friends have managed no more than a handful of connections over the years since I introduced them and greet me in real life with  “still using linked” and “I don’t know how you find the time”.

In truth, Linkedin saves me a whole load of time. It is my filofax and my messaging system, it’s my social club and my advertising board. It’s where I find out what my competitors are up to and it’s where people find me, to have those discrete conversations that bypass their company’s servers.

It may surprise you, but when UK Regulators want to have an off the record, they often get in touch by Linked In.

And of course there are the Groups, the best of which is of course Pension Play Pen (with its various sun-groups). The biggest groups have more than a quarter of a million members, mine run at 4500 (pension auto enrolment) 7500 (pension playpen) and 500 (Bryanston alumni). Why are they important? Groups are the places where content can best be displayed and (for group leaders) they offer a weekly email to advertise matters of importance (such as the few remaining tickets for Henley aboard Lady Lucy).

Is Linkedin worth it?


To say that Linkedin is worth it depends entirely on you. It is a worthless waste of time to many – including many of my colleagues. It is a fantastic playground – even a hunting ground for others (myself included). It has a few rules but not very many so it is still one of cyberspace’s great wildernesses. But it offers some form of organised chaos through its functionality – such as the groups.

I have no idea where the number $26.7 comes from. I am sure that there are people in Microsoft and Linkedin who can explain it. But frankly its a small price to pay for 430m people if you are a predator, and a ridiculous waste of money if you aren’t.

Your view probably places you on some kind of predatory barometer which someone somewhere is building right now!




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From frustration to disruption – how SMEs prosper!

David and Goliath 3

Over the weekend I got a passionate note from a regular correspondent.

Here it is – with the target of his frustration omitted!

  • The concept of a TPA being paid twice is very common.
  • The main culprit is Cxxxxx
  • They have a subsidiary called Cxxxxx TRACING.
  • Cxxxxx work as tpa for many and when the data needs cleaning they are in the trustee board meeting and always push to get the tracing and cleaning done by Cxxxx TRACING

It is an absolute disgrace and total conflict of interests. The more they underperform they more they get to charge to fix their own failings.…Clearly my company misses opportunities in this situation.

How, politically and morally can I raise the double payment /charging without it being seen as company posturing?

Posturing? – Or standing up for what is right?

This is a problem faced by most small businesses and it gets more acute the smaller and less well known you are. This is David and Goliath stuff; David won by being smart and looking at the problem from the left field.

Goliath, like Cxxxxx was a giant, but unwieldy and pretty stupid. He expected everyone to do what he said because he’d set the rules of military engagement. Nobody told David that he couldn’t hit Goliath “point blank- right between the eyes” with a slingshot. Goliath never guessed that anyone would do that to him – David did – Goliath kicked de bucket!

The other good bit about David was that he didn’t whinge, he didn’t spend a couple of years assembling a troop of supporters (I guess he didn’t wait for second round funding!).

David just went out there and took on Goliath toe to toe, and won it for himself (and Israel).

Which is where my correspondent has got to go. He cannot get the Pension Regulator, or PASA or the Pension PlayPen or me to fight this battle for him. He’s got to get to those lazy incompetent trustees and tell them straight.

“Look guys, that money that you are throwing at Cxxxxx is dead money, you’ve already spent it, either get Cxxxxx to put things right for nothing or let me do it for you.”

And I’d make the point that the road to the PPF is paved with bills paid to the likes of Cxxxxx, just look at recent cases.

DAvid and Goliath

Call fiduciaries  if they are failing – no one else will.

One of the worst crimes you can commit is to stay silent , when an atrocity is being committed. As the great poet Ezra Pound wrote

Here error is all in the not done,. all in the diffidence that faltered . . .

David -if he missed – would have been mauled to death by Goliath, my correspondent if he misses may be dissected by lawyers, but surely- if he knows himself to be right – my correspondent must call it as he sees it.

Nowhere is this more important that when it is “other people’s money”. Would those trustees have reappointed Cxxxxx if it had been their private wealth that had been maladministered? Would they have written out the check a second time if they had not been thinking of circumstances where but for the grace of God, they might too have been called for incompetence?

In my experience, the problem that my correspondent is facing is not just with Cxxxxx but with the club of trustees and other stakeholders of occupational schemes who- for very good reason- want to run a closed shop.

The good that SMEs do

David and Goliath2

Cxxxxx must have been a small business once, once it broke down doors and threw stones at its Goliath and it won because it was more sincere, more direct and did a better job. Then it grew into Goliath’s clothes.

SMEs are here to be disruptive, for without disruption, we will be trampled by Goliath. If we play by Goliath’s rules we will be beaten up and we will close. David won because he had the Lord on his side (which I take to mean “he was right”).;

Whether my correspondent is right and Cxxxxx is wrong I don’t know. But my advice is that he reads this blog, takes up his sling and walks out to fight. For nobody is going to fight his fight for him. Not even me!

The good that SMEs do is down to the Davids.


For further inspiration

For a treat, here is Pasolini reading Canto XXXI back to Ezra Pound (in Italian)

Here are the words in English – then Italian

What thou lovest well remains,
the rest is dross
What thou lovst well shall not be reft from thee
What thou lovst well is thy true heritage
Whose world, or mine or theirs
or is it of none?
First came the seen, then thus the palpable
Elysium, though it were in the halls of hell,
What thou lovest well is thy true heritage
What thou lovst well shall not be reft from thee
The ant’s a centaur in his dragon world.
Pull down thy vanity, it is not man
Made courage, or made order, or made grace,
Pull down thy vanity, I say pull down.
Learn of the green world what can be thy place
In scaled invention or true artistry,
Pull down thy vanity,
Paquin pull down!
The green casque has out done your elegance.
Master thy self, then others shall thee beare
Pull down thy vanity
Thou art a beaten dog beneath the hail,
A swollen mag pie in a fitful sun,
Half black half white
Nor knowst ‘ou wing from tail
Pull down thy vanity
How mean thy hates
Fostered in falsity,
Pull down thy vanity,
Rathe to destroy, niggard in charity,
Pull down thy vanity, I say pull down.
But to have done instead of not doing
This is not vanity
To have, with decency, knocked
That a Blunt should open
To have gathered from the air a live tradition
or from a fine old eye the unconquered flame
this is not vanity.
Here error is all in the not done,
all in the diffidence that faltered


Quello che veramente ami rimane,
il resto è scorie
Quello che veramente ami non ti sarà strappato
Quello che veramente ami è la tua vera eredità
Il mondo a chi appartiene, a me, a loro
o a nessuno?
Prima venne il visibile, quindi il palpabile
Elisio, sebbene fosse nelle dimore dinferno,
Quello che veramente ami è la tua vera eredità

La formica è un centauro nel suo mondo di draghi.
Strappa da te la vanità, non fu luomo
A creare il coraggio, o lordine, o la grazia,
Strappa da te la vanità, ti dico strappala
Impara dal mondo verde quale sia il tuo luogo
Nella misura dellinvenzione, o nella vera abilità dellartefice,

Strappa da te la vanità,
Paquin strappala!
Il casco verde ha vinto la tua eleganza.

Dominati, e gli altri ti sopporteranno
Strappa da te la vanità
Sei un cane bastonato sotto la grandine,
Una pica rigonfia in uno spasimo di sole,
Metà nero metà bianco
Né distingui unala da una coda
Strappa da te la vanità
Come son meschini i tuoi rancori
Nutriti di falsità.
Strappa da te la vanità,
Avido di distruggere, avaro di carità,
Strappa da te la vanità,
Ti dico strappala.

Ma avere fatto in luogo di non avere fatto
questa non è vanità
Avere, con discrezione, bussato
Perché un Blunt aprisse
Aver raccolto dal vento una tradizione viva
o da un bellocchio antico la fiamma inviolata
Questa non è vanità.

Qui lerrore è in ciò che non si è fatto, nella diffidenza che fece esitare…

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Theft is theft – however and whoever.

cattle thief

cattle thieves



I have been reading about Messrs Grey and Kelly on the FCA’s website. These two advisers systematically pillaged client accounts;  the FCA has found that Mr Kelly

Kelly scam

what is more

Kelly 2

Clearly these guys were up to no good and no more deserved being called adviser than a cattle thief.

But what they did does not seem to be a lot different than many others in the 16 layers of intermediation between us and our money.

  1. They charged too much
  2. They disguised the charge

Where were the product providers in this?

What appears to have happened was that the product providers were happy to release  money from the client accounts into Grey and Kelly’s bank account. They would argue that they sanction payments (at their discretion) to custodians, lawyers, auditors and all manner of other intermediaries as part of business as usual.

Kelly and Grey only differed in that they were the client facing part of the value chain and therefore the people directly regulated by the FCA. It is the duty of product providers (asset managers) to act in the interests of the fund, that means keeping fees to all these intermediaries to a minimum. If these fees were so high, why were the Product Providers called to account by the FCA?


The capacity of asset managers to pay advisers , (see list above) from the assets of the fund is usually written into the terms of business you sign when you make an investment, or in the case of Kelly and Grey, when your adviser makes an investment on your behalf. The permissions are technically available to be seen because lawyers are able to keep their clients “technically” compliant.

We as consumers trust our asset managers to act in our interests (known as the fiduciary duty) and that means the asset managers keep a proper distance between advisers and call time on what they see as shady practice. On this basis, the City has worked for hundreds of years.

The assumption has always been that were a customer to ask to see the books, the asset manager would be proud to show the fiduciary care being taken on their customer’s behalves.

But the asset managers are now telling us that it would be impossible to fully disclose all these “hidden” costs and charges. They say this because to do so would take too long, cost too much and amount to nothing.

Transparency in all things

Kelly and Grey were found guilty  by the FCA of not disclosing their charges and charging too much (they appear to have forged some documents as well). They will now face criminal charges – presumably for theft.

Meanwhile, senior employees of banks and asset managers walk free having stolen money from client accounts through all manner of illegal activities for personal gain. Their behaviour is different only from Grey and Kelly’s in that the victims of their crimes are institutional and the FCA cannot identify them.

But because you ripped off the Post Office or Sainsbury’s pension scheme rather than some hapless SIPP customers, does not mean that individuals did not suffer. These pension deficits are not just because of rip-off charges but costs and charges have to be paid by someone out of something.

Even when these costs and charges are being paid by Trustees and ultimately large employers, they are being paid out of a pot of money dedicated for the benefit of employees.

These are not victimless crimes

It is easy to have a go at Kelly and Grey, they are small fry. It is not so easy to have a go at the large commercial banks, the trading houses, the lawyers, auditors and the investment consultants, all of whom take money our of our funds without telling us how much and often at rates that make my eyes water.

When you call them, they summon you to their offices – sometimes to their lawyers offices- to intimidate you. I was contacted by State Street a few weeks ago who wanted to discuss things I have said on this blog about them. The meeting hasn’t happened because the person who wanted to meet me had to go to the States- in the meantime I am left hanging…

These large financial entities think they can behave as they like with our money, much as Kelly and Grey thought they could. The only differences I can see between the behaviour of Kelly and Grey and these institutions, are down to scale



Addendum; that FCA press release

press release


The Financial Conduct Authority has banned Mark Kelly and Patrick Gray from working in the financial services industry on the basis that they lack integrity.

Mr Kelly provided financial services to UK customers under the name PCD Wealth and Pensions Management (PCD) and Mr Gray was one of his advisers. Between 2008 and 2010 PCD arranged for over 350 customers to be advised and invested nearly £24 million of customers’ funds in potentially unsuitable investments. PCD also failed to declare to customers the fees it was receiving from a number of these investments.

Mark Steward, director of enforcement and market oversight at the FCA said:

“These two individuals misused pension funds, endangering the retirement incomes of hundreds of people. While further investigations continue, the FCA considers it necessary to prohibit them to help protect consumers.”

Between August 2008 and July 2010 Mr Kelly invested customers’ pension funds in risky investments without customers’ knowledge or consent. The process was designed to prevent customers from discovering where their funds had been invested and without any regard to the suitability of the investments for the customers.

Mr Kelly also received some money from product providers taken directly out of customers’ investments, without their knowledge. He arranged for this to be paid directly into a bank account in his name.

Mr Gray provided investment advice to at least five customers in the knowledge that he had no qualifications or training to do so.  In one case he gave unsuitable advice to a customer to invest in an unregulated collective investment scheme (UCIS).

Mr Gray also recklessly provided customers with misleading information in relation to costs and charges and arranged for customers to sign incomplete investment forms despite being aware of the risk that fees could later be added to the forms (and taken from customers’ funds) without their knowledge.

In addition Mr Gray gave customers pension reports containing false and misleading assurances that they would receive advice on their investments even though, from October 2009, Mr Gray knew that funds were being invested without their consent or knowledge. He also misled the FCA in a compelled interview.

The FCA cannot fine either individual because they were not approved persons at the time of the misconduct. The FCA understands that further investigations are continuing.

Notes for editors

  1. The Final Notice for Mark Kelly
  2. The Final Notice for Patrick Gray
  3. On 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA)
  4. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers, to protect and enhance the integrity of the UK financial system and to promote effective competition in the interests of consumers
  5. Find out more information about the FCA
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The market-force and where it has a voice.



I spent most of yesterday in company with pension providers at the MarketForce conference in London (and most of the evening whooping it up with my chums in payroll!).

The Marketforce Conference is clearly a big deal- brilliantly organised and a credit to the speakers and delegates. I was there wearing a press pass, presumably because Marketforce are forward thinking enough to consider social media worthy of formal recognition.


Most of the presentations I saw were based loosely on research carried out by the presenter. for instance…

BlackRock had surveyed 43,000 people and discovered they invested too much in cash and not enough in longer term investments.

Just Retirement found that left to their own devices, people took sub-optimal drawdown decisions.

Various back-office organisations found that insurance companies would be better off investing in the technologies they made available so that we could have pot follows member etc…

In short, the societal solutions put forward were happily aligned to the business plans of the organisations commissioning the research and the solutions to the problems emerging were usually to be found in the re-education of the customers.

Counter argument

There is of course a counter-argument, which was not so well represented but was certainly going on in my head, that the 43,000 BlackRocky “surveyed” were not wrong but right and that for them, cash was a happier place to be and provided greater overall happiness than shares.

Similarly, those who were exercising freedoms in the way that suited them at the time might turn out quite happy with the consequences of their decisions.

And that even the insurers who chose not to invest in back office technology , might be investing in other things (such as taking away the exit fees to loosen up the assets_.

Synthetic argument

“Synthetic” is a good word as it implies both a fusion of both previous arguments and a degree of artificial congruity.

I don’t think that many of those surveyed would have come to quite this conclusion nor do I think the Business Development Directors delivering the presentations would have entertained the idea that the people surveyed might be right!

Paul Lewis will be publishing a piece of work next week which shows that people who have stayed in cash of late, would have been proved right to have done so. The equity premium – for them – has not emerged and they may be struggling to get above the cash line before needing to spend the money. Martin Lewis does not suggest equity investments because he cannot predict the consequences. More people take advice from the Lewis’ than the 13,000 wealth managers who are the primary drivers of equity investment.

However Derek Benstead, of First Actuarial has shown me numbers that suggest that managed properly, using trickle in and trickle out contribution and spending patterns, equities could be used “usefully” as a long-term  investment plan, especially for the savers and spenders who prize income over capital.

Which also addresses questions about retirement income planning suggested by Just Retirement. Their thesis appeared to be that retirement income planning was too complicated to be left to individuals and that advisers, who can suggest, implement and manage the complex solutions in the Just Retirement kit bag, are vital to the future welfare of those retiring today and tomorrow.

I won’t labour the point that a penny spent on back end technology for insurance company legacy systems is a penny that might better be spent helping clients get VFM- as I am out of my depth, but you get my gist.


I believe in big data, I believe in crowd sourced wisdom and (probably because I am a consumerist) I think that the customer is usually right.

Marketforce left me with the impression that the customer was usually wrong and that without substantial re-education, the customer base of the UK financial services industry was going to hell in a handcart.

I do not believe this is the case. I believe that customers are usually right and that it is the funds industry, the retirement planning industry and the technology specialists who are not listening to what customers are actually saying, wanting and needing.

Infact it is the business culture of organisations that needs to change to meet the changing needs of customers, not the other way round.

Which is why it was very encouraging to hear the two most powerful people in the room – Nigel Wilson and Ros Altmann, talking a lot of sense and talking exactly the language of the ordinary people who were so silent in their majority.

Ros Altmann new

Ros Altmann

Nigel Wilson

Niigel Wilson

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The Pensions Dashboard (and consumer demand)

Clive grinyer 3

Clive Grinyer


“I didn’t know I wanted this, till I came here – I do now!

This was the feedback from one tester of a dummy pension dashboard , as reported in an excellent presentation by Barclays’ Clive Grinyer at a Pension Quality Mark event yesterday.

It’s a bit like staring at a dirty window for years until somebody lets you see outside.


What’s it all about Clive?

Mercifully this was not a presentation about rival consortia and the struggle to win the Government’s hand to build a dashboard; instead we had a clear articulation of that is going to need to happen for us to see clearly out the window – our retirement finances.

For a dashboard to happen by 2019, three things need to come together

  1. A digital verifier authorised by Government (like an electronic passport)
  2. A pension finder service that can get our data from around and about
  3. A user interface (dashboard) that displays the data in a meaningful way.

The Government has decided we have three years to wait and as it took Clive 8 months just to agree to run this prototype, some will say this is ambitious.

But if the feedback is right, and intuitively I sense it is, the ambition will be worth the hard work that must happen from now on.

The vision for the delivery process was simple and eloquent

  1. You verify yourself online (otherwise get yourself digitally verified in a post office.
  2. You enter your national insurance number (which identifies the vast majority of your pension investments
  3. You see your state pension expressed in £pw, your defined benefits (including annuities) expressed in £pa and your DC pot expressed as a cash sum or a £/pa equivalent
  4. You get a whole set of tools that allow you to model “what if?” scenarios.

On top of this basic service, other things could be built, assets that can’t be identified by NiNo, could be flagged as likely your

“we found some more money that looks like yours”

details of which might emerge if you can confirm a couple more data items. Beyond this low hanging fruit there might be more stuff that could be manually traced.

Talking with fellow delegates after, we talked about ways to “search by CV” – perhaps uploading a Linked In profile to interrogate past employers about lost pension entitlements. That we were being fanciful told me that delegates were genuinely enthused.

Getting in the window cleaner!

The mood music of the meeting was not antagonistic, sure there were worries expressed that some legacy providers would not want to play – fearing that without  (or with reduced) exit penalties, legacy assets might vanish to the stronger pension players.

I thought that legacy providers would not fund IGCs and I was wrong, the legacy provider governance through IGCs is stronger than I dared hope. I do not share the scepticism.

Pots cannot follow members until people engage with the issue of consolidation, educate themselves about how to organise their retirement around their various financial resources and until people are empowered to take decisions using real time information.

I am not sceptical about people taking decisions on how to spend their money. I can walk down Oxford Street day and night and see people doing that in their thousands. If people are given a clean window on what they have, I am sure that they will be empowered to make the most of it, especially when there is a clear pathway to maximising the utility of the savings!

Put more simply, when people know what’s going on, they are quite able to make the  most of it (ask Martin Lewis whose website allowed over 4m people to download PPI claims forms).

The digital game-changer

Sceptics ask why – in 30 years of trying- we haven’t had a pensions dashboard. The Conservative MP Tom Tugendhat answered that question at a recent FCA meeting I was at.

“Digital Technology makes it impossible for these secrets to remain hidden”

As I’ve mentioned above, this was not a meeting where the financial services industry looked back in anger, it was, as Tom was doing, looking forward.

People in the room were responding to that anonymous feedback;-

“I didn’t know I wanted this, till I came here, I do now”

Thanks Clive

Clive-Grinyer 2

Clive Grinyer

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Don’t be passive; just because your tracking


investment consultants 2

Most of us have our pensions invested in passive funds. I use a passive grammatical structure because we do not choose , our funds are chosen by others, hopefully with our best interests in mind.

So the best we – as individual investors can do – is trust that those who look after us- trustees and Investment Governance Committees (IGCs) know what they are doing and are working hard for us.

This piece of work is about helping ordinary people (pension investors) ask questions of trustees and IGCs and for trustees and IGCs to think about when looking at the  investment funds they are employing to provide us with the best outcomes when we retire.

Necessarily I am talking about passive funds as almost all the money in the DC defaults is passively managed.

We start by understanding what we don’t know

We think when we invest in a passive fund that tracks an index, that it will give us the return on the index, less a stated charge which is what we pay for the fund.

There are three issues with this.

  1. Firstly (if we are in a GPP or mastertrust default),  we don’t know what the provider is paying for the fund.
  2. We don’t know how closely the fund tracks its index (tracking error)
  3. We don’t know whether what the fund is actually doing is tracking something different (tracking difference)

Bear with me as I try to explain, this is important and you can’t google it. You won’t get told this in your product literature and most people who you talk to at the pension provider won’t know much about this.

Infact it is all so obscure that you will have to pay an investment consultant a large amount of money to explain what is going on , and since most investment consultants have their eyes on other balls (DB solvency typically), you’ll have to get lucky with the investment consultant as well!

This is why Andy Haldane, Chief Economist of the Bank of England is right when he says he doesn’t understand his pension fund. It’s bloody hard, this article is very long and though I’ll try to make it fun as we go along, I don’t blame anyone on giving up. If you do, you might like to skip to the very end where I sum things up.

1. What is being paid for the fund (and by whom).


What you pay for your pension is not what your pension provider pays for your pension fund.

The cost of your pension fund to the pension provider is subject to an Investment Management Agreement (IMAs) and is secret. It should not be secret, but it invariably is, because of implicit (contractual) or explicit non disclosure agreements.

Even the trustees of the schemes and the Independent Governance Committees don’t tell you about the details of the IMAs. But having worked for insurance companies, I know that the cost the pension provider pays for a fund can be less than 10% of the annual management charge you pay. I hear rumours of IMAs where the cost of the default fund is less than 0.05% while the AMC to the investor is more than 0.50% – ten times more than the fund cost. The rest of what you pay is for the additional services offered by the provider.

Not only does the IMA detail what the pension provider is paying, but it agrees what the beneficiary of the fund is getting by way of services. With an index tracker , you might expect that the member is getting the exact return of the index but that may not be the case.

As we don’t get to see the IMA (and most trustees and IGCs don’t have the time or expertise to read them even if they did), what happens with your money is a matter of trust and – what you as an investor are actually paying – depends on how much of the discount, that the provider negotiates ,is passed on to you as an investor

Generally, the master trust providers and insurance companies drive a hard bargain on the cost of the funds they buy for you. But that bargain may benefit them more than it benefits you, infact the more they screw the asset manager, the more the manager may be screwing you. That’s why Trustees and IGCs are absolutely vital, they are there to make sure the IMAs are fair to all.

Is an IMA good or bad?

A trustee or IGC can only work this out when they understand the total consequence for the member of the Investment Management Agreement.

If the IMA offers a very low price to the provider and delivers low fund expenses and full enhancements (see below) then it is a good IMA. But if the IMA offers low cost to the provider in return for which the member carries all the fund expenses and gets a poor deal on enhancements, then the IMA is bad. If the IMA doesn’t promise standards for tracking error and tracking difference – then the performance of the fund cannot be measured and the IMA is incomplete (and bad).

It is vital that Trustees and IGCs have access to the IMA itself and that they know what it is saying. They should get professional help to understand the IMA.

The trustees/IGCs ought to know what they are choosing for their members and should be clear about what tracking error and tracking difference they should be expecting from the funds. In my experience, most trustees and some IGCs are not asking these questions. Some have never looked at the IMAs and some have never even asked to see them.

Once the provider, trustee/IGC and fund manager are happy with the IMA, a process needs to be in place to make sure that the IMA is being kept to.

In answer to the question, the IMA is good or bad firstly for what it promises and secondly for how well those promises are kept.



Tracking error

investment consultant 3

Tracking error is often cited as a key factor in passive fund selection. Tracking error is to tracker funds as goal tally is to a Premiership striker – a fundamental measure of how well the job is being done.

A tracker’s role is to deliver the returns of its benchmark index. In an ideal world, if the FTSE All-Share index returns 10% a year, then a FTSE All-Share tracker will also return 10%. But the world is rarely perfect (mine isn’t anyway), and tracking error shows just how wide of the (bench) mark the performance is.

What exactly is tracking error?

Like so many investing terms, there are many different versions of tracking error and ways of calculating it. It’s therefore often difficult to be sure that two different sources are talking about the same measure.

That said, a reasonably common definition of tracking error is:

Tracking error = the standard deviation of returns relative to the returns of the index.


The lower the tracking error, the more faithfully the fund is matching its index.

When comparing funds, choose the lowest tracking error possible. A tracking error above 2% indicates the fund is doing a bad job.

What causes tracking error?

An index tracker is like an impressionist. It mimics its benchmark but can never quite be a dead ringer, chiefly because of:

  • Costs

Index returns aren’t dragged down by operating expenses, but tracker fund returns are. Therefore you’d always expect a fund to lag its benchmark by at least its ongoing charges. The ongoing charges are deducted from the fund’s net asset value (NAV) on a daily basis, so the lower the ongoing charges, the lower the tracking error, and the better the expected fund return, all things being equal.

  • Replication

Full replication funds that hold every stock in their index should offer zero tracking error as they are the index. (Except that transactions costs incurred when rebalancing ruin the beautiful dream).

Partial replication funds that sample a portion of their benchmark’s securities (because the cost of holding them all is too high) will inevitably generate tracking error, being only a representation of the index rather than a perfect clone.

Synthetic funds use swap-based contracts to guarantee they match their indices’ performance. But the swap fees and collateral costs incurred by the contracts drag down fund performance against the benchmark.

Taxes and transaction costs like brokerage fees and trading spreads add to our tracking error woes, no matter which replication model is used.

  • Turnover

The more trades a fund makes, the greater the trading costs, which ultimately undermines performance and adds to tracking error.

  • Management experience

Although index funds are popularly thought to be so simple that they can be run on a spreadsheet,  better management can rein in tracking error. Trustees and IGCs should look for funds with a long record of tight tracking error.

  • Enhancements

This one actually works in our favour. Funds can earn extra revenue that closes the performance gap (or even turns it positive). Typically this income comes from two sources:

  1. Fees earned by lending out fund securities to short-sellers.
  2. Dividend enhancement – lending out securities to tax-benign territories when dividends pay out.
  3. The extent that these enhancements benefit the investor or the fund manager are determined by the fund manager but should be governed by the IMA. Properly negotiated IMAs will be clean on this , investors should expect 100% of enhancements (without additional undisclosed management fees).
  4. These enhancements carry extra risk (as you may not get your stock back and tax bets can go wrong). Choosing not to enhance the fund reduces tracking error (though it may also reduce the return on the fund (see immediately below)

Is tracking error good or bad?

I found a good chart  to answer this question in a Vanguard brochure.



What this graph tells me is that Fund A is great in the longer term as it is regularly giving me more return on my money. But in the short term, Fund B is giving me more certainty.

Do I want that extra certainty? Well if I’m investing for the short term, yes I do, but generally I’d be convinced by Fund A if I was investing for a long time (which most pension investors do).

Tracking difference.

investment consultant 2

Tracking error is a good measure to know what you are buying but it doesn’t help you know what you are paying.

To do that you, you can use tracking difference as a substitute for tracking error when you want to work out if what you are getting for your money.

Tracking difference is relatively easy to calculate.

Total fund return Vs. total benchmark index return

For example:

If the  XYZ FTSE 100 tracker returns = 1%

And, its benchmark FTSE 100 index returns = 2%

Then tracking difference = 1%

Whatever the IMA says, that tracking difference provides a far more accurate description of the cost of owning that fund.



Trustees/IGCs Look out!

There is one big pitfall to trap the Trustee/IGC seeking a simple tracking difference reading: you must be clear what fund  you are tracking and you need to understand the type of platform you are using

If you are investing using  an institutional funds platform (run by a custodian) ,you can be pretty sure what you see as a fund is what you get.

If you are running a default on a retail SIPP platform (such as Hargreaves Lansdown or True Potential), you need to check whether your fund is meant to hug the Total Return version, or the Price Return incarnation.

Typically trustees aren’t monitoring SIPPs and even IGCs are going to have to warn investors who stray away from the default that they are on their own but they can still be warning investors to be aware that there can be a few different versions of the same index.

If you using an insurance funds platform then the funds you are tracking are the insured versions of the underlying tracker.

  • Some tracker funds started life as insured funds and that’s what you are buying
  • Some insured tracker funds have now been reinsured by your insurer so will be owned by the reinsurer who is responsible for the fund.
  • Some funds started out as ETFs or OEICs, got insured and are now being reinsured.

As a general rule , the more complicated the fund structure, the more likely it is there will be tracking difference. Each wrapper invites more cost and the possibility of errors (which are rarely in the interests of investors). Look for short lines of communication and uncomplicated fund structures.

So what makes for good?

The larger the performance gap between fund and index, the more flawed the product is. Even a tracker that’s trouncing its index is no cause for celebration. Trackers are designed to match the market, not beat it, so deviant performance simply shows the product isn’t to be relied upon over the long-term.

Chances are that the funds with the least complicated structures will also be the ones with the lowest tracking difference. But unless Trustees and IGCs understand the terms of the IMA, they will have no way of gauging the money their members are really paying for their fund.

If they know their IMA they can determine firstly the VFM of the IMA (if they can compare against other IMAs – which they should be able to do)

Once they know their IMA is offering VFM, they need to make sure that the fund managers manage within the agreement, don’t have tracking error that is either too high or too low and that the tracking difference is within the expectations offered by the IMA.

I am not an expert in IMA negotiation, but as a conscientious investor I would like to think those who are my trustees or sit on my IGCs – are!

What makes for good is good governance, which starts with the Investment Management Agreement, continues with the monitoring of the tracking error and tracking difference of the fund and ends with good outcomes for individual outcomes for members.

How can we influence this to happen?

We need to get savvy and start bending the ears of trustees and IGCs. If we are trustees or sit on IGCs , we need to put this stuff into action. We should not shut up, we should be noisy. There is no short cut, it’s our money and we need to kick arse!

This has been a long blog and I’m grateful for Monevator from whom I’ve cribbed a lot.


governance 2



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Who’s afraid of auto-enrolment?

Despite the dire warnings – not that many UK employers

New research from workplace pensions provider NOW: Pensions reveals that UK small firms are relatively relaxed about auto enrolment and the introduction of the National Living Wage with concerns focussed on sales and access to finance.

Here’s the response to their question… 

“What’s your biggest business concern this year?”

  1. Sales                                                                          (34%)
  2. Access to finance                                                   (12%)
  3. EU referendum                                                       (7%)
  4. Government spending cuts                                (7%)
  5. Technology (not being able to keep up)          (6%)
  6. IT security                                                                  (4%)
  7. Auto enrolment                                                        (3%)
  8. National Living Wage                                             (2%)
  9. Attracting and retaining staff                              (2%)
  10. Lack of skilled workers                                            2%)


I know we are supposed to throw our hands in the air and cry “woe” upon these feckless employers ,NOW’s press release  laments that over a third of employers that completed their NOW application in Q1 were either very close to their staging date or after the deadline had passed. 

But I am not in the least worried about this. I am very happy that only 3% of employers are citing AE as a business concern. Presumably 97% are (to some degree) looking forward to offering their staff a workplace pension and an increasing contribution towards their retirement.

Winners mean losers

Not only is stage one of auto-enrolment fulfilled, but stage two, the dispersion of the policy to 1.7m smaller employers is not presenting SMEs and micros with the predicted thread. You may argue (as providers do) that there is complacency and ignorance baked into that “3%” number, but I give SMEs and micros (and their business advisers) more credit than that.

I speak as one of them. We tend to deal with problems sequentially and don’t strategise. If a problem is three months away , it’s a future problem. Today’s problem is sales and sales are impacted by lack of investment finance and the Brexit vote and then there’s a whole lot of other stuff that I know I’ve got to get round to but will probably pay someone else to do for me (cyber-security, auto-enrolment , social media).

Bottom line, auto-enrolment isn’t the big threat we were told it would be. And that means auto-enrolment is winning. Where there are winners, there are losers. The losers are the various ambulance-chasing middleware merchants who predicted carnage at this stage and now see their business plans in tatters.

We do not have carnage at payroll and we don’t have mass non-compliance at the Pensions Regulator and no organisation has or will go to the wall over auto-enrolment. Even the most egregious offenders – step forward Swindon Town FC – have shrugged off their fines and – despite public embarrassment – carried on trading.

The losers are the gain-sayers who said it wouldn’t work.

The new paradigm for auto-enrolment is pensions

kevin hart

Kevin Hart

I think something happened recently. I first spotted it when Kevin Hart of Sage intervened in a BASDA debate and asked us to think of auto-enrolment as a way that Business Software developers could get involved in helping in the public promotion of pensions.

The point Kevin made was that – to the public – auto-enrolment is not about payroll, or straight through processing – or regulatory processes. It is about getting people money in retirement through regular saving from the pay-packet.

That’s why auto-enrolment isn’t a threat but an opportunity. And it isn’t just an opportunity for the backroom boys of BASDA, but a chance for employers to show off that they are part of the solution and not accentuating the problem.

Of course there are still problems with the pensions into which we are investing. But if there’s a new paradigm for auto-enrolment, there’s a Zeitgeist for pensions! The pensions Zeitgeist is the demand from without and within the pensions world for value for money from the pensions we are peddling to these new employers and to those who here-to-now have got what they’ve been given.

Payroll  will eat pensions

By the end of the decade, the question applicants will ask won’t be “do you have a pension?”, but “how good is your pension?”.

Pensions will be part of business as usual whether you work in a chippie or make silicon chips.

Because pensions will be within (almost) every employer, every employee will have to think about them, if only when getting another job or at re-enrolment. They won’t go away.

Those people in companies who know about pensions will become increasingly valuable. I look forward to the day when the pensions officer in a company is a job that’s really worth having. That person can and should be the equivalent of the health and safety function, a really critical part of an organisation’s DNA

It may be the smallest employers will not have such people – but they will know someone who staff can ask questions of, someone who is trusted and reliable and has a track record. In my view, the one person within or without an organisation who fulfils that function is the person who pays us.

So when I say payroll will eat pensions, I mean that we will – I hope – start thinking of the people who pay us now, as the people who hold the keys to our being paid when we hang up our boots.

Who’s afraid of auto-enrolment?

97% of employers do not see auto-enrolment as their biggest threat. Those 3% who see it as a threat are to be congratulated but the 97% are not a threat – but an opportunity for pensions folk.

I know that enforcement is important and that the stick needs to be waved to the reluctant horse, but isn’t it really time we joined Kevin Hart and Sage and started talking pension auto-enrolment up as something that is going to do people a whole lot of good?

Thanks to NOW Pensions, your survey is good news to me and I hope it is good news to those of us engaged in making this great national enterprise work.


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Independent and inter-dependent!

Screen Shot 2016-06-01 at 06.12.27

Jo Cumbo- FT pension journalist

Two top journos go nose to nose-  the usual suspects winding them up, it has all the ingredients of the weigh-in  …before a 15 rounder!

But it’s more complicated. Jo is employed by the FT and protective of its business model (she DMs me politely suggesting i make my way to my newsagents when her story’s behind her paywall). Paul is free to listen to, but like Danny Baker (my other fave) he’s freelance, he gets work from the BBC when he can get it. Paul has a different kind of dependence.

We may be independent, but we are all inter-dependent. When the FT published its death by 1000 cuts story as its front page lead, it got threats from asset managers that advertising would be cut. The FT can build such threats into its business model as it prizes independence above revenues (incidentally you can now read this story for free if you answer the FT’s questions) – press the link when you’ve finished reading this!

The BBC too has the strength of a subscription model (the licence fee) that makes it semi autonomous; but as Jo points out, it has the tax-payer to fall back on. Bernard Rhodes , when he spoke on Friday last, railed against the pathetic laxity within the BBC that allowed Jimmy Saville to be revered even as he fiddled. Rhodes refused to allow the Clash to appear on Top of the Pops , putting his principles before his pocket.

But other bands he managed, Dexy Midnight Runners and the Specials were Top of the Pops regulars. You have to wonder about absolutes, as the Clash sang in All the Young Punks

Of course we got a manager

Though he ain’t the mafia

A contract is a contract

When they get ’em out on yer

Strummer/Jones were independent of Rhodes but Inter-dependent. In Career Opportunities Strummer snarled “do you wanna make tea at the BBC, do you wanna be , do you really wanna be a cop?”

Rhodes knew that putting his band on the BBC would compromise the brand, the BBC became part of his marketing machine when he refused to let them appear.

Independent but inter-dependent

Without the BBC, the commercial press would have no benchmark nor nothing to shout against. Jo Cumbo and Bernard Rhodes are as one in their inter-dependency.

Without NEST, the commercial pension providers would have nothing to kick off against. We need NEST not just as a long-stop, but as a sounding board and a trampoline.

Jump on the BBC and see how high you bounce, jump on NEST and see how high you bounce.

The Government and its money is not inexhaustible and demand could be insatiable. NEST could be a victim of its own largesse which is why I am looking forward to the National Audit Office’s report on how that £600m loan from the DWP is going to be re-paid.

The BBC is similarly under scrutiny over value for money. The anger over Top Gear shows how much we care about the quality of our programming and our refusal as viewers to be fobbed off with second rate, lazy journalism.

Paul Lewis is not above criticism , for all his 88,000 twitter followers. He moans at the BBC as if he owned the place, but he doesn’t, we do! Paul is just like you and me and when he moans at having to pay to read Jo’s articles he is being as mean as I am (£2.80 for the weekend edition- shocking).

The only free read in town

I look at my own reading figures, henrytapper.com gets around 20,000 hits and has around 10,000 visitors a month. I don’t monetise the blog ;because as soon as I do, I will find myself not saying what I want to say. I try to keep the blog clean, be accurate and say things as I see them. Sometimes I regret what I say, like slagging off Danny Godfrey when he was at the IA, when he was as good as his word. I apologise when I do.

I’m not a journalist, I’m a consultant who commentates via a blog that I do on top of my chargeable time. I need Paul Lewis to promote me and Jo Cumbo to break the news I write. Jo isn’t perfect either, but she’s the best journalist working in pensions at the moment and if all the other journalists reading this take exception to that statement, well tough!

I wouldn’t choose to pay for Jo’s work but I do, because it is good enough. I will only listen to Paul so long as he is relevant and irreverent and is as keen as mustard (which remarkably- he usually is).

But your time is not free

You will only continue to read this blog so long as I am myself, independent but inter-dependent on the very best thought leaders, broadcasters, news hounds out there.

NEST reads this blog as part of its Orwellian media watch; this is a stray internal email which accidentally got posted on this blog a couple of months ago. They too are independent and inter-dependent.

Screen Shot 2016-06-01 at 07.20.11

“Hi guys – nothing much going on here today either”

There’s no such thing as a free read , nor a free lunch. Reading this has cost you time, I hope you found it worth it. The moment you don’t – stop reading. The moment you stop reading (and my May monthly reads weren’t great) , it’s time for me to get more relevant, irreverent and keen as mustard.

NEST sharpens the knife, the FT and the BBC sharpen the knife, we all aspire to be the best and in our complex society, the public and private sectors work with and against each other in peculiar and often brilliant ways.

Paul and Jo scrapping with each other  (like the wind) is part of the process. This is not vanity.


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Ezra Pound , Canto 81

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Has a robot changed advice for ever?


financial surfing

Below are the questions I’ve been asked to address next month at the Pension and Benefit Conference.

I hope that when robots go to grammar school, they’ll be able to do a little better framing the question!


The framing of the question suggests that I’m expected to come down on the side of humans, but this supposes that there are people ready and willing to give that advice.

The answer to that question is rather different today than it was three years ago. In the heyday if advice, before the RDR was implemented, there were over 51,000 pension advisers registered by the FCA, that number has more than halved as transparent charging has reduced the numbers willing to pay for advice. Whether the number of us needing advice has decreased has reduced is another story. The pension freedoms are an adviser’s fly-trap.

Some would answer that, regardless of technology, distance learning would have been needed to plug the gap created by the RDR. But the last five years have seen another significant change, the rise of “search”.

We are now used to getting answers to our questions at a click or swipe. If not google, youtube, if not webchat – the bot. The web not only has the gen, but it is increasingly easy to navigate. If you want information, it is now available, it’s free, it’s easy and it’s open 24/7.

From search to guidance

Searching gets us information, but it does not present that information in a way that helps us take a decision. Indeed, the commercial instincts of those who own the social media sites distorts our searches so that we now enter into a game of cat and mouse with the advertisers , our judgement being exercised to sort editorial from advertorial, representative  from selective data.

From guidance to advice

Advice in this context is defined as the provision of a definitive course of action, guidance no more than a fair representation of information necessary to make an informed choice.

With advice comes liability and with liability comes an entirely more vigorous inspection of the circumstances surrounding advice.

The stakeholder pension decision tree was a fairly cumbersome representation of the simple decision taken by a company, a decision tree representing the Nutmeg algorithm would be as different as an aged oak is from the sapling.

The questions posed above are simply scratching at the surface of the complexity of a decision as complex as the investment of a pension pot in drawdown.

But here we have an important decision to take, one that is critical to the FAMR and to the be application of Financial Technology to our financial decision making.

The liability for how we use our robot is far from clear. If the robot has been to the FCA’s sandpit and been deemed a fit and proper robot, should it be let loose on the public without fear of reprisal? Whose is the responsibility for maintenance of the algorithm and the application of the research that informs it ? Is liability for advice time bound or is the benefit of hindsight always with the user?

Too hard to call?

There is inertia in financial services towards the status quo. This bias is understandable. We have had it so good for so long that the threat of a new way of doing things is treated with disquiet. However, the move from search to guidance to advice that is envisaged by robo-advice seems to have been adopted not just outside of financial services but in general insurance, mortgage broking and in the purchase of life insurance. Investments are of course longer term and more capital is at stake than an insurance premium. It shouldn’t be this hard.

The biggest threat to pension providers from robo-advice is probably through the transparency that digital information brings. The pension dashboard will be a reality in 2019, from it will emerge a system of pot follows member. For the system to work, we will need to know not just how to switch but the cost of switching. This will require new levels of transparency from pension providers and asset managers. Concepts such as the “free switch” will need to be tested against before and after scenarios where transaction costs will be laid bare. As these costs emerge, so will a call for greater transparency on the day to day costs of running our pots.

Tom Tugendhat at a recent meeting pointed out that the data needed to operate robo advice is no different from that that powers the pension dashboard or helps us understand our funds on a “true and fair” basis.

The real threat of robo-advice is not that it gives the consumer too little, but that it gives them too much. The challenge is in the organisation of information to enable informed choices and in managing liability so that robots can be empowered to give advice.

I don’t think this is far away. The biggest obstacle to these changes happening – is fear of change. Advice has not change – but the way it is delivered may be about to change for ever.

If you want to see the slides I will be using at PBUK, here they are

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Look before you leap – in all things!

The man on the boundary

I had a very relaxed conversation with a fund manager on the boundary yesterday. The chap I was talking to was a fund manager , conversation turned to the fixed costs of the fund – custody, legal fees, registration fees and the like; the fund’s young and some of the costs may be essential but he reckoned that they amounted to 1.3% of the net asset value under management (the value of the assets less any liabilities).

Of course those fees aren’t part of the Annual management Charge but they mean that the fund will have to grow 1.3% pa before it can show any improvement in the underlying price of the units.

Then of course there is the cost of trading. We know on the “round trip” that buying a share excites costs of 0.9% so if the fellow was trading 50% of his fund , he’d be triggering another 0.45% of costs in day to day activities. Which brings fund costs closer to 2% pa.

And for all the trouble, he’ll need to be paid another 1%pa (which is the AMC) , which is why before anybody wraps his fund or adds platform fees that his fund is needing to make the best part of 3% to stand still.

We are in a low growth market, interest rates are on the floor,  expectations from bonds and gilts are next to nothing, it takes an heroic manager to predict a gross return on assets of more than 5% pa right now. Which means that directly investing in this chap’s fund, your expectation for a net return is reduced by around 60% because of the costs of running the fund.

Put another way, the point of this fund is to reward the fund manager more than the investor.

This is anecdotal stuff, no more than a pleasant chat on the boundary , a good humoured conversation between two people who hardly knew each other but knew we were in the same game and could therefore talk freely of the folly of setting a charge cap at 0.75%.

Daniel Godfrey

I heard on Friday, that Daniel Godfrey has been appointed to work with the FCA to help with the Market Review of asset management and investment consultancy.

Daniel was famously kicked out of the Investment Association, where he was CEO, for suggesting that conversations like the one we had on the boundary, were better had with the Regulator and yes – the investor. That it was time we came clean on the true costs of fund management so that investors could make an informed choice on a “value for money” basis.

The idea that we had a transparent view on what our funds really have to achieve, simply to match market beta (the underlying performance of the assets), was too much for those paying Daniel’s salary. He had to go.

I met with Daniel when he was trying to do this brave work, I thought he was kidding me and said so on this blog. I didn’t believe that anyone was genuinely trying to change things from within. Not taking Daniel at his word and dissing him on this blog is one of the things I regret most. I have apologised to Daniel and he’s graciously suggested we move on. But I’ll do it again publicly. Sorry!

The prevailing Zeitgeist

The word I use to explain the mood that enables Daniel to be brought into the FCA and for the Transparency Task Force to get on the front page of the FT is “Zeigeist”. The mood of the nation, from David Cameron down, is for us to know what we are paying before we pay it and know the risks of not paying these fees in terms of value lost.

It’s a bit like the Brexit debate. Now we know the cost of being “in”, we can think about the cost of being “out”, if we are thinking properly about Brexit we must imagine the world as it would be outside the EC. If we are to imagine a world without funds, we must imagine what it would be like to organise things for ourselves.

For most of us, the answer is a compromise, we want to be in Europe which is run on a saner basis than today or out of Europe but in some collective structure that makes more sense than the EC deal we have today.

I am not arguing that the bloke on the boundary was wrong, his fees may be worth it. Nor am I arguing that investing in the index less a small AMC is right, it may not be worth it. But, just as I want to get my head around a before and after analysis of Brexit, based on proper information, so I want to know the value and the money story of the funds I invest in – based on hard facts.

At the moment , I don’t think I get those facts – and that’s what’s a bothering me.

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A tale of two failures. (BHS and Tata Steel)

BHS and Tata Steel; they have a lot in common

BHS is a  failed retailer, a tired brand with 11,000 employees and a medium sized pension scheme with a hole in it.

Tata Steel is a failed steelmaker, an iconic business (we know as British Steel) with 14,000 employees, a large pension scheme with a relatively small hole in it.

Both businesses are past their sell-by date. They have carried on this long because of the momentum of the past , and they appear to have little or no future without Government support.

We can argue about management issues and no doubt they are where they are for different reasons. The ongoing enquiry into the manner in which BHS conducted its affairs is not going to include Tata. But – bottom line – it is the pension promises of both that have sunk them.

And most importantly, what they have in common is ordinary people who work for them and are paid or will be paid pensions by them. These pensioners have the same deal. That deal is a promise backed by the company they worked for and a lifeboat called the Pension Protection Fund (PPF).

But BHS and Tata Steel are being treated radically differently – why?


Tata Steel seems to be a company that’s worth saving , the jobs must be maintained, the furnaces must remain fired. Yesterday the Government announced a consultation into how we could detox the Tata Steel pension scheme, putting forward a number of options that the nation is asked to consider between now and the Brexit vote (June 23rd).


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A large part of the consultation is about the importance of Tata Steel to Britain, presumably the same argument cannot be made of BHS.

BHS is being allowed to slip into liquidation, its assets will most likely be sold off, where a store which is a going concern emerges , it will be snapped up at a discount by Mike Ashley or his like. The jobs at  the remaining stores will go. The BHS Pension Scheme will go into the PPF, pensioners will get the PPF pensioners deal and those awaiting their pensions will get more or less 90% of what they’d hope to get.


A common lifeboat?


I haven’t yet had time to properly look at the special deal being put together for Tata Steel pensioners.   I do not properly understand whether this is a “Tata only” deal or an alternative to the PPF for any employer who gets into trouble and is considered “strategic”. The special deal appears to include not just a switch from RPI to CPI pension increases but a loss of pre-97 GDP indexation and some rights to spouse’s pensions. The technical analysis will come later.

What comes now is the principal -based reaction to the paper.

As I said yesterday, we have a Pension Protection Fund which is solvent, well run and into which there is a clearly defined entry process. If Tata Steel declares it cannot meet its pension obligations and no employer is prepared to underwrite them, the law says Tata Steel’s pensioners go into the PPF and Tata Steel moves into administration.

I don’t want to see jobs lost or blast furnaces turned mothballed. But I can’t see why the Government should intervene on behalf of one set of pensioners and not on another. I can see every large employer in the country turning to their PR functions to plead they are strategic and I can see every large employer in the country wanting the special treatment accorded Tata Steel.

And I can’t see why a case couldn’t be made for Network Rail, Rolls Royce,  Lloyds Bank , British Telecom, Centrica, British Gas, National Grid British Petroleum or any other of the part privatised companies that have been considered strategic enough to get Government Money – turning to the DWP with a pistol to its head, threatening to pull the trigger unless a deal to detox their pension scheme is allowed.

Political expediency drags pensions back into the mud

managers 2

The fragile but brilliant settlement that has been made between private sector pension schemes and the Pension Regulator, that has worked so well these past fifteen years, is under threat. For what?

So that the Government can be seen to be on the side of the Steel Workers. So the romance of the Port Talbot furnaces can be maintained, so that we don’t have a political problem between now and June 23rd.

Once again (the last time being the ditched pension taxation reforms), pensions and pensioners are treated as a political football to be kicked into touch till Brexit is out of the way. At a macro-economic level, the Government’s behaviour is no more than cynical realpolitik.

But much more sinisterly, the policy being put forward puts the jobs and pensions of a steelworker above the jobs and pensions of a retail worker, for no reason at all. The shop worker has the same financial needs as the steelworker, the same rights to work and to pension. Why should one set of workers and pensioners be singled out against another?

Confusing politics and pensions destroys transparent governance


We are seeing a Zeitgeist towards transparency. To my mind that Zeitgeist is about telling things as they are and not dressing pensions up as something else. Andy Haldane cannot understand pensions, small wonder if a Steel Worker’s pension is deemed more valuable than a Shop Worker’s. David Cameron rails against the fund managers for obfuscation but is happy to put his personal and party’s interests (including Brexit) before open Government.

I do not know how this consultation about Tata Steel will turn out, but I fear it will not turn out well. I fear that those who are bargaining about the future of Port Talbot and the remains of our steel industry have already discounted the “giveaways” in the document into their price.

The fragile peace that the PPF has brought to the settlement of the defined benefit conflict risks being shattered by new legislation that further complicates pensions, sets boardroom against trustee, sets BIS against the DWP and drags pension recovering reputation back into the mud.

Trust government

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A Faustian Pact that could hurt us all


Cut is the branch that might have grown full straight

In a potentially disastrous development to the negotiations around British Steel’s pension benefits, the Government is  considering allowing the rights of British Steel workers (including those drawing their pensions) – to be cut.

There is no precedent for this. Pensions law would needlessly be sidestepped for no good reason. There would be many consequences , most of which are yet unknown.

The move would introduce uncertainty around all defined benefits. As Mickey Clark is currently telling listeners to Radio 5 Live, this undermines rather than builds confidence in our pension system.

A Faustian Pact?

In Kit Marlowe’s play , Dr Faustus strikes a deal with Lucifer: he is to be allotted 24 years of life on Earth, during which time he will have Mephistophilis as his personal servant. At the end he will give his soul over to Lucifer as payment and spend the rest of time as one damned to Hell.

A bit extreme?

Yes, the analogy is sensational and deliberately so. Marlowe’s play resonates today because it is a parable about morality , short-termism and the rule of law.

Superficially, this measure is attractive

The (reported) cut in benefits being considered would cut the value of the increases of the pensions, not the pensions themselves and could be considered -in the short term – better news for current employees.

The reduction would reduce pension benefits to a level which the trustees can pay while prudently managing the assets available.

All other defined benefit occupational pensions would be saved a hit to the PPF and potentially increased levies.

But like Faustus’ pact, this has long-term consequences

By throwing away the current framework for dealing with basket-case pensions, the door is opened to other defined benefit schemes to do away with similarly obscure promises.

For instance the statutory minima increases on guaranteed minimum pensions (one of DB schemes biggest current headaches.

For schemes with long recovery periods (British Airways, BHS and many others), the only thing that a sponsoring company would regard as set in stone could be the contribution rate.

Ironically , this is a return to a world where trustees rely on the market and work with sponsors to do their best (best endeavours).  Having decided to put CDC on hold, the Government would have re-introduced it as a defined benefit alternative.


The PPF other alternatives are available

The PPF has been avoided before, most notably by the Trustees of the Kodak Eastman pension scheme who used the ongoing concern, the film company to become an asset of the pension scheme and pay its profits to pensioners rather than shareholders.

For this deal to work, the trustees had to get the a vote of  agreement of those working in the pension scheme to take a cut in pension benefits, which they did. Similar votes have taken place at other private companies where members have agreed to give up pension benefits for job security, Centrica being one.

These hard-fought agreements have been worked out between members, trustees , unions , sponsors , the Pensions Regulator and in some cases the administrators of an insolvent employer.

This is not what we see being imposed at Tata.


The PPF is big enough and strong enough to deal with Tata, BHS and more

The PPF is a well run pension scheme, rather better run than the schemes it has taken over. I won’t criticise Tata’s scheme as poorly run, I don’t suppose it was. I don’t criticise BHS’ scheme for being poorly run either.

But I don’t see any reason why the Trustees of Tata would be able to run the pension scheme better than the PPF would run it for them and there is no certainty that, after taking one hit, some members would not have to take a second hit down the line if the Scheme lost its sponsor in future.

Some members of the Kodak scheme, chose the certainty of the PPF’s reduced benefits to the uncertain benefits of the ongoing arrangement (which might have seen a similar double cut).

These decisions were tough, but were made by people fully engaged with what they were doing. They were not made for them from above.

In his evidence to the DWP and BIS select committees, Alan Rubenstein made it clear that the PPF was in no short term danger of going bust and when pressed on the impact of BHS (and others) gave hope for the foreseeable future. We have a strong PPF.

Having set the PPF up, managed it well and established rules to the game that everyone is prepared to work to, the Government is appearing to drive a coach and horses through the building, to the great peril of those with certain promises.

Time to say something

I hadn’t meant to comment on Tata or on BHS again, but to let due process happen. But the report on this has been leaked through the BBC and is therefore not idle tittle tattle. The FT have also run with this story and John Ralfe and Steve Webb are on the case.

Steve Webb had the same thoughts on Wake up to Money as I had listening. I would be very surprised if John has any different.

Though I differ from John on how we find a long-term resolution to the problems with defined benefit guarantees, I am totally in agreement with the comments he has made on twitter over Tata and its pension scheme.

The Government are going about this the wrong way, putting political expediency over the long term interests of Tata Steel workers, their families and most importantly the pensioners and future pensioners of other schemes



Cut is the branch that might have grown full straight,

And burned is Apollo’s laurel bough,

That sometime grew within this learned man.

Faustus is gone; regard his hellish fall,

Whose fiendfull fortune may exhort the wise

Only to wonder at unlawful things,

Whose deepness doth entice such forward wits

To practise more than heavenly power permits. 

cut 2

Kit Marlowe


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Rebuilding the social capital of pensions.

Social capital



I’ve been reading Andy Haldane’s recent speech and kick off with this one statement among many good insights.

“A plausible objective of public policy..is not to maximise trust among consumers of financial services but to maximise trustworthiness among its producers”

That would be an interesting exam topic for anyone looking to get accredited as a regulated individual. A pass or fail based on a response to that statement would certainly focus the mind!

The speech is about the social capital of our banking system, of financial services and it’s about pensions.

Those working in financial services have lost their social identity

A recent survey of financial professionals found that more than half of us think our competitors engaged in dodgy practices, nearly a quarter of us thought that our own firms were dodgy.

Haldane suggests that those in financial services have a “social identity” that we might call dodgy. I’ve noticed this at gathering of my peers where conversations that we would never have with our families (let alone our customers) occur around the table. Typically these are conversations about profit maximisation where shortcuts to “quick wins” are spoken of as a social norm.

It appears some of us feel we were born to be dodgy.

So it was that the major consumer scandals,  the unwarranted taking of pension commissions, payday lending, PPI and the wholesale scandals surrounding collateralised debt became collectively acceptable. These problems are made worse by poorly educated and disinterested consumers (according to Government 17% of us have maths skills no better than the average primary school child).

It was in the context of this analysis that Haldane made his now infamous admission

“I confess to not being able to make the remotest sense of pensions”.

Here is a similar statement made to me yesterday by a member of an IGC

The particular challenge in terms of investment cost transparency is not that people don’t want to do it. But, firstly, I sense there’s a huge knowledge gap (amongst, for example, IGCs) in terms of understanding the nature of the components that make up investment costs.

His position could be summed up by his statement

To many of us on IGCs the investment fund itself is a bit of a black box

Perhaps to this; Andy Haldane comments

“There is plenty of evidence, including from the financial crisis, of financial products being made more complex than was necessary and consumers being charged a premium for buying them”

This is, I think, where we are with the debate on value for money. Insurance companies and asset managers telling consumer groups their products are too complex for them to explain and consumer groups being given little or no help by Regulators who seem to think a “market solution must be found”.

Market intervention is needed because social capital (trust) is so low

It is clear that understanding how our pension funds work is too hard for the Head of Economics at the Bank of England.

It is also clear that it is proving too hard for IGCs.

The Regulator published a paper showing how the black box could be unlocked but that was over a year ago.

The “market” has not taken up the challenge of that paper, probably because of a combination of

  1. The noxious odours that might be leaked if the box was open
  2. The cost of uncovering and then rectifying the problems that might be uncovered
  3. The long term impact on the financial models of asset managers and insurers if their principal drivers of profit generation were challenged.

I don’t believe that most IGCs have the confidence to challenge their insurers, let alone the underlying asset managers because they feel complicit in the problem and fear the solution.

My correspondent was one of the few brave people who admitted his inadequacy, I fear most IGCs have not yet got to his position.

And here’s the rub. Those improvements that Haldane talked of in the consumer experience were as a result of regulatory intervention by the competition authorities, not market led initiatives by the industry. He wrote before the Queen’s Speech which saw another set of regulatory interventions (the Pensions Bill 2016).


Haldane’s argument is that there remains a Great Divide between how financial services are seen and how they would like to be seen , by the general public. This divide means that the market cannot mend itself, trust being lost at both a personal and general level.

Haldane’s solutions are thee

a) Enhancing public education

b) Creating Purpose in Financial Services (banking)

c) Communicating Purpose in Financial Services

Reading the speech it becomes clear that rebuilding the social capital of “trust” in financial services, banking or pensions is not going to happen overnight and is not going to happen because of the short-term Regulatory fixes that happen in Queen’s Speeches or Bills or Acts.

He concludes

“Social capital is an elusive asset. But having seen it eroded, it now falls to us all to rebuild it, brick by brick, bank by bank, policy by policy, word by word”.


social capital 2



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Restoring Andy, David and Tom’s Confidence in Pensions

“Pensions are impossible to understand and are harming Britons’ efforts to save the right amount of cash for later life”

Andy Haldane the Bank of England’s chief economist admitted last night.

Andy Haldane

Since I have made it my job, as Founder of Pension PlayPen to restore confidence in pensions, I am pleased that I am not yet redundant but sad that we have not even done our job with Andy Haldane.”out” of pensions

To coin the phrase “they are all out”.

For Andy is in a queue of luminaries lined up against the pension industry, the most eloquent perhaps Tom Tugendhat and most famous our Prime Minister who went into a pensions rant in a recent Parliamentary Question Time.

What all these high profile Government figures have in common is a frustration with the pensions industry for refusing to show its hand and simply tell us how it all works.

Meanwhile we talk among ourselves about the value of what we are doing and look to trustees , IGCs and other fiduciaries to sell our sizzle. They should not be selling the sizzle , they should be examining the sausage.

What is going on with the sausage making is that we are being charged for premium 100% beef services and being delivered 80% bread dressed up in a glitzy bit of packaging.

We are paying many times more in hidden costs than we think we are. A survey yesterday suggested that some “hedge funds” are charging 36 times as much as a simple index tracker for doing much the same. The survey was commissioned and carried out by a former fund manager with a considerable reputation. It concluded that 4.7m of us invest in such funds

Another survey published yesterday by Aviva told us that 1.5m of us have no idea where our money is invested . Paul Lewis took me to task for publishing this research telling me people had no need to know.

Paul is right; subject to the proviso that they should be able to trust whoever they pay to look after their money to do so in a responsible way.

The breakdown in trust in the financial services industry starts and ends in our refusal to be honest, open- transparent- about what we do.

  • We simply will not tell people the truth about what is going on.
  • We don’t tell people how much they are paying
  • We don’t explain why they have to pay so much
  • We cannot give any assurance they are getting value for money


We make pensions impossible to understand because we are scared of the consequences of people knowing what is happening to their money. This is very simply because we don’t have confidence we are treating our customers fairly.

We can do better than we are, but we need to be bold about it and accept that before things get better , they will get worse.

But if we don’t do something , things will get a whole lot worse, and will not get better.




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Pensions Bill – read all about it

master trust3

This post is taken from the DWP’s briefing notes on what we can expect. Since publication, Ros Altmann, the Pensions Minister has confirmed to the FT (and by RT to Pension Plowman and Jo Cumbo) that the measures relating to master trusts will apply to existing master trusts as well as those yet to be launched.

The FT understands that these measures will include a capital adequacy requirement for master trusts meaning they will have to have a reserve of contingency cash (reserves) to call upon if things go wrong.


Briefing notes to the Queens Speech, delivered on 18 May 2016.

The purpose of the Bill is to: Further reform Britain’s private pensions system by:

  • Providing essential protections for people in Master Trusts – multi-employer pension schemes often provided by external organisations.
  • Removing barriers for consumers who want to access their pension savings flexibly
  • Restructuring the delivery of financial guidance to consumers.

The main benefits of the Bill would be:

  • Providing better protections for members in Master Trust pension schemes – including millions of automatically enrolled savers.
  • Capping early exit charges to ensure that excessive charges do not prevent occupational scheme members from taking advantage of pension freedoms.
  • Providing more targeted support for consumers by restructuring the delivery of public financial guidance through the creation of two new bodies and directing more funding to the front line.

This helps deliver the manifesto pledge to give you the freedom to invest and spend your pension however you like.

The main elements of the Bill are:

Master Trusts

Master Trusts would have to demonstrate that schemes meet strict new criteria before entering the market and taking money from employers or members. Creating greater powers for the Pensions Regulator to authorise and supervise these schemes and take action when necessary.

Cap on early exit charges

Capping early exit fees charged by trust-based occupational pension schemes. Creating a system that enables consumers to access pension freedoms without unreasonable barriers.

Restructuring financial guidance

A new pensions guidance body would be created, bring together the Pensions Advisory Service, Pension Wise and the pensions services offered by the Money Advice Service, providing access to a straightforward private pensions guidance service for customers. A new money guidance body would replace the Money Advice Service and be charged with identifying gaps in the financial guidance market to make sure consumers can access high quality debt and money guidance.

Money guidance body

The new guidance bodies will operate UK wide, and financial services is a reserved matter. However, devolved administration issues may arise due to links with financial education (devolved). These are not likely to be contentious and we are in discussion with the devolved administrations.

Key Facts

We have already seen over six million people automatically enrolled into workplace pensions since 2012, reversing the downward trend in private pensions participation.

As of January 2016, almost 400,000 pension pots have been accessed flexibly under the new freedoms with many providers offering their customers a range of options.

Data collected by the Financial Conduct Authority shows that currently nearly 700,000 (16%) customers in contract-based schemes who are able to flexibly access their pension could face some sort of early exit charge.


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Till we know the “money” – shut up about “value”.


managers 2

I had a number of meeting yesterday culminating in an afternoon spent with members of the Transparency Task Force (TTF), with the FCA and with certain interested observers.

I can report the meeting happened and what was said but not by whom, as ever – transparency does not extend as far as personal accountability – well not when it is focussing on such a sensitive subject as how asset managers make their money.

Let’s remember that we  we pay for the management of our pensions is limited to a charge on the accumulating fund known as an AMC. The AMC cannot be more than 0.75% of the value of the fund (though that 0.75%) can comprise a fixed member charge (as NEST , NOW and some other trusts do). Any charge made to the employer for administrative assistance can also fall outside the charge.

That at least is the received wisdom. But it is not the end of the story.

If you start digging into the fund accounts produced by asset managers , you find lines and lines of further costs borne by members which are not part of the AMC but are charged to the “net asset value” of the fund. These costs are measured and published and they can be substantial, in some cases they can be bigger than the AMC, more than doubling what a member is bearing as the total cost of having a pension.

If you dig some more then you discover that yet more money is being lost to the member’s pension pot by the trading of the fund. The more the fund trades, the more costs are incurred. Trading is not bad- in most cases trades are legitimate and designed to improve the return to members, but trading can be done well or badly, depending on how skilled and bothered those executing the trades are.

The further we dig into the matter, the less audited the costs are and the greater the scope for bad execution and even deliberate malpractice.

There is currently a move among pension providers to divert attention from the proper investigation of these ‘hidden” charges towards those nice things that providers think we value.

Like instant access to our account values on the internet

Like the capacity to switch between a wide range of funds

Like fund modelling tools, gamification and integration with SIPP, wrap and ISA products.

Like the prospect in years to come of a range of options with which to exercise our pension freedoms

And a whole load more.

Sadly for the providers, the general public are less interested in these things and more interested in what they get out of their pots (relative to what they put in).

So “value” for the providers is an artificial construct which consists of brochures, web-portals and incessant surveys on “what people want” framed to prove that if people knew what they wanted, they’d want to pay for all of the above and not worry what was leaking out of the back door.


Here is the simple economics lesson.

The asset managers have learned how to charge the product providers next to nothing for their product. I know of one “deal” where the master trust is paying between 0.02 and 0.03 of one percent for asset management.

The product providers are charging members between 0.5 and 0.75 of one percent for managing the pension fund.

But the asset managers are paid on average £200k + pa and have swanky City offices and pay their shareholders well. How can they make a profit from such a small charge? Why are they so keen to manage assets for us through workplace pensions?

The answer is simple – asset managers- including passive managers – have numerous ways of making money out of our money in a cloak and dagger way which is neither disclosed or properly audited.

It is simply economic to spend money as a product provider getting people to look at the value of their product features while spending no money at all scrutinising whether members are getting value for the money that is being lost to their funds to pay the asset managers.

Here is what we need to do

  • people interested in value for money from their pensions should tell their IGCs and Trustee boards that they want full disclosure of what the member borne charges are within the default funds into which they are investing
  • they should put pressure on the DWP to come up with the formulation for the charge cap (v2.0) due in April 2017 and what it will included that is not included in the charge cap (v1.0) launched in April 2015.
  • they should contact Andy Agethangelou, subscribe to the Transparency Times and (if possible) attend TTF meetings.
  • they should watch the lips of David Cameron and other senior politicians who are at last talking about doing something about transparency
  • they should take with a pinch of salt any research carried out by anyone in the name of value for money which does not focus on the real cost in monetary terms of whatever value is supposed to be created.

Value for money is tough

Providers find “value for money” tough to measure and tougher to disclose. That’s because it is a scarce commodity. The vast majority of the value is pocketed by those who manage our assets and the wrappers and apparatus which present our pension pots back to us.

The asset managers and those who have constructed the apparatus we are asked to buy into via auto-enrolment or otherwise, are keen to keep things the way things are.

They will use all kinds of means to stop things changing including attempts to shut me up.

But I’m not going to stop writing about this and hammering on the FCA/tPR/DWP/Treasury’s door till we get action from Government to put  consumers back in charge of what they buy.

The IGCs are bodies set up to help people both see and get value for money. There are other bodies, including the FCA/tPR etc. There are occupational trustees charged with maximising the efficiency of DB and DC schemes.

How much of the BHS pension scheme’s deficit sits in the pocket of the pension industry I wonder?

How much of that 13% pa return I was promised when I took out my first personal pension sits in other people’s pockets?

These are the questions that Government, trustees, IGCs, employers and members of funded pensions should be asking, are asking and are getting frustrated not getting answers to.

They’ve done it in the Netherlands.

The Dutch have done it, they’ve gone a long way down the road to discovering what we are actually paying for their funds.

Now that they know what they are paying, they are figuring out what they are getting value for their money.

The Dutch are learning how to work out whether their asset managers and pension providers are doing a good job

Value for money is tough, but the Dutch are getting there. It’s been a long time coming, but change is going to come.


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Putting yourself second – what a boss should do.

Philip green

There is no law that says you should be polite. Standing aside from someone getting off a train, opening doors for the elderly and those with push-chairs, paying your pension bills before paying your dividend, these are all things we expect of each other.

Philip Green has consistently not broken the law. He has however broken the rules that society lays down for bosses, that they keep their promises to others, before they make promises to themselves.

I watched newsnight last night and wished that this distinction had been better made by Frank Field, a man who I greatly admire for putting others before himself. I went to hear him speak in Oxford one cold winter night. I stayed on after to ask him a question and after I’d finished I went to get my coat

Frank; “have you got far to go tonight”

Me; “I’m taking the bus up to park and ride”

Frank; “Would you like a lift, I think it’s on my way”.

Frank Field was then a Government Minister and I travelled with him in a posh car, he dropped me at the car park, I have never spoken with him again but I remember the kindness which defines my opinion of him.

So when Field stated that Philip Green should have his knighthood stripped, I knew why he said it. It’s because of the moral compass that Field has and Green hasn’t and because that knighthood is recognising that Green is what he isn’t – a gentle man.

I wish that politicians could talk in simple terms of right and wrong and use phrases like “society expects” because I think they are entitled to. We elect politicians to be bold as Frank Field has been and to uphold a bigger law than the technicalities of clearance surrounding the payments of dividends or the sale of pension liabilities.

But last night, I felt that Frank was being too cautious, fearing that should he speak out against the moral vacuum surrounding Green and his advisers, he could prejudice other enquiries, some civil, one criminal into the goings on at Arcadia, BHS and the Retail Acquisitions Group.

We saw the havoc on the Isle of Wight following Dominic Chappell’s bankruptcy, printers who paid their bills (though Chappell didn’t), even the owners of the cafes whose businesses had suffered from Chappell’s reckless failures.

But Chappell, like Green, appears to have done nothing illegal.

Putting yourself second is part of the social contract that polite society enter into. It is an assumption that underpins trusteeship of pension schemes and it is assumed by the Pension Regulator that both scheme sponsor and trustees will do the right thing. There is no evidence that the trustees of BHS did not do the right thing, there only mistake seems to have been to assume that they were dealing with a decent and honourable sponsor.

The reason I do not want more regulation on trustees and sponsors, more “iron fist” is because I still believe in the velvet glove. I do not, as some do, think that the age of chivalry is dead, that employers and trustees will not do the right thing (if given the chance not to) and I don’t think that most bosses are like Philip Green.

If I felt they were , I would go and live in Scandinavia or Germany or even France where there is still a social contract of the type I am talking about. There is such a contract in Britain and it worked for the pensioners of Kodak and I think it may work for the pensioners of Tata Steel and it may yet work for PPF (which incidentally isn’t-yet- in the PPF).

Risk sharing of a pension deficit means members, trustees and employers all accepting a share of the problem, and- by working together- helping each other out. When there is trust between the boss and the employee, when the trustees are properly consulted and when the Pensions Regulator is on the inside and not on the outside, risk-sharing can happen.

But no-one trusts Philip Green any more – except to put himself first.

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AE – State of the Nation – thoughts from Accountex


Two days conducting over 300 conversations with accountants , payroll experts and a pension providers has put me in reflexive (and recumbent!) mood!. I may only have spoken to 1 in 10 of the people who passed the Pension PlayPen/MyPaye/MyDeck stand but I think I spoke to enough to be able to say a few things about our AE nation. Having been attending these conferences for four years, I’m able to chart in my head, how things are changing and think a little more strategically about what lies ahead.

I have a few key messages appearing through the fog

  1. God is on the side of the big battalions
  2. The innovators are making ground but there is more talk than walk
  3. Payroll will eat AE and it will eat HR
  4. Payroll though leaders are getting there on “auto enrolment”
  5. Accountants are clueless (about pensions!

Accountants are clueless about pensions!

Having alienated half my readers with point 6, I’ll deal it first and work backwards.

On my forays around Accountex I overheard accountants on various provider’s stands attempting to do due diligence on the pension providers exhibiting. These ranged from pension providers I had never heard of – “Budget?” to NEST , Aviva , Peoples and NOW.

They came away with a lot of brochures and a lot of half-baked ideas but to suppose they had done “due diligence” or were clear about the likely outcomes of choosing one provider over another is stretching things.

Thankfully Tony Margaritelli was growling at them from the ICPA stand, warning a little knowledge was a dangerous thing and pointing his members in our direction,  I don’t know much about accountancy, but I do know that accountants are as far from being pension experts as actuaries are from being accountants ! As Tony points out

“you wouldn’t be advising clients on contract law, don’t start with pensions”.


Payroll thought leaders are getting there on AE

As John at Sift Media pointed out to me, I may know not know how to process a payroll (or even an auto-enrolment upload file) but my ignorance is bliss. Compared with the so called experts dotted around the hall claiming to be AE processing experts, payroll people are AE experts.

The comfort with which many of the leading bureaux managers now talk about payroll processing suggests to me that we have an emerging thought leadership. The best articulation of this is a pensionsync presentation delivered by Will Lovegrove earlier in the year which demonstrates how these experts are beginning to create a firm platform on which others will build.

Where these people lead, others will follow , but the pace will need to be swift.


 Accountants experiencing scope creep

The breadth of HR related services being offered at Accountex 16 demonstrates not just the “digital dividend” of embracing the new technologies but the bewildering complexity of services that can now be offered through accountancy and payroll software.

The new technology looks capable of engaging, educating and empowering medium sized employers to do much of the work traditionally done by HR and employee benefit consultants – themselves. This threatens the established order in mid-market as much as AE threatens the traditional dependency of SMEs on IFAs.

Payroll will eat “pensions” and eat HR

I have been saying for some time that Auto-Enrolment will transfer the value of pensions from pension specialists to payroll. I can now see how small employers can use payroll’s new found confidence to build upwards from AE so they can establish some return on the investment on the new-found pension spend. I am going to be reporting this back to those in Government who are keen to find a way to improve financial literacy in the workforce. The new technology – available on almost every stand – shows how this can be done.

More talk and walk from the innovators

The speed of adoption of the new technologies is slow. Despite the noise, few people I spoke to at Accountex 16 were actually using APIs as part of their AE processing. We still see “old school” thinking in practice.

I don’t think this surprising but I do see it as disappointing. If (as pensionsync research suggests) it is currently taking an average of 67 minutes to process an auto-enrolment payment- that is 60 minutes too long. If it needs an IFA to write a report for £1000 on an employers’ pension options , that is £800 too much!


God is on the side of the big battalions

Accountex is about money, money talks and big money talks loudest. People go to Accountex to see Sage, Iris, Xero, Exact and they discover everyone else by accident!

The small vendors (of which Pension PlayPen is one) cannot make it to be big vendors without partnerships with the big boys. Indeed most of us are only waiting for those partnerships to become credible to the wider market.

The importance of the large accountancy and payroll software suppliers cannot be under-estimated. While innovation and early adoption comes from the mid tier (hats off in my world to Star, my Paye and QTAC) the market surrounds and is driven by the decisions taken by the major software house.

By my rough calculation, we can expect something like 400,000 employers to stage using Sage’s AE software with Iris and Moneysoft next in line, QTAC, Star and others will follow

The success of auto-enrolment is in their hands.




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Accountex 2016 – are you there?

accountex 2016


This is my fourth year going to Accountex. It’s a trade show, not a conference, most people who go are running their own businesses and are looking for ways to run those businesses better. This is in marked contrast to most pension conferences where there is little of this entrepreneurial stuff going on.

In my four visits, I’ve learned how to conduct myself in a world where interest is genuine and there is a common purpose. This is not a place where you get drunk at lunchtime, this is in deadly earnest, most people in the hall are fighting for a living – few behave as if the world owed them one.

The Pension PlayPen shares a stand at Accountex 16 with MyPaye and MyDecks. If you are a pension person you may not have heard of our partners, but between us we look after the payroll, HR and pension needs of about 10,000 UK employers and while we have no common ownership, we work collaboratively, promoting each other to existing and new customers.

Instead of a piss up (the standard way of winding down after a pension event) we decamped to Abbey Wood Camping grounds and had a bar-b-q last night outside our host’s motorhome.

Which summed up to me the differences in budgets between pensions and payroll!

This common purpose, sense of frugality and sense of daring was summed up by one of our party who told us that she had had a choice this year of paying herself a wage or taking on new clients. She decided she would rather live on fumes and grow her business, I hope it pays off for her- how many in the comfortable world of pensions would take that chance?

At 54 and a half, I have found my career re-excited with the engagement with such people and feel proud that I have been accepted (to some extent) into this community.

I wouldn’t like to paint a picture of a failing world, far from it, the sight of the stands of Xero, Sage, Iris , Exact and many others suggests that if he or she can break through, the entrepreneur stands to make a great fortune. And I’m proud that My micro-business commands some respect with some of these Titans.

For endeavour in this environment is both recognised and rewarded. And it was particularly good yesterday to find our stand close to Aviva. Good on you Aviva for investing in Accountex and hats off to the group of young people I found at the end of the day typing in the names and emails of everyone who’d visited their stand! May such endeavour be rewarded!

You’ve inspired me to do the same with my leads which are now safely in my laptop with Linked in invites out!

So a good news blog! If the capacity crunch is going to be avoided, it is going to be by the people I shared the vast Excel Hall with yesterday. Day 2 is dawning and soon I will be biking down to Tower Gateway to take my DLR train out.

I hope we’ll see one or two of you there!

Andy and Henry!



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A Regulator that can look after herself


My favourite moment from an afternoon spent watching Parliament TV’s absorbing proceedings was when Lesley Titcomb, Pension Regulator turned to the Chair of the DWP Select Committee and smiled “If I need more powers, I know exactly how to get them”. It was not a put down, it was a statement of confidence that characterised an extremely competent performance.

There’s a podcast of my comments on this subject on Radio 5’s – you can listen to it here.

To say that the Pensions Regulator has to walk a tightrope is to belittle her work with a cliché. If she steps to the left she risks pushing an employer into insolvency, to the right and she’s giving an employer the chance to dump liabilities into the PPF and onto other schemes through the PPF levy. The same can be said of the trustees of a scheme such as BHS.

As Alan Rubenstein , CEO of the PPF explained, it’s easy enough for him to sit in judgement, he only has the interests of pensioners to worry about, the Pensions Regulator has to worry about their jobs and the jobs and pensions of millions of others to boot. Uneasy lies the crown.

So it’s good to see a Regulator not complaining or pleading for extra powers, but simply telling it like it is – sometimes with brutal honesty.

I guess the headline moment of her talk will be her frank admission of how she learned that BHS had been sold to the Retail Acquisition Group.

Screen Shot 2016-05-10 at 03.52.48


It’s a little too like football manager’s finding out about their sackings. Our knee jerk reaction is to poor scorn on the Regulator for not regulating (something one member of the BIS committee actually did).

To dismiss the Regulator for her candour would be a mistake.

“I am a Regulator of limited remit”

Concluded Titcomb at the end of her session , that remit does not extend to corporate governance as (not) practiced in this instance. There was no law that said that Green and Chappell had to inform the Regulator of the sale, but in not doing so, they took a risk of exposing themselves – as they are now exposed – as acting with scant interest in anyone but themselves.

The problem is not with Pension Regulation it is with Corporate Behaviour, a matter for other parts of Government, not least the insolvency commissioners.

More a matter of poor corporate governance

My conclusion after watching both Alan Rubenstein and the Pensions Regulator is that we have a strong, honest and functioning Pensions Regulator and that the system is “working its way through” (another Titcombism I enjoyed).

Yes, the 23 year recovery period looks too long, but would a shorter period have served the PPF better – or BHS staff? That is a matter for speculation.

Yes, the behaviour of the Arcadia Group, as evidenced by their failed attempt to Guarantee the Scheme with a shell company suggests that the Regulator could have read the tea-leaves better

Screen Shot 2016-05-10 at 04.09.56

But I cannot poke this Regulator with a stick, because she didn’t beat Green up, she had no business doing so. Her job was to protect the PPF, protect staff jobs and to use her powers as she could.

The sale of BHS is now an “anti-avoidance case” for the Pension Regulator, she is able to pursue individuals with contribution notices and I would not sit easy if I was under such investigation.

In my opinion the Pensions Regulator needs no more powers in this, than she has had and as Steve Webb put it in his written evidence to the committee

For as long as the past promises are sacrosanct, all options are ‘making the best of a bad job’.  But there may be ‘least worst’ options, and certainly ensuring that the regulatory regime is working as intended is essential.

In my opinion, we heard nothing from Titcomb or Rubenstein yesterday to suggest that the Regulatory system isn’t working and much that suggests that it is working well (at least so far as Defined Benefit Schemes are concerned.

That is not the same in all aspects of the Pension Regulator’s work and the supervision of master trusts is clearly an area where she needs more power and urgent legislation.

Frank Field hinted we may here more on this today. If his reason for writing to the Chancellor to get support for a Pensions Bill was to strengthen the Regulator’s powers to curb the proliferation of nonsense master trusts, I’m with him all the way.

But we should not assume that because part of the Regulator’s powers need fixing , that the rest need fixing too. The two issues are not as one, no matter how they may be reported.

But Lesley Titcomb , as we saw yesterday, fights her own battles when she is allowed to. I was pleased to see the Pensions Minister allowing her to do just that – earlier in the week.

We have a strong Regulator, skilled in her conversation and knowing her own powers. We should be grateful for that. We have a pensions minister who is at last able to do her job and we have an understanding, (if sometimes a tad patronising) Chair of the Select Committee.

I look forward to part two of this, and the discussions between Philip Green and Lord Myners.

To me, the BHS pension failure is a failure of corporate governance, not a failure of Pension Regulation.

You can watch the session here


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Learning to live from what’s in the (pension) pot

target pensions


Today’s the red letter day for the Pension Regulator (and to a lesser extent- the Pension Protection Fund) , when they find themselves under the scrutiny of the DWP Select Committee. In question is the competence and capability of both organisations deal with the deluge of large schemes knocking on their doors. Specifically Tata Steel , BHS and Austin Reed.

These are new school problems and we’re looking to provide old school solutions. I’d like to think that the Government, as part of its reaction to the problems of pension debt, will look to new school solutions and dust off the Pension Act 2015 which makes provision for a third way which spends the pension pot according to its means.

If this sounds at the top of the ladder of abstraction, let me climb back down and explain what I mean.

Right, that’s better – back on terra firma!

A finite pot, an infinite problem

There is a finite amount of money to pay pensioners in funded pensions (and the PPF is a funded pension and cannot fall back on the goodness of the tax payer).

There are infinite liabilities to the pensions payable. Were it true that the first person to live to 200 is already on the planet, we cannot be sure how long the PPF will have to pay pensions.

There is a  weak covenant from the former employer (Tata, BHS and Austin Reed) though it is likely that there will be a new employer. It is unlikely that the new employer would be prepared to take on infinite liability with finite funds. Even insurers struggle and Steelmakers and Shopkeepers are not insurers.

The only other solution is for the members of these various schemes (and anything up to 1700 other final salary schemes the Regulator considers basket cases) to accept a different deal, a deal where they share the risk of the pot running out and become a part of the solution rather than the problem.

There are a number of ways this can happen.

  1. The membership can go into the PPF and get reduced benefits guaranteed by other solvent pension schemes via the PPF levy,
  2. The membership can accept a curtailment of benefits (as a preferable alternative to the “haircut” they’d get from within the PPF.
  3. The membership could take transfers and go it alone
  4. The membership could accept a new deal with the trustees and sponsor so that (so long as they keep working) they get a defined contribution from the boss and the benefit is targeted rather than guaranteed.

The last of these three options is what is happening in the Netherlands and some parts of Canada and is known as Collective Defined Contribution (CDC).

Taking the asbestos out of the ceiling.

CDC is deeply unfashionable. It was kicked into the long grass last summer  by our Pension Minister (though I’m not sure she had a lot of say in what was going on last summer).

In any event, while the primary legislation for making CDC happen got on the statute book in 2015, the secondary legislation is incomplete. You might imagine CDC as a tower block whose structure is in place but which is waiting for the interior fittings. It stands awkwardly on the landscape, but it cannot be used.

The intention from its architect Steve Webb, was that CDC would be voluntarily adopted by those employers wanting to provide a more certain outcome than DC without the obligations of DB. In practice it is more likely it will be used as a way to take the toxicity our of final salary schemes. To pursue the building analogy, DB schemes have guarantees in them which (to employers) are like asbestos in the ceiling.

A new social contract

The biggest question facing CDC is whether it can be accepted by the unions, and most importantly Unison. Unison are the public service workers union and the guarantees within the public service pension schemes dwarf all others, they are underwritten not by the private sector but (generally) by the tax-payer.

Unsurprisingly, these guarantees form part of the employment contracts of millions of public sector workers, who form the majority of Unison’s memberships. CDC, as it might be used as an alternative to the PPF, is an alarming prospect for the public sector. New Brunswick is an example of a Government system where the social contract on pensions is that there is a finite pot , a finite contribution and the pensions will be paid according to the capacity of the pot to pay.

This is a very much weaker promise than a guarantee on existing benefits. But the guarantee is only as good as the sponsor’s capacity to pay. Tata, BHS and Austin Reed have currently no solvent sponsor so CDC sounds interesting.

But if the door is left open for these schemes, it is also open to others, specifically the 1700 weak pension schemes identified by the Regulator. And if they were allowed to operate on a “we’ll do our best with what we’ve got” basis, would it be long before the solvent schemes and even the LGPS started knocking on the door?

There would have to be a radically new social contract between member and sponsor, one based on trust that the employer would do its best and that the member would accept that sometimes “best” might not be good enough.

The Alternative

The realists, those like Michael Johnson and L&G’s Nigel Wilson, who want to see more transparency in the publication of pension debt, point to the £4.1 bn undisclosed debt latent in the Pay as You Go, unfunded pensions operated by the Government. They rightly ask whether it is right there is a social contract in place to pay these people in full while the rest of Britain’s workforce get by on the thin gruel of DC pensions or DB promises (which may not be kept).

The Alternative to the current system, one which is an elephant within the room, is a move towards unguaranteed pension benefits payable on a best estimate basis.

It is too much of a hurdle to expect this any time soon, but it is the central argument of retirement funding in this country and it is an Alternative that I expect to be explored and implemented within my lifetime.

I fully appreciate the objections of Unions and members to the threat of any dilution in the promise they currently get, but if we, as a nation, are to embrace risk sharing, we have to start with first principles.

So, as a big fan of Unison, Unite and other employer representatives, I ask whether now, at this time of acute strain on the PPF , we re-open the debate on risk-sharing and look again at CDC as a faire way of spending a finite resource on an infinite problem.

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Partying without John (a tribute to John Broker)

John Broker

Fondly remembered


John Broker died last week from a freak accident that cut short a blessed life. John was not only a very good business man but a great partygoer, indeed he could create a party by simply being in the room. He was a giving person.

I missed him terribly last night.

I spoke with one person at the Professional Pensions Awards last night who told me

John’s spirit is in the room

I was only one of hundreds of people who could call John a friend, I don’t know any who would call him their enemy.

In the week since his death, the book placed in ITM’s offices by his wife has filled with tributes. If you want to write in it, just phone ITM and book a time to go to Mincing Lane.

If you can’t get to London and would like to leave a public statement about John, you can use the comments box below.

Last night was a great night of partying, John would have loved it, I hope that his spirit was in the room.

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Value for money from investment consultants

investment consultants 2

In this article I’m proposing that investment consultants are subject to the same degree of scrutiny as the other service suppliers to trustees. Investment consultants should be subject to a Value for Money assessment).

This morning I will be hearing about the latest thinking on value for money for the consumer. The PPI have been commissioned by Standard Life to help take forward the thinking on how IGCs should consider VFM from the providers they govern.

I’m a big fan of the PPI and would be very happy to work with them towards a solution to this thorny problem. The consumer has neither the information or the toolkit to make sense of the information; which is what the IGCs are there for.

That the IGCs don’t have the data is more worrying, that they are still worrying about what data they need, is shocking. Hopefully things will move forward this morning (though you won’t know much more as Chatham House covers most of what will be said!)

It seems strange that, at a time when Transparency is the watchword, we are still under “non-disclosure” restrictions in a public meeting!

investment consultant 2

I spent a little time on this yesterday, especially when put under pressure by Andy Agethangelou for questions to put to the FCA at a forthcoming meeting of the Transparency Task Force.

What would I want to see coming out of the FCAs thematic review into (inter alia) investment consultants?

Well I’m not putting myself under a non-disclosure agreement! I would like to see investment consultants subject to the same degree of scrutiny as any other service supplier to a trust board (or indeed an IGC!).

Investment Consultants should be subject to a value for money assessment , carried out at least every three years (and preferably every year) by the trustees of the occupational pension schemes they advise.

The assessment should be conducted by the trustees who appointed them and the results of the assessment should be simply printed in the Chairman’s report with a green, amber or red sticker attaching.

Green would imply a clean bill of health – nothing need be done by either side but BAU

Amber would imply deficiencies in the service supplied – a clear list of these deficiencies should be delivered to the consultants with an action plan for remedy

Red would imply an unsatisfactory performance from the investment consultants and an immediate market review to establish if the trustees could do better.

The assessment would be carried out by the trustees (or a sub-group) and would be assisted by a template of probing questions the trustees should ask themselves. On no account should the investment consultants be invited to complete this questionnaire though the trustees might consider asking the consultants the questions to their faces.

That this be a mandatory part of the trustee’s duties , should come as no surprise to many trustee boards who do this anyway. Though perhaps not in a formal way.

Investment consultants should have no objection, they are proposing exactly this kind of thing on other service providers (particularly the fund managers).

The Regulators, to whom these reports would needs be submitted, would have an invaluable source of data. Whether by tPR or FCA, the analysis of these reports would build a picture of where value for money was being delivered, by whom and in what measure.

But the greatest benefit of all would be to the Trustees (and those they act for). Trustees have difficulties with consultants. Too often they are the supine recipients of advice, too rarely do they push back. Considering the performance of those who deliver performance reviews, puts Trustees back in control – as they should be.

And when we’ve done with them, the trustees might move on to the actuaries, lawyers and auditors…

For the most part, these service providers are invisible to the ordinary members. But when waters get choppy, they become accountable. This from the Mail

A spokesman for Arcadia, Green’s family firm, said: ‘We have no involvement in the trustees’ decisions, their investment strategy, who they talk to, where they put the money. They’re totally independent. 

‘They’ve got advisers. They had a lawyer. They’ve got an actuary. Well, where the f*** are all these people?’

Those that need accountable strong advisers most, are of course the pension scheme members

Which is why the FCA is carrying out its thematic review!

investment consultant 3

Posted in consultant, corporate governance, Fiduciary Management, pensions | Tagged , , , , , , , , , , , , | 4 Comments

The Power of the Ordinary #LCFC

Warren Buffet

It was all super- ordinary! Mayhem in the Jamie Vardy House, Gary Lineker pondering a new career in lingerie and Gus getting a call from Claudio, thanking him for Chelsea’s second half performance



If the word “surreal” was made for anything, it was made for yesterday and above all Claudio’s day out to have lunch with his 94 year old Mum. If that doesn’t put the whole Premiership circus in its place what will! “No comment” from the boss who probably went out for his traditional Monday night pizza.

Leicester ran

If you want to understand what sport supporting Leicester following these Foxes can be, check this vid!

Leicester’s two top spokespeople are “blokey mcbloke”.

Gary, (family man) Linacre (the boy) and Robbie Savage, sporting some strange South American rodent on the top of his head. Neither showed any capacity to hide their feelings on TV. Despite desperate apologies to his former club, the sight of Linaycre revelling in having had a Leicester season ticket since he was 7 , was the highlight of the evening. Tottenham is a great club- but nobody was sorry when Hazard sliced that beauty into the top right-hand corner!

Leicester is a place so ordinary that they bury their greatest historic relic under a car-park. Leicester, the 9th biggest City in the UK has a bunch of professional egg chasers who nobody likes and a set of Foxes who are the glory of a nation.

leicester city


You cannot take the ordinary out of Leicester, Leicester was made for the ordinary fan, the ordinary player and the ordinary manager and what happened last night, and will happen again this Saturday and Saturday week will mean more to football than the Tigers can ever mean to Rugby (or the town).


For a dispassionate analysis of the financials , look at yesterday’s blog.


Leicester’s first team cost less than Lionel Messi’s new car and “Dilly Ding, Dilly Dong” Ranieri has shown that football (and sport in general) is less about PWC than TLC.

During half-time, I ignored the snooker and read an account of Warren Buffet’s latest “rant” to shareholders. It didn’t sound like a rant to me, more a poke in the ribs at hedge fund managers and investment consultants who’s high frequency trading does more harm than good  – to the companies invested in – to the shareholders and to the their trade.

The Wall Street Journal’s Account is as sane and down to earth as Ranieri, Savage and Linnaaycre. You can read it here

Yet again Buffet exposes the vanity of human wishes.

“Supposedly sophisticated people, generally richer people, hire consultants, and no consultant in the world is going to tell you ‘just buy an S&P index fund and sit for the next 50 years.’

You don’t get to be a consultant that way.

And you certainly don’t get an annual fee that way. So the consultant has every motivation in the world to tell you, ‘this year I think we should concentrate more on international stocks,’ or ‘this manager is particularly good on the short side,’ and so they come in and they talk for hours, and you pay them a large fee, and they always suggest something other than just sitting on your rear end and participating in the American business without cost.

And then those consultants, after they get their fees, they in turn recommend to you other people who charge fees, which… cumulatively eat up capital like crazy.”

Yet again he has made money because the egos of those who need to drink the cool-aid, gives him the opportunity to make money from ordinary things.

“And the consultants always change their recommendations a little bit from year to year.

They can’t change them 100% because then it would look like they didn’t know what they were doing the year before.

So they tweak them from year to year and they come in and they have lots of charts and PowerPoint presentations and they recommend people who are in turn going to charge a lot of money and they say, ‘well you can only get the best talent by paying 2-and-20,’ or something of the sort, and the flow of money from the ‘hyperactive’ to what I call the ‘helpers’ is dramatic.”

Like Jamie Vardy, Buffet understands the “Power of the Ordinary”.

Maybe the gaffer will be buying another round of Pizzas now.


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Leicester City – a parable

champione***champione*** champione***champione***champione
value of something

Why successful clubs don’t know how lucky they are!


The whole nation knows the value of winning the Premier League to Leicester City. The value of Leicester winning it is greatest just before it’s won. This blog was published the morning of the day when Leicester became Premier League champions. I’m not a Leicester fan (or season ticket holder like regular reader Sam Pickford) , but I’m fascinated by the story like everyone else.

#LCFC 2015-16 – The best value for money  in the history of the Premiership

You want to know what value for money looks like, it looks like Leicester City Football Club’s wage bill and this is why.


You get the picture. The blue dots represent those clubs that (per pound spent on wages have got most from the spend). The orange dots represent those who’ve got most.

The dark blue dot at the very top is Leicester City this season, a club that has defied every expectation!

As you’d expect, the orange dots include historic failures such as Derby County, today’s failures such as the current Aston Villa side and relative failures such as the 2015-16 Chelsea.

And now I’m thinking  pensions

It’s one thing to judge a football club on its fully disclosed wage bill over a determined time, it’s another supposing these numbers are a guide to the future. The second team (and highest light blue button- are Ipswich- who were relegated the season after their annus mirabilis). But it’s interesting that Tottenham and Arsenal regularly appear in blue and Newcastle and Sunderland in orange.

Adjusting performance for the cost of achieving that performance is an established way of measuring things and it should be no different for pensions.

First Actuarial runs each year a Monkey League where we challenge our football experts to pit their wits against the picks of 1000 monkeys in picking winners and losers. Each team chosen has a handicap, clubs with big spends have to do better than the lightweights. We had one our of our 150 contestants choosing Leicester to do well, Leicester has done her well, they were assumed to be relegated.

Picking outliers like Leicester is great fun, but it’s not what makes for success. The lady who has chosen Leicester has followed the same philosophy throughout and sadly , she has not done well in other divisions. Which suggests that strongly capitalised clubs which pay good wages do get better results (usually).

But over time, it appears it is the Tottenham’s and Arsenal’s who are delivering most pound for pound and this suggests that they, and not the Manchester City’s and Chelsea’s, are the teams producing the consistent value for money over time.

What this means for us pension fans is that

  1. we should  be wary of investing in the Leicester’s and Ipswich’s on the basis that one swallow does not a summer make
  2. That we should look for consistent above average performance evidenced by results
  3. That whatever our theoretical assessment of the value for money we are likely to get from our choice of fund, we need to back test against historic results to see if theory translated into practice.

(Footballing) success can only be judged over time

Thinking about an analogous measure – such as the value for money of football club wage bills helps focus the mind on the very abstract concept of value for money in the very abstract world of manager performance.

Past performance is one dimension of the 3-D decision, the other two are value for money. Prudential, alone among the IGCs looking at VFM proposed a straightforward benchmark for performance (3% over CPI – net of charges – over time).

Like Einstein’s fourth dimension, past performance is time dependent. Leicester may be in the Championship in 2017 (following the Ipswich performance track). It is not until Leicester can show consistent outperformance relative to spend – over time – that we can label the club “well managed”.

Football is great as what you see is what you get. The football league table is a transparent measure of success ( put aside arguments about point deductions). But football is a game that fully engages us all, about which we can make educated decisions. Football is a game that empowers us to feel we are all experts.

It is also a game that teaches that clubs only become great over time.

Supporter’s Trust


Nottingham Forest v Yeovil 180507


Why the “beautiful game” helps is that it enables us to see what pensions could be like if we could find a way to make it as interesting. The beautiful game also allows us to understand that what we measure as success can typically include, not just the results , but the quality of the experience for the fan.

Which is why supporting Yeovil Town FC will always be value for money and why pension providers  must do better in engaging ,  educating and empowering their members. Football clubs – especially in the lower leagues, are setting up Supporters Trusts which allow fans a greater insight into and say about the decisions being taken in their clubs.

Football clubs (like my Yeovil), know that the loyalty of the fans depends on their being able to speak about “their club”. This seems to have been something that Leicester has achieved over the years ( as recently as 2008-9 they were in the third tier -League One).

Keeping the trust of supporters – “whether you’re up or down” seems tied to this sense of ownership. When the club loses its supporters as owners, then it struggles.

I sense that IGCs could- in time- become like Supporter’s Trusts, the means by which ordinary people feel they get some ownership of how their retirement fund is managed.

For that to happen, we need to bolster the IGC as an independent but integral part of a pension provider’s set-up. That’s why I believe IGCs are critical to restoring confidence in pensions.

leicester city

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Putting the world to rights – in a snazzy waistcoat!



Nico Aspinall


One of the reasons that pension schemes are so boring is that they never seem to do anything. They take your money and then they give you it back, in the intervening years you are none the wiser about what is happening to your money.

Meanwhile, the money you invested in your house, the season ticket , your children’s education gives you demonstrable evidence that you made good or bad decisions, even if the investments didn’t work out- you had the joy of ownership.

The contradictory world of Nico Aspinall

I’ve known about this man (I could call him young lad) for some time. He’s got a brain the size of a planet , wears a waistcoat and has a foppish fringe and a big smile. Here is someone rather more than a conventional actuary.

Five years ago, Nico wrote a leaned paper for the Institue of Actuaries telling them to wake up and smell the coffee on climate change. Five years later he was speaking at a meeting of investment people worrying about how to make money out of our DC pensions.

I chatted with him afterwards, I’m pleased to hear that he will soon be as free a spirit in his employment as he is in his deportment.

Last year, Nico did an interview  in which he stated

The government’s role is to ensure there’s a market for social services in the widest possible sense, where the private sector won’t act. In many cases it is right for government to build socially beneficial projects such as hospitals and schools – or even wind turbine and hydro schemes.

He was talking specifically about DC pensions and the barriers that people who run DC pensions have in investing in this kind of long-term infrastructure.

I would rate regulation, cost and pension administration as the most important barriers, but they create a vicious cycle which is hard to break. Regulation hints at offering liquidity but doesn’t enforce it, current admin is built around daily valuations and trading, but because it went in the direction of daily trading, not because it had to. Illiquid assets are simply more expensive and the charge cap makes investing in them harder.

Ironically, Government policy is working at odds with its social purpose. Nico can smile about it, as only consummately clever people can. Let’s hope that Nico can do something about it – with his new found freedom.

Doing something about these contradictions

So far, those DC providers who have expressed an interest in investing with a social purpose have only done so with their shareholder’s money. Legal & General have gone the furthest and Dr Nigel Wilson’s Basis for Beveridge 2.0 presentation (here), is a taster of what an insurance company could do with a DC default fund


The full title of the presentation is Auto-Enrolment; the basis for Beveridge 2.0. By linking the ideas that Nico Aspinall (and others) have been talking of for years,to auto-enrolment, Wilson is laying down a challenge both to Government and to the pension providers.

NEST and People’s Pensions both have around £700m in their default funds, both can expect that to exceed £1bn by the end of this year. L&G may have taken even more into its default over the past three years.

The point is that – even with the very low contribution rates we are currently seeing, assets under auto-enrolment are already mounting up.

The vision of Nico Aspinall, Share Action, Nigel Wilson is based on a common social purpose

  • In investment terms to harnass the “illiquidy premium” available to those who can tie up their money for decades
  • In terms of engagement– to put people in touch with the assets their pension owns
  • In terms of public finance – to ensure that we reduce the strain on the tax-payer in funding  public infrastucture
  • In terms of reputation – in restoring confidence in pensions as “doing something good”

Of course there are obstacles -Nico laid them out well. But we should not let technical problems we have created for ourselves, stand in the way of the long-term purpose of auto-enrolment and workplace pensions. All four of the items listed above can be achieved if there is the will to do so.

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Philip Green – Maxwell II

In a remarkable article in the FT, Conservative MP for Haltemprice and Holden, David Davis brands Phil Green’s behaviour at BHS as

… the dark side of capitalism: increased borrowing and payment of ever bigger dividends; risk transferred from the private to the public when the business fails; the low paid and the taxpayer left to pick up the bill. It is all worryingly reminiscent of the 2008 banking crash.

I would go further and liken Green’s behaviour to Robert Maxwell. Instead of stealing money from the Pension Fund, he starved the pension fund of the money due to it.

Legitimised through political donations

The BHS pension fund fell from a surplus of £17m in 2002 to a potential deficit of £571m today, a sum strikingly similar to the profit taken out of the company by the Greens. BHS has not made a profit since 2008

For his work to the British retail industry, Green was knighted, like Maxwell, Green was involved in political lobbying and was a heavy donor to the power-brokers of his day.

Frankly it doesn’t matter that Maxwell funded the Labour Party and Green the Conservative party, what matters is that both were legitimised by politicians whose power bases were reinforced by the same money.

PPF not to be bought off

It now appears the PPF were twice offered the opportunity to take on the liabilities of the BHS Pension scheme within the last year. They would not be bought off

Screen Shot 2016-04-28 at 06.43.22.png

Last night the BBC claimed that latterly, payments made to shareholders (principally Green’s wife) had not been given clearance from the Pension Regulator, It may be that Green’s activities were not only odious but criminal. This however has yet to be confirmed.

Whether Green deliberately broke the law or not, the Pension Regulator has retrospective powers in situations like this.

I hope that the PPF look through the sale of BHS to Retail Acquisitions, an organisation run by a twice bankrupt that did nothing to repair the damage and took £25m from BHS (including £11m of legal fees) in its year’s tenure.

Green might have hoped that Dominic Chappell had made a better fist of things so that the gossamer skin between the BHS that has just entered administration and the lame duck he sold for £1 had become a little tougher,

But anyone can see that the damage was done by Green and that it was done in the full view of politicians from both parties (and indeed a third coalition partner).

This is not a pension problem – it is more fundamental

In his article, Davis calls for a change in the way we govern companies

The government must review its approach to the financial engineering of businesses to eradicate tax liability and park financial risks anywhere but on the owners. It should rewrite the companies and finance acts accordingly.

It would be easy to point the finger at the PPF but I suspect it was right not to deal with the monkey but wait till they could get at the organ grinder. If there is a failure of Government, it is – as Davis argues, it is in the approach to business practice.

Alan Rubenstein at the PPF and Lesley Titcomb at the Pension Regulator are formidable figures.

Philip Green will not be able to buy them off. Unlike Chappell, Green has money. It may be in Monaco but it is big money.

There is no better time to test the transparency of offshore banking than now.

Let us find that money, repatriate it and use it to pay the pensioners and future pensioners of those who work and worked at BHS.


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The Pensions Regulator gives IGCs a new row of teeth.


It’s not enough- not nearly enough – but at last the Pensions Regulator’s beginning to take workplace pensions seriously enough to offer something close to a decent choice for employers staging auto-enrolment.

Yesterday , Andrew Warwick-Thompson, head of policy and tPR’s “go-to man” for DC matters, published plans to include Group Personal Pensions (as well as mastertrusts) on the Regulator’s choice pages. These pages are important, not only do they give featured schemes publicity but they give them a tacit endorsement.

The GPP gives the Directory a new row of teeth!

The abandonment of the insurer’s trade-body, the ABI’s Directory of GPPs is good news.The Pensions Regulators willingness to use the FCA’s measure of governance- “value for money” as determined by IGCs – as a means to manage the list- is even better news.

There are three specific rules for inclusion that refer to the presence and quality of the IGC or GAA.

  • the (provider’s)  independent governance committee (IGC) or governance advisory arrangement (GAA) has assessed the GPP (or relevant GPP product series) under offer
  • in year two, we expect the IGC/GAA report to include a statement relating to the value for savers in respect of the relevant GPP product series which confirms that it does not offer ‘poor value’
  • employers considering whether to use the GPP can easily obtain the most recent IGC/GAA statements

For some reason , the final two of these requirements didn’t appear on the press release and were not reported in the Professional Pensions  article  TPR to provide GPP list to help firms comply with AE” (not to Ed. check the sausage not the sizzle!).

But they are important. If all the Pensions Regulator has been asking for – was a compliant IGC report (as I had been given to understand) , then the first bullet would have been a paper tiger.

Bullet points two and three put an obligation on Insurers to demonstrate value value for money and make sure that the IGC can be read. Regular readers will note that many of the IGCs have done little to get to grips with VFM and nothing to promote the reports!

For an assessment of these topics check my at a glance matrix of IGC performance to date,

Hats off to the Pension Regulator for beefing up the IGC requirements, I hope the IGC Chairs (with insurers in the QWPS market) will take note- by the end of this year, you  have a new set of teeth.

At last we are seeing some joined up regulation which marries what is going on at the FCA with the primary work of the Pensions Regulator.

Insurer exclusions.

The most difficult criteria for insurers currently  to meet – (to be on the list) – is this one.

  • your GPP is open to all employers who wish to use it to comply with their automatic enrolment duties regardless of projected membership numbers or contribution levels

I have argued “deep into the night” with the Regulator on this as I do think that insurers should insure and I don’t think giving an undertaking to take anything that comes its way is the way for insurers to go.

I would be interesting in hearing from insurers what  a fully inclusive approach would mean to the amount they would have to reserve for (in case the most troublesome employers impair the solvency of the book).

I am seeking clarification from the Regulator that “open to all employees” is not value for money qualified. Currently good value GPPs might be open to all employers but on terms that might not be considered value for money.

For instance, to charge £1200pa to manage a workplace pension into which is paid less than £1200 might satisfy the Regulator’s test on inclusiveness but could hardly be considered value for the employer’s money. The employer would achieve better outcomes by putting the money saved into a “free to use” GPP or master trust.

Similarly, L&G will offer its workplace pension to any employer provided that data is passed to it using the pensionsync or eAsE interfaces. These interfaces are not free to use for the employer and might be unavailable or unsuitable for the employer, but L&G’s workplace pension seems to satisfy the ruling.

Will the insurers be bothered to be on the list?

The Regulator requires the GPP provider the right  to opt-in to the list and gives the provider the right to opt-out.

That said, anecdotal evidence from the master-trusts on tPR’s list report that positioning on the list “has a material impact on employer take up”. In other words- being on tPR’s list boosts sales.

I would hope that all GPP providers, including worthwhile non-insured GPPs such as Hargreaves Lansdown’s Vantage and True Potential and Intelligent Money’s SIPPS, will want to be on – and make it to – the Regulator’s GPP list.

True Potential and Intelligent Money have yet to show me their IGC reports and can in no way be said to be promoting their IGC to employers. However, both tell me these are in preparation and April is not over!

Some of the insurers are not going to meet the “exclusions” test and are not currently suffeciently inclusive to make it to the list. If I am right that they can use employer charges (and/or prescriptive data integration channels – like pensionsync), then they these charges can act as a proxy for underwriting and concerns over profitability fall away.

Has the Regulator gone far enough?

I say

“no it hasn’t”.

The choice it is offering is better than no choice and the inclusion of the GPPs is a step in the right direction. But employers are faced with too hard a choice. They need a means to make an informed choice.

If employers choose the likes of L&G and Standard Life and then find they have to change payroll , buy middleware or stump up £1200pa to be in the club, may consider the distinction between “open to all employees” and “practical for all employers” to be rather muddy.

The insurers may get to a point where they are “open to all” but find themselves having to disappoint which is neither good for their brand nor efficient in terms of relationship management.

Choice is only meaningful when it is informed choice.

The only way that the Pension Regulator can move from offering choice, to offering “informed choice” is to do what increasing numbers of payroll software companies are doing, and align themselves with a means to get informed choice. Whether that means  a terrestrial IFA or a cloud-based robo-adviser is a decision for employers (one that will be taken on a cost/benefit basis).

Playpen home

Hint to the Pensions Regulator

Posted in auto-enrolment, FSA, pension playpen, pensions, Pensions Regulator | Tagged , , , , , , , , | 2 Comments

Insurers – VFM and the Competition Commission.

Competition commission


The FT Adviser magazine has published a short piece leaking a story that has been doing the rounds for a few weeks.

It would appear that the insurers who have been subject to the scrutiny of an independent governance committee for a year, have decided that enough is enough and are deciding on the means by which they wish to be judged

As you’d expect, detail is skimpy and confusing, the plan is about as transparent as a brick. At one moment the reporting talks of benchmarking legacy products, the next of the value for money from their current workplace pensions. Confusion reigns – which is BAU.

What we know is what Alan Ritchie, head of Standard Life’s workplace pension proposition is telling us.

There are a group of people working together – pretty much all of those providers that have had an ICG report – but it’s early stages.

“I’m being particularly proactive myself as are some other providers to get a group together to start defining what such benchmarking would include and to take.”

The article does not give us any detail of what this benchmarking is about, who will be in charge and why the IGCs should be told how to judge providers – by providers.

Surely this is entirely the wrong way round. Whatever is being benchmarked, it should be the IGCs and not the insurers who should be setting the rules.

Pete Glancy of Scottish Widows is also quoted in the article.

“We are conscious different products have been developed for different target markets, so a simple comparison of product features would not be appropriate,”

This is the ABI line on value for money since the start of the argument in 2014. But it doesn’t wash. As this blog has been at pains to point out, the Dutch have a  system of establishing whether an investment product is giving value for money, I explained how here.

To understand value, we need to know the price we are paying for the management we are getting. The Dutch do it and so can we.

According to Scottish Widows, the solution to all this confusion is to ask the customer what they know.

For an ICG benchmark, providers would seek a meaningful definition of value for money from customers, he (Pete Glancy) said, within the context of how closely products and services are meeting their particular needs and expectations.

This is a pretty odd way to benchmark a product which the Office of Fair trading stated in its damning report of the insurance industry, the public knows nothing about.


The answer to value for money is not in the gift of the providers, they are responsible for allowing their problems to become as transparent as a brick, they are the problem not the solution.

Nor is the answer coming from consumer confidence research – we (the consumers) know nothing, nada – zip!

We are the victims of the problem that has been created for us by decades of product management by the insurers. Don’t go asking us to determine value for money on what we bought – we have our representatives set up to do that work- the Investment Governance Committees.

Independent is as independent does.

I have written several times about the importance of these Independent Governance Committees remaining independent. Whatever the reasons for the insurers congregating to create a benchmarking service for their IGCs, good governance tells me the IGCs should politely say “no thank you”.

There are good people at the FCA charged with making “value for money” a concept that the public can trust. The measure and the benchmarking were given to the IGCs to decide upon. It is the IGCs and not the insurers who should be congregating to agree a proper measure.

The Prudential have suggested a simple benchmark- a return of 3% above the consumer price index (net of charges) from the pension. That should be explored further

If IGCs want to dig deeper and find out what is working and what isn’t within the workplace pensions they are managing, they have people to work with independent of their providers. There are international benchmarking services they can call upon.

Keeping the IGCs feet to the fire

This blog will reject any pact between IGC and Provider based on the IGC doing what the Provider tells them to. IGCs should look at the Provider’s proposition- whatever that turns out to be and judge it alongside alternative benchmarking services.

If they adopt a model put together by the providers it should only be after the alternatives have been properly examined and rejected.

Here is how they do it in the Netherlands.

Competition commission



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Hinkley Point; will anybody trust this Government now?

The decision to delay the Hinkley Point project while Greg Clark “considers carefully, its implications, will send signals to those wishing to take long term decisions based on stated …

Source: Hinkley Point; will anybody trust this Government now?

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A DC code for the rich, not much for the poor

trustee toolkit



The Pension Regulator has published its new DC Code, a hefty tome in itself (38 pages). It has published a further six guides which collectively run to a further 130 pages. If you were to spend the rest of the summer reading the enforcement codes, the consultation on the 21st century trustee and the various documents that surround these (consultative), the summer would have been lost.

I haven’t read all these documents but I have read an excellent piece in Corporate adviser from which I capture this section

TPR says the code sets out the standards that pension trustees need to meet to comply with legislation, and says issues relating to tax relief are flagged up elsewhere on its website.

Hymans Roberston says schemes that do not appoint advisers will struggle to meet the requirement in the code to achieve value for money.

Former pensions minister Ros Altmann says: “It is an outrage that the interests of the lowest earners have not been looked after prominently in the new DC code. They have a an entire section on administration and nothing on low earners.”

For a document so long to be criticised for what it is omitting seems odd. But when you look at what Ros Altmann is outraged about, it’s hard but be amazed.

For all its attention to detail, this code makes no mention of the duty of care trustees should have to the estimated 180,000 members of net pay occupational schemes who fall into a tax trap meaning they lose out on the Government’s incentive to low earners (available to those in relief at source schemes).

The incentive may not sound a lot to those in the money, but to those on minimum wage, on zero hour contracts , for those trying to get out of benefit dependency, £125 pa is a lot of money. £10 pm is a lot of money, £2.50 pw is a lot of money.

It is not a matter of Government policy that those earning between the Automatic Threshold and the new nil-rate band should be excluded from an incentive of up to £125 into your pension. You get it if you are in occupational pension schemes such as NEST and usually from People’s Pension and Super trust. You will get it if your workplace pension is a GPP or even a SIPP.

But if you are in one of what tPR still call an “occupational money purchase” scheme sponsored by a large employer, or in a master trust other than Peoples, NEST or Super trust, you won’t get the incentive. It’s a lottery and the rules of the lottery are written by the occupational schemes.

At the Trustee’s discretion

Trustees are supposed to act for all members of pension schemes and to do so fairly. As the new code demands.

trustees 4.PNG

So how can the code not refer to tax-relief and Government incentives? They are how we get value for money from pensions, without tax relief we might as well stick the money in an ISA or in a bank account (where interest is tax free and the money can be easier spent).

The trustee’s have a duty of care to low-earners which should extend to ensuring that they get the Government incentive. Trustee’s should be regularly reviewing the workforce assessments done to establish scheme membership and identifying which of their members are at risk of receiving no incentive. Those identified should either be put in a scheme with an equivalent contribution that provides relief at source, or the existing scheme should have a section operating under relief at source.

Instead of kicking up a fuss, the trustees of occupational pension schemes have generally ignored this issue. Some have told me it is a temporary problem which will go away with the reform of tax relief (now in the long-grass), others have said they are waiting for changes in administration technology but most have told me they are waiting for guidance from the Pension Regulator.

Well we now have the new DC code and it doesn’t mention tax-relief at all.

A sorry history of painful precedents

I am afraid that this is not the first time that occupational pension schemes have prejudiced the interests of their poorest members. Until quite recently it was possible to have the majority of your pension docked by the state pension offset, this was a means by which occupational schemes would take into account your state benefits when paying your company benefits, this hit poor people hardest and has rightly been taken out of most scheme rules as patently unfair.

Another area of unfairness was the vesting period; vesting periods (originally 5 years , latterly 2 years) meant that if you left within these time periods, you lost your right to the company contribution. Poor people lost twice, not only did they get contract protection granted the more senior staff, but they were often dismissed within the vesting period to ease the financial strain on the fund. Staff turnover figures for those on low earnings are proven to be much higher than for senior employees.

Finally, many occupational schemes were designed to exclude the lowest earners altogether by operating minimum earnings thresholds before an employee could be considered or – worst of all, by simply excluding certain grades of employees from pension provision altogether.

The abuses have gone but the culture remains

The institutional bias’ that existed within occupational schemes (of which the above are just a few examples) have been removed. Progressive legislation in the UK and abroad has seen fairer treatment for the poorly paid (typically women) removed.

But as with the case of the WASPI women, those caught in the net-pay trap reminds us that the cultural bias to the high earners , the men and those with long-term contracts has trumped the rights of short-servers, low-earners and – by bias – women.

The culture that created those biases persists. This is why trustees have not been proactive in putting to right the wrong done to the low-earners. There are exceptions (NOW pensions is the main one- which is doing something to protect the interests of those affected). But for the most part, occupational trustees have and are sitting on their hands.

Despite the efforts of Ros Altmann and a few pipsqueak voices such as this blog, the Pensions regulator has written a  DC code that makes no mention of the trustees’ duty to ensure members get the tax-relief and Government Incentives, they are entitled to.

That is a legacy of our dark and despicable culture of prejudice against the poor. The Pensions Regulator needs to take immediate action and make sure that trustees protect their most vulnerable members who are currently *unwittingly” getting ripped off.

If they don’t , it will be down to the ambulance chasers- who will reap their usual damage.

ambulance 2

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Hinkley Point; will anybody trust this Government now?

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The decision to delay the Hinkley Point project while Greg Clark “considers carefully, its implications, will send signals to those wishing to take long term decisions based on stated Government policy.

It seems we have not just got a  a new policy on Europe, but a new Government for whom all bets are off. I didn’t vote Conservative last May, but I accepted the country did and the business decisions I take are based on manifesto promises. It now appears the new broom sweeps not just the old guard out, but (in HP’s case) their policies too.

This is really disruptive (and not in the banal use of the word). Whether big or small, businesses need to plan. EDF planned and decided, so did the Chinese investors who will provide the bulk of the funding for HP. For Somerset, the uncertainty must be considerable, for our nation’s energy policy is on hold.

As with  other major infrastructure projects on our  mind, the building of a new runway for London and the construction of the High Speed Link , Hinkley Point has been the subject of numerous enquiries. This further delay appears petulant and opportunistic.

Let’s not forget that our pension policy is to invest in long term infrastructure to provide income streams that can be used to replace the income of those retiring through the second half of this century.

Hinkley Point would have provided just such an income stream to its investors. The cost of such investment increases sharply when political risk is factored in. Hinkley Point as an investment project is now subject to political risk which was unforeseen. All other projects will be subject to increased political risk as a result.

The “all bets are off” approach adopted by Greg Clark and his colleagues is destabilizing. If, as reported by the BBC, part of the reason for the delay stems from concern that HP will be built with overseas investment, then what hope for those trying to sell to overseas markets?

I agree with Nigel Wilson in questioning the timing of the investment (nuclear power looks an expensive way to generate the 85 million cups of tea HP can power an hour). But I also agree with Stephen Kelly, that politicians should lead and not skulk in the ante-rooms , reacting to business.

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If we were to question HP, it should have been before and not after the EDF Board Meeting. If the Government has other major projects it is reviewing, it should show its hand now.

We need open and transparent Government which does not employ cloak and dagger tactics with business. The deferral of a decision on Hinkley Point , rather than the signing of the deal today, tells me that this Government is capable of any U-turn it chooses to make.

Will anybody be able to plan on that basis?

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Hands off they’re mine- the First Actuarial DC team are out of bounds!!!

F1rst Actuarial hi-res

One of the best things about First Actuarial is they never listen to anything I tell them about marketing.

When I talk to them about the power of social media , they smile indulgently. When I suggest they promote their modelling tools as robo0advice, they cough apologetically.

But I have been hoodwinked. Within the dismal actuarial dungeons where spreadsheets hold sway, seeds of creativity emerge. As Leonard Cohen observed, there is a crack in everything – that’s how the light gets in.

Emerging from one such crack, came this little beauty


Now before you get flicking, let me tell you about First Actuarial’s Defined contribution consulting team. They are not as other groups of people, they are very peculiar, very wonderful and to be cherished.

They are not as other actuaries, that is because by and large they are not actuaries. Alan Smith and Mark Riches run the team – they are Founders of FA, Antonia Balaam , Ian Barrett, Laura Chesson and Simon Redfern!

As First Actuarial’s Business Development Director, my job is to sell this lot to help you sort work out your pension strategy, implement the right plan for your firm and your staff and manage what you’ve got compliantly and in the best interests of all.

But I’m very sorry whenever I visit these good people in Tonbridge, Leeds or Manchester. They are far too busy, I want them for myself, I want their deep research into workplace pensions, I want their extraordinary technical knowledge and I won’t their sound judgement, good humour and all round goodeggedness.

Now they’ve decided to start churning out DC surveys that look as good as they read, I fear they will be more popular than ever.

So do the Pension Plowman a failure and don’t ring First Actuarial up asking for them.



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Seven steps to Workie heaven! DWP please pay attention!



Employers are responsible for selecting the appropriate AE pension scheme for their employees.

Employers are free to choose any qualifying pension scheme that is willing to accept their custom in order to comply with their automatic enrolment duties.

The Pensions Regulator  told the DWP Select Committee that selecting a scheme is one of the most significant challenges for smaller employers:

Concerns include finding a scheme that will accept them, ensuring they make the best choice of scheme for their employees, addressing the risk of challenge from their staff if the scheme is not well run, and making sure that the scheme they choose works with their payroll software.

For the smaller employer, reliant upon their payroll bureau or external accountant, there is a distinct lack of clarity regarding where a potential liability for “advice” would fall.

http://www.pensionplaypen.com has devised a process that provides that clarity. Our choose a pension service (CAP) allows payroll data, analysed using our proprietary workforce assessment, to address the challenge of workplace pension selection.

We provide clarity to employer and business adviser about “who is doing what” so that it’s clear who is taking the decision and on what basis.

Follow the progress of the decision making process through the rest of this blog.

When you have finished , why not register at http://www.pensionplaypen.com, either as an employer, an employer’s agent or both!

Who does what in choosing a workplace pension?

You-“Andy”  the business adviser- have  loaded your client’s data into the workforce assessment tool. You now have the chance to hand over to your client.

All you have to do is press the  “share enquiry” button that appears at the top of every screen of the choose a pension service.

You can share when you choose, but you must hand over to your client the decision to choose the pension. If you choose the pension for your client you put your client in breech of the regulations.

Stage one – you decide to share this enquiry and hand over to your client.


You press “learn more”.

Stage two – Showing you how to introduce your client to the process


You press “send”

Stage three – confirmation you’ve shared  your enquiry with your client

andy slide

Stage four – what your client (John Doe- the employer) sees


Stage five-  your client (John Doe) presses continue and is briefed on what’s going on


Stage six – making sure he’s really John Doe who you say you are!


John completes the boxes which must match the details you’ve input at stage two.

Stage seven – the handover is completed when John Doe registers


From now on, John is in charge of choosing his workplace pension.

In terms of responsibilities, the business adviser has done the technical work needed to complete the workforce assessment. The numbers have been crunched and indicative costs provided to John.

Now it’s up to John to answer a few straightforward questions about his business, look at his options and take a business decision about which workplace pension to choose.

Why this is so easy (and so hard)

The business of choosing a workplace pension is incredibly easy. From an operational point of view, it only requires an employer to click a few times and he’s into “scheme set up” with a variety of employers.

Increasingly, Pension PlayPen is embedded into the AE processes of many software suppliers and is becoming the process of choice among accountants and other business advisers, helping their clients choose a pension.

It is just so easy to use http://www.pensionplaypen.com but that’s because we have plenty of practice. Nearly 3,500 employers have already taken the journey and joined a workplace pension provider using our choose a pension service.

Practice (nearly) makes perfect! We know that we could make the journey even easier but we don’t (yet) know how. By the time we reach our target (100,000 users) by the end of the initial staging period, we hope to be the nearest thing to heaven you can use.

Right now just follow these seven steps and we’ll take you to the pearly gates!


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Con Keating on the Investment Association, Transparency and the Overton Window

Regular readers will be aware of my views on independent oversight of fund costs and charges. To me it’s critical to a reliable measure for Value for Money; without knowing we are getting value for money, how can we have confidence in something as difficult as investing for a pension. Here is an article that Con has shared with us.


There are good reasons why we don’t ask or expect convicted criminals, the inmates of Belmarsh, Holloway or Strangeways to write our laws. Though they may be skilled and experienced in the commission of crimes, in general we do not seek their expert advice. Of course, there is the occasional exception, with Frank Abagnale particularly well-known. Here though, proven reform and remorse are preconditions, which contrasts with the recidivism that is far more common.

Against this background, it is surprising that the Investment Association should be rushing ahead with its plans for an industry disclosure code. Could it be that they wish to pre-empt regulatory action by the FCA and extend the life of the immoral and unethical status quo?

Secrecy and information asymmetry are the stock-in-trade of the asset management industry, and its trade association has form in this regard. The defenestration of its former progressive CEO, Daniel Godfrey is a recent illustration, but there are longer-running examples. The Investment Association also played a major part in the creation of the Investor Forum, a body arising from the BIS Kay review, which operates in near total secrecy. Were it not for the harm to be done to consumer savings in the interim, it would be tempting to propose the introduction of a three-strike rule on Californian lines.

This problem is by no means unique. In the author’s note prefacing her book, “Makers and Takers”, Rana Faroohar recounts an anecdote. In a meeting with a former US regulatory official, she shared the statistic that academic work showed that 93% of all the public consultation on Dodd Frank was taken from the financial industry. She then asked why this had not been broader. The response from a befuddled official was: “Who else should we have taken them with?” The Investment Association again has form; their submission to the Kay review (Turnover Research Initial Findings) demonstrates sleight of hand worthy of Maskelyne. A rather timely OECD publication, “The Governance of Regulators: Being an Independent Regulator” should be on every FCA official’s reading list.

My particular concern now lies with the involvement of the Transparency Taskforce (TTF) in the IA’s Advisory Board on charge and cost disclosure, where even the terms of reference are strictly private and confidential. I was involved in the creation of the TTF.

Having seen, over many years, industry responses to valid analytic studies, academic and professional, that were obstructive and bullying, and even included the retention of Messrs Sue, Grabbit and Runne to add weight to their threats, it seemed time for action. All the more so when clients of the fund management industry were also reporting difficulty in obtaining basic information about their investments. It was obvious that an inclusive forum, a safe haven, where these matters could be openly discussed, without fear or favour, might help to improve the situation. The argument has been touted that the IA Board should operate in secrecy since this will allow submissions to be made without fear. But there I must ask the questions: who is it that these respondents might have to fear, and how can this be a relevant concern when the Board was tasked only with examination of the output of the IA’s own technical working parties?

When setting up the TTF we were hopeful that, in the currently rapidly changing socio-political environment, it might a difference, and perhaps move the Overton window. Some five years or so ago, the Overton thesis was all the rage with right-wing US ‘shock-jock’ broadcasters. The thesis is, that at any time, there is only a limited range of ideas that are socially acceptable and these determine the politically feasible; the progression that follows from change-inducing ideas flows from unthinkable, to radical, then acceptable, sensible, popular, and finally becomes policy. Judging by the column inches in the trade and popular press, it does seem to have had some success in this, something the very existence of the IA Advisory Board would seem to confirm.

However, there is now a governance problem arising from the participation of Andy Agathangelou as a representative of the TTF in this Advisory Board. The TTF was never conceived as a body which would endorse or promote particular solutions; it was envisaged as a body where solutions could be discussed and investigated openly, with their sponsors pursuing their commercial and other interests outside of it. These arrangements were fully discussed in early TTF meetings. The very idea that a group, put together to promote transparency in very broad terms, should participate in this Advisory Board under these terms is completely anathema. Whether this is just some nebulous guilt by association or the far more serious question of joint enterprise may be a matter of intent, but it is clear that it is a conflict which was better avoided, if reputation and trustworthiness were not to be tarnished.

con keating

Con Keating

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Pensions Deficits: Mark-to-market valuation is the elephant in the room


Following on from yesterday’s blog from Hilary Salt, here are some interesting thoughts from Dennis Leech,  Professor Emeritus of Economics, University of Warwick You can contact Dennis directly at d.leech@warwick.ac.uk


The chief economist of the Bank of England, Andy Haldane, has said he hasn’t a clue about pensions. It is not surprising when so many occupational schemes have a deficit that stubbornly just keeps on growing. They have agreed a recovery plan with the pensions regulator to ensure there will be enough money to pay the pensions promised when they fall due – but still the deficit grows seemingly uncontrollably.

The latest estimate for the total deficit for defined benefit schemes eligible for entry to the pension protection fund was £383.6bn at the end of June 2016, up from £294.6bn at the end of May an increase of £89bn in one month. The combined funding level has fallen to 78 per cent, close to its lowest ever level. There were 4,995 schemes in deficit and only 950 schemes in surplus.1

The blame for this is most often put on the fact that pensioners are living longer than expected. But that is not convincing and can be only part of the answer: deficits are changing too fast to be due to something as slow moving as longevity trends – that are anyway allowed for in the recovery plans that have been devised. The other explanation often trotted out is the catch-all ‘market conditions’ which covers a multitude of factors. This usually means low interest rates, casually and wrongly equated with poor investment returns.

No. It is the regulations governing pension scheme valuations that are mostly to blame for this unsustainable situation. They are the elephant in the room of the pension deficits story that is being ignored by most of the industry. They are not fit for purpose and urgently need to be revised. They force pension schemes to have to deal with extraneous – even spurious – risk factors which exaggerate deficits. The effect – as we have seen in recent years – is to force many schemes to close.


Deficits have grown substantially since the 1990s when minimum funding requirements were introduced. The 2004 Pensions Act set up the pension protection fund to reduce the risk of pensions failing due to the sponsoring company failing. But it also tightened up on funding rules and imposed an inappropriate market-based valuation methodology2. Accounting regulations based on this methodology are at variance with real-world economics. They are based on a purist belief in markets as a source of information – ignoring all evidence from academic economics, both empirical and theoretical, showing the limitations of markets as providers of information. They were intended to prevent pension schemes needing to enter the pension protection fund but in fact have had the reverse effect by making sponsor failure more likely.

It is only policy makers who can deal with this problem. They need to take an overview of the consequences of mark-to-market accounting and revise the valuation regulations in the light of experience.

Funding methodology based on flawed efficient markets theory

The problem started with the minimum funding requirement. Before then actuaries addressed themselves to the fundamental question: would a pension scheme be likely to have enough income coming in each year, in the future, from its investments and contributions, to be able to afford to pay the pensions to which workers were entitled.

Since then they are required to produce separate figures representing the assets and liabilities at a particular point in time, valuing them using relevant market prices, in order that they can be put on the balance sheet of the sponsoring company as capital sums. These market-based figures do not directly help to answer the fundamental question at all. Many schemes are said to be in deficit because their assets fall short of their liabilities according to this approach; yet they could be sound when their projected income is compared to their projected benefits.

Actuaries were no longer required or expected to forecast flows of income and expenditure – to address the fundamental question – on the grounds that to do so would be unnecessary because the market had already done the calculations automatically as part of its normal operation.


The efficient markets hypothesis states that no individual investor can beat the market because market prices embody all publicly available information about future movements in the economic fundamentals that are meant to drive them, such as company dividends. Market prices of assets are just a reflection of these fundamentals. Therefore no forecasts of income and expenditure into the distant future compiled by an actuary can provide better information than can be got from simply looking at market prices – however good the information s/he is using and however skilled at analysis s/he may be.

Yet this theory had already been debunked many years earlier by the Nobel prizewinning economist Robert Stiglitz and co-author Sanford Grossman in an article in the American Economic Review3. This work is highly cited and well known among economists yet has had little effect on the thinking of actuaries, pension regulators and legislators. Despite this evidence against the efficient markets theory at its most basic level the government went ahead and imposed this pure form of neoliberalism on the pensions world anyway.

Valuing assets at market prices introduces risk unnecessarily – hence endangering the scheme

To see how the regulations for valuing pension schemes harm them, first consider the asset side. I will discuss the liabilities later. Assets such as company shares, government bonds or real estate are required to be valued at market prices on a particular date, the valuation date.

The assumption behind this is that the asset price fully reflects all expected future earnings; for example, the market price of a holding of some company shares is the appropriately discounted present value of expected dividends from those shares in every future year. There is no need for the actuaries to forecast what those dividends are likely to be because the market has already done all the work for them automatically.


But the thinking behind this, the efficient-markets theory, is not only false in economic theory, as I have shown above, it is also contrary to empirical evidence: economists have known for over 30 years that market prices of company shares are very much more volatile than theory would suggest. A large body of work by the American economist Robert Shiller4 (for which he was awarded the Nobel prize) and others5 has demonstrated conclusively that the stock market exhibits excess volatility.

This excess volatility is due to many factors internal to the stock market such as irrational exuberance, market sentiment, behavioural biases of all sorts and even simply poor investment decisions by some traders. And this effect is very large. The efficient markets hypothesis is one of the most empirically refuted ideas in economics. (It has also been blamed as a contributory factor in the financial crisis, but I will not discuss that literature further here.)

Yet all this economic evidence was ignored when the government decreed rigorous mark-to-market accounting. The result is that schemes are put in the position of having to treat this artificial volatility originating in the stock market as risk. The long-term economic fundamentals of the scheme may, in many cases, reasonably be assumed to be sound, yet the regulations require the trustees to deal with this short-term volatility as if it were true risk, increasing the liabilities. If the scheme is declared to be in deficit the regulator may require it to make a recovery plan to pay it off. The effect of mark-to-market valuation of assets as required by the regulations is to load pension schemes with irrelevant risk and consequently to bias them against success.

This is not simply a matter of normal cyclical variation in market prices, where asset prices swing from low for a few years then high for a few more. The fact of excess volatility, in itself, affects the funding requirements of the scheme. It increases the calculated likelihood of the sponsoring company having to pay additional contributions and maybe failing and therefore weakens the employer covenant. This is entirely due to the regulations’ exclusive focus on short term funding requirements and mark-to-market accounting, ignoring long term economic fundamentals.

Many liability valuations are to a large degree artificial

Actuaries have to come up with a single figure to represent all the future pensions payments that have been promised, so that it can be put on the sponsoring company’s balance sheet as a liabilities figure. They do this by an artificial thought experiment using compound interest in reverse to answer the question: “How much cash would be needed to be invested now in order to be able to make all these payments?”

These pensions payments are defined by the rules of the scheme and depend on salaries, years of service, inflation and life expectancy, all of which the actuaries can forecast. But the next step in the calculation – rolling these up into a single figure – is problematic. It is where the unreliability and artificiality come in because there are no obvious market prices to use and the liabilities figure that results is purely hypothetical. It is an open question what investment rate (known as the discount rate) to choose for this calculation. But the discount rate used is absolutely crucial because the liabilities figure is extremely sensitive to it.

Although pension trustees have considerable discretion over choosing a discount rate, in many cases they use one based on government bonds. The law does not actually require this and allows them to use a discount rate based on the rate of return of the scheme’s investment portfolio. That would make sense since it would ensure that the rate of return on the investments was consistent with the discount rate for calculating the liabilities. However there is pressure from the finance theory advocates which says they should use a “risk-free rate” – ie gilts rather than the actual rate of return on the scheme’s investments. This is embodied in the accounting standard (known as IAS 19) which many actuaries follow.

But gilt rates as low as they are at present, as a result of quantitative easing and associated monetary policies, make liabilities figures for many schemes both large and volatile. This is one of the main reasons – in some cases the main reason – for high deficits.

But this is another very artificial calculation and in most cases tells us little 5

about the real liabilities. The ability of the scheme to pay the pension benefits depends on the returns on the assets in its investment portfolio not on the rate of interest on gilts.

If interest rates go down and calculated liabilities go up in consequence, it is not true to say that the actual pensions liabilities have really increased: they are unchanged. It is therefore highly misleading – as a guide to decision making – to rely on this calculation. Yet the regulations require precisely that.

Many pension experts even appear to fail to grasp that valuation rules are so artificial6. They often uncritically assume that deficits are mostly due to poor investment returns and increased longevity. (Increased longevity is of course a real influence on liabilities requiring scheme changes such as increased contributions and raised retirement ages.) But actually investment returns on the asset portfolio are irrelevant to the liabilities under the current regulations.

Pensions regulation should be grounded in macroeconomics not finance theory

The crisis surrounding pensions deficits does not in itself mean that pensions are intrinsically unsustainable, as has often been claimed. Pensions are a matter of securing incomes for retired people, which we can think of as a share of GDP for a section of the population. They ought therefore naturally to be seen as an aspect of macroeconomics, which is the branch of economics centrally concerned with income determination.

Both the income and outgoings of pension schemes – in the aggregate – are directly related to the overall size of the economy. Both investment income and the level of salary-linked defined benefits are shares of GDP (as also are contributions). Therefore, for example, a period of sluggish economic growth with low investment returns should not pose a particular problem, since the benefits, being linked to wages and therefore GDP, will also not grow.

Pensions are fundamentally a matter of macroeconomics.

Government  regulations should be constructed in such a way as to to ensure a link to long-term economic growth. At the moment the regulations are not macroeconomics-compliant and instead they are based on the asocial microeconomics of financial economic theory where everything is a matter of individualistic risk and return. Basing pension regulation on financial economics, on market prices of assets rather than the underlying economics of income determination, has resulted in a situation where valuations in the aggregate are no longer related to GDP and therefore not sustainable in the long run.

From this perspective pension schemes ought optimally to adopt investment strategies which link the returns to economic growth – such as maintaining a diversified portfolio of investments in the real economy, that includes for example equities for the long term. Economic risk such as corporate bankruptcy or failure to pay a dividend is managed by traditional diversification. Risk due to macroeconomic cyclical variation is managed by intertemporal smoothing within the analysis of the fundamental question relating to income and expenditure described above. Adopting this different, though not new, approach requires acknowledging that the experiment with the efficient markets hypothesis has failed.

The government should legislate for a new regulatory regime for DB pensions based on this principle, and the present regulations based on naïve theories from financial economics replaced. This is a vital matter because the alternative to adequate and properly sustainable occupational pensions is a future crisis of retirement poverty for millions.

It is only policy makers who can deal with this problem by going back to the regulations and revising them. It is to be hoped that they can reconsider the use of financial economics as the basis of regulation.


elephant in room

The elephant in the room


1 http://www.pensionprotectionfund.org.uk/DocumentLibrary/Documents/PPF_7800_july_16.pdf

2 Exley, C. J., S. J. B. Mehta, and A. D. Smith. “The Financial Theory of Defined Benefit Pension Schemes.” British Actuarial Journal 3.04 (1997): 835-966.

3 Grossman, Sanford J., and Joseph E. Stiglitz. “On the impossibility of informationally efficient markets.” The American economic review 70.3 (1980): 393-408.

4 Shiller, Robert J. “Do stock prices move too much to be justified by subsequent changes in dividends?.” (1980); Shiller, Robert J. Irrational exuberance. Princeton university press, 2015;
5 For example: Haugen, Robert A. Beast on Wall Street: how stock volatility devours our wealth. Prentice Hall, 1999; The New Finance: The Case Against Efficient Markets, 1999 (2nd Edition), Prentice Hall; The New Finance: Overreaction, Complexity and Uniqueness, 2009 (4th Edition), Prentice Hall.


6 For example: FT Lombard, 6 July 2016; former pensions minister Steve Webb, reported at http://tinyurl.com/hpksa3c






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Hilary Salt gets a touch of the William Blakes!

Arise you actuaries from your slumber (guest blog from Hilary Salt)


I’ve found the last few weeks exhilarating. For the first time in perhaps 30 years, there’s been a real political debate in Britain. A debate where it clearly mattered which side you were on, a debate that split families, friends and communities on and off line – my own included – and a ballot where your vote really counted. The referendum concluding with a Brexit decision has not put an end to the lively political debate which is now focusing on our commitment to democracy.

So what has this got to do with pensions? We know that times of political excitement create a backdrop against which the arts flourish – think Shakespeare, Beethoven and Goya. And strangely it seems that today’s re-awakening is creating an atmosphere where many of the criticisms I have made of actuarial advice are being debated more widely.

To recap, I have previously argued in this column that actuaries mechanistically using the “gilts plus” methodology beloved by the Pensions Regulator have tended to introduce unnecessary prudence into actuarial bases.

Worse still, many schemes have then allowed this actuarial model to drive their investment strategy – investing more in bonds to reduce volatility against this subjective measure – so the metaphorical tail of the actuarial model is allowed to wag the dog of a sensible long term investment strategy.

Unsurprisingly, locking in to the guaranteed negative real rates of returns on gilts in today’s markets has a real effect in increasing the cost of benefits. For many schemes still open to accrual, the effect of this on future service contribution rates is the latest headache.

Past service deficits might be challenging but have often been broadly matched or hedged out so are reasonably manageable. But costing ongoing benefits on the assumption that assets will now and for ever into the future be invested largely in bonds yielding close to zero makes continuing accrual unaffordable.

There are of course other ways. The legislation on scheme funding is relatively liberal and allows the funding of schemes to be assessed using either or both “the yield on assets held by the scheme to fund future benefits and the anticipated future investment returns, and the market redemption yields on government or other high-quality bonds”.

Legislation does not mention employer covenant. Of course, it is important that in any funding approach, we are adequately prudent and do not overpromise member benefits. But using prudent expected rates of return that don’t peg liability values to falling gilt yields is an entirely appropriate approach.

I’ve been saying this for a long time – usually in scenarios supporting member representatives whose employers are looking to abandon high quality, efficient, collective defined benefit schemes in favour of poor quality, inefficient defined contribution arrangements. And that’s been a lonely place to be.

But suddenly, a little crowd is gathering. Professional Pensions reported last week that Ros Altmann (the pensions minister at the time of writing) “argued not all trustee boards are using the flexibilities available to them. These include….looking at bespoke actuarial assumptions”. And in its call for evidence the PLSA is inviting comments on funding.

Meanwhile the Joint Forum on Actuarial Regulation has issued a paper on Group Think. And interestingly, the latest headlines on current deficit levels calculated on mechanistic bases – showing a 30% month on month increase in deficits to £384bn when nothing much has changed – are leading even the most committed mark-to-gilt-marketeers to ask whether what we are measuring is sensible.

I don’t want to get over-optimistic. Conservative forces are often especially strong in revolutionary times – think of Blake’s romantic re-action to the industrial revolution. But I do want to welcome and nurture the signs of change.

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Hilary Salt is founder of First Actuarial


This article first appeared in Professional Pensions

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