So what can our past performance tell us of the future?

It is narcissistic to blog about your own tweet but I’m going to anyway!

As regular readers know, I am interested in the value I and millions like me have got for the money we’ve had paid into our pensions. I choose my words carefully, few of us save directly , most of us do it through payroll.

And because this money is paid through payroll it is part of our pay – the amount sitting in our pension pots is a combination of the money we paid in , the money the tax-person paid in and the amount it has grown since being  paid in. This is our savings experience, it is unique to us and we know very little about it.

We don’t get receipts for the money we , our employers and the tax-person pay in, nor do get a statement telling us how much our pot has grown. Instead we get statements from time to time telling us how much is in our pot.

Not only do we not know how fast our money has grown but we don’t know much about where our money has been invested. We know very little indeed about what – apart from our house – is likely to be our biggest asset


From the Institute of Fiscal Studies

But it doesn’t have to be like that. A simple analysis of your contributions received and the current value of your pot results in your unique rate of return. We call it your internal rate of return with “internal” meaning – inside you!

It’s also easy enough to work out what your internal rate of return would be if you were invested in the average workplace pension. AgeWage helped Morningstar create Britain’s first every pension index. It tracks the daily increase in price of a unit in a fund going back to 1980. By reinvesting your contributions into this index we can find out what you would have got – had you been the average person.

What is hard, what we’ve spent a year on, is how to express the return you have experienced (your IRR) with the return you would have got in the UK pension index (what we call the universal benchmark).

Recently we have been doing a lot of research involving millions of simulations to discover how most fairly to express one return against each other. The word “fairly” applies because we want the score to tell you not just the experienced return you have experienced but the experienced risk you have taken.

To investment analysts we could explain the process we follow like this.

The AgeWage score takes the IRR achieved by a member. The IRR embeds the risks actually experienced by the fund into which contributions were made. In other words, it is the member’s risk-experienced performance.

In order to produce the score, we compare this IRR with the distribution of other IRRs
which might have been experienced by the member. These comparator IRRs consider all of the risk which crystalised during the period, including those experienced by the  member.

The score does not consider risks which might have occurred but did not.

Destinations are important, but so is the journey!

During the course of your saving career, you will experience a few bumps in the road, you probably felt one in February, there will be more to come.

The way your pension fund deals with these bumps over time is your experience of risk. The longer we can measure your journey, the better we can look at the way your pension fund absorbs these bumps (experiences risks) and this is the point.

Your experience is relative to the risk you faced, not all the risks you could have faced. If you had prepared for every risk, your rate of progress would be so slow you might never have got to where you wanted to be – or could have got.

So what does past performance tell you about our future?

Well it tells us how much value we’ve got for our money and (with a benchmark) tells us how we’ve done against others. Assuming we’re travelling the same road in future, it tells us whether we’re in the right kind of vehicle or at least asks us to think more closely about how we want to travel in future.

This is important as there are huge differences between the outcomes of one pension fund against another and simply spraying your pension money across lots of little pot is unlikely to be a good idea. By consolidating pensions you are likely to pay less fees and have a more manageable way of paying yourself an income in later life.

Understanding the experience you have had from your various pension pots is a starting point in working out how to bring your pots together.

As we consider our futures, we cannot ignore the past, history is an important subject.



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Could a wealth tax fix our broken economy?

wealth coins

Britain is broke, for the second time in 12 years our economy has hit the buffers but this time the noises coming out of Government suggest that it is the wealthy who will pay to fix it. This would be in contrast to the austerity policies of the coalition, Cameron and May governments.

A recent You Gov poll found 61 per cent of the British public supported a wealth tax on individuals with assets worth more than £750,000, excluding pensions and the value of their main home.

Former Head of the Civil Service Gus O’Donnell said yesterday “there may be more of an appetite for a wealth tax than you might have thought”.

The goals of a wealth tax

The IFS start with the fact that


and that ….

wealth old 2

Wealth is increasingly associated with being old

wealth old

and concentrated in housing and pensions


Many people may have wealth tied up in assets but little income.

wealth 3

There are very few countries in Europe which still have meaningful wealth taxes and this reflect the historical fact that wealth taxes tend to be introduced after a major crisis. There have been few major crisis of late and the last one was dealt with through cuts in public services and increases in taxes on spending which hurt the poor most.

At an abstract level, a wealth tax seems to be aligned with the goal of a fairer tax system, but clearly it is a tax that will present practical difficulties to introduce.

Reasons we don’t have a wealth tax (on the living)

A large part of the IFS presentation focused on the practicalities of introducing and maintaining the taxes. In particular issues of avoidance (trusts, emigration, borrowing), valuation and liquidity.

But despite the issues surrounding a wealth tax, the IFS pointed to recent public opinion polls that suggest that we are ready to see a wealth tax in Britain for the first time (the land value tax introduced in 1909 was repealed ten years later when it was found that it was costing more to administer than it collected). The last time the UK looked at a wealth tax was under Harold Wilson’s Government in 1974.

The IFS will be looking at a final report on whether Britain should have a wealth tax later in the year.

Gus O Donnell’s arguments for considering the hard problem are

  1. That with Covid-19 we have a “clear burning platform” for change
  2. We have a Government with a big majority
  3. There is a desire withing Government for genuine reform
  4. This can only be done at a time (like now) when we have a popular Treasury

While Covid’s health impact has been on the elderly and males, the economic impact is likely to be on the young and females. In terms of “least bad options” , tax increases and especially taxes that don’t hurt those impacted, appear  to score well.

A tax on the living or a tax on the dead?

The meeting concluded by thinking about inheritance tax, a tax that has fallen into disrepute,

O’Donnell pointed out that the council tax which was brought in to replace the hated poll tax started well and has also fallen into disrepute.

According to O’Donnell, introducing a new tax (or a package of new taxes) would be easier than to reform a broken tax (where the losers would shout louder than the winners).

Whatever the solution that the Treasury choose, it is clear that it’s going to be tough. In a modern way of living, the new taxes we pay should respect the way we want to live our lives. Right now our tax system doesn’t look like it pays that respect.

Now is the time for us to talk about  the way we fund our way out of the pandemic and this was a good start to that debate.


Gus O’Donnell





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Public and private sector partnerships in pensions.


Mick McAteer of the Financial Inclusion Centre and Romi Savova of Pension Bee


I have a high regard for Mick McAteer, someone who’s passion is compassion. Mick fiercely believes in the primacy of the public sector in delivering pensions in the UK and he argues against private initiatives that he sees diluting the impact of state sponsored projects.

His Financial Inclusion Centre mobilizes publicly held money to be put to work for social good.


Mick’s view, as the views of others such as Jeannie Drake and Gregg McClymont inform and temper our thinking. Without the interventions of the state, we would follow the dystopian world of unchallenged capitalism which has led to consumers seeing value destroyed.

This position means that even on issues of sustainability, state sponsored initiatives are promoted and private work denigrated

I don’t share this view and though I am not an economist, I see evidence , even in this time of pandemic of the private sector delivering answers to the nation’s problems.


So let’s look at three areas where the private sector is serving the public interest

Macquarie Infrastructure Debt Investment Solutions (MIDIS) has raised £2.7 billion in commitments from predominantly UK corporate pension schemes, local authority pension schemes and insurance companies in the latest round of fundraising for its UK infrastructure debt strategy.

MIDIS raised more than £220 million via its second UK focused pooled fund targeting investments in inflation-linked debt in essential UK infrastructure businesses. A further £2.5 billion of commitments was raised to invest alongside the fund through separately managed accounts.

Many maturing defined benefit pension schemes and insurance companies have increased their exposure to inflation-linked infrastructure debt seeking to better match their inflation-linked liabilities. Investors have also been attracted to the prospect of higher returns than those offered by other assets with inflation protection and the lower risk profile of the asset class when compared to corporate debt

Insurance (pensions)

In the middle of June, Legal & General released a report called the power of pensions in which it suggested that the massive flows of defined benefit pension schemes to bulk buy out could release money that can plug the £200bn gap in funding for further infrastructure projects.


Data (dashboards)

There is a third area where the public and private sectors can work together and it is in the gathering and distribution of data sharing.

Increasingly our financial affairs are simplified by ready access to data. The open banking initiative, the general data protection requirement and the development of the Government Gateway have meant that we can gather data about our savings and out tax affairs online and do everything from paying tax-bills to consolidating pensions from our phones.

For this to happen, Government has worked with the private sector to establish protocols and police behavior to ensure that the public can do what they need to do in real time without fear.

But I fear that progress towards a goal of consumer empowerment, where people can look into their pensions and make informed decisions on where they want their money invested and how they want their retirement wages paid to them is under threat.

It is under threat from the well-intentioned but ultimately regressive views of those who want to take the private sector out of the dashboard project. Consumers have already seen promises of pension finding, data aggregation and dashboard delivery slip back year after year.

A long history of state and private sector collaboration

nigelThere is a long history of successful projects where state and private sectors have worked together to deliver good. That history continues to this day as is evidenced by the banking activities of McQuairie and the Insurance activities of Legal & General.

It is up to those on the skeptical left, Mick and Jeannie and others, to accept that the aims and aspirations of the private sector. People like Nigel Wilson, L&G’s CEO,  of Macquairie’s Alistair Yates (who shared the MIDIS fund with me) and with the data sharers such as Romi Savova of Pension Bee are not financial hooligans but business people who organise wealth to meet the needs of society. Whether this be through private sector investment or the generation of taxable wealth, the business of finance is to mobilise capital.

Those who work in public service must trust these people just as we must respect those who work to protect the public within Government. That is the way it is, has been and will be.

wilson and

Guy Opperman (Pensions Minister) and Nigel Wilson (CEO L&G)

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Keating and Clacher ask “Why do DB Funding levels matter?”

Ian con

Iain Clacher and Con Keating

Scheme funding is now the principal risk management tool for DB schemes, a development which has been encouraged by parliament and the regulatory authorities. It appears that the answer to everything is ever more funding of the pension promise and at the heart of this approach is the risk of sponsor insolvency.
The purpose of funding appears now to differ between secured accrued debt and paying pensions obligations. Historically, for DB pensions, this purpose was to provide security for the promise accrued, or earned and unpaid, up to the date of insolvency. It has changed to funding being adequate to pay all pensions as they become due or to purchase a contract replacing the as-yet unearned future benefits promised in the case of DB pensions.

This change of purpose significantly raises the level of funding required, which is costly to the sponsor employer. In previous blogs we have commented on the inequitable nature of this latter interpretation.
In this blog we shall investigate the costs that these funding strategies impose on the sponsor employer and conduct a small thought experiment to illustrate the nature and magnitude of the issue.

We abstract from the complexities of a full DB pension scheme, and consider a zero-coupon 15-year bond issued at a yield of 6% p.a. which we can view as a simplified approximation of the costs (of the employer) and benefits (to the employee) of a pension scheme.

The bond matures at par (£100) and the initial subscription is £41.73 (the discounted present value of the par value, where the discount rate is 6%). We choose 6% as the yield on this bond as our analysis of a small number of DB pension schemes has shown the average contractual accrual rates (CAR) of their stock of undischarged awards to lie in
the 6%-7% range.
If this rate appears high, given current market yields, it should be remembered that it is the result awards made over a history stretching back as far as the 1960s and perhaps even 1950s. One notable feature of DB schemes is that awards made in the mid and late 1970s may have embedded very high accrual rates – in many cases over 14% at the time of award.

Subsequent experience and revised projection assumptions have lowered this rate materially, to less than 9%. This is principally the effect of far lower than assumed wage and price inflation, countered by increasing longevity.
Returning to our thought experiment, we next consider the position after one year, when the accrued value of the liability is £44.73 on the contracted terms. As above, this figure may be derived as the discounted present value of the ultimate payment (benefit) or the accrued value of the subscription (contribution) using the 6% contractual rate.

Let us also consider the effect of using an externally chosen discount rate, say, the gilt yield for the remaining 14-year term. Assuming the gilt-based discount rate is 1%, then the reported value of this liability is now £87.0.
Ordinarily, these values would be immaterial if no action is based upon them. However, to maintain the comparison with pensions we now introduce a collateral security funding arrangement for the obligation, in the amount of these reported values.


The difference in required funding cash flows is stark. It is immediately obvious that these funding strategies cause this obligation to differ in its effective term or duration, and with that their cost.

The original unsecured bond was 15-years. The secured 6% CAR-based accrued liability has a duration of 9.06 years, and the 1% discount rate variant has a duration of just 2.70 years.

The cost to the sponsor company in the unsecured case, where the obligation is funded at maturity, is 6% p.a. This rises to 10.13% p.a. when funding to the CAR level is required, and 38.07% for the 1% discount rate case.
A sponsoring company might well be prepared to accept a 15-year 6% obligation, and perhaps even a 9.06 year 10.13% obligation, but it is difficult to believe that any company would knowingly sign up for a 15 year 6% bond which could be foreshortened to a 2.70 year obligation at a cost of 39.07%.
This thought experiment illustrates the method by which DB pensions have become ’unaffordable’ even though there has been no material increase in the ultimate amount payable. It is the arbitrary application of exogenously sourced discount rates.

Investment returns and funding strategies

To estimate the cost of these different funding strategies to the sponsor company, we have assumed no investment returns. However, if we assume an investment return, we observe a fuller picture.  A return of 6% p.a. (1) is particularly informative.  At this rate, there is no cost to the sponsor beyond the initial contribution made at the time of award.

By contrast, an additional contribution of £42.77 (2) is still needed for the 1% discount rate case at the year one valuation. This contribution like all other assets in the fund will need to earn 6% per annum. This means that, in future, it will result in surpluses relative to the 1% discount rate liability valuation (assuming the discount rate remains at 1% for the remainder of the liability and is not decreased by other exogenous factors such as government largesse and QE).

This contribution is effectively an advance to the scheme on which it will earns the subsequent surpluses. If the excess funding (relative to valuation) can be extracted (3) at the time of occurrence (which is unlikely) the advance has an average life of 7.19 years, and 14 years if it cannot be recaptured before the discharge of the pension(s).

The practice of spreading large contributions over several years as a form of ‘deficit repair schedule’ is now common with changes to average schedules published annually in the Purple Book.

While having a schedule may alleviate a sponsor’s immediate liquidity concerns, it does little other than shorten the term of the advance i.e. . and these contributions still all earn the investment return of 6% p.a. in our example.

It may be that a 6% p.a. return on capital is competitive with the long-term investment opportunities available to the sponsor company, but this has the unique feature that, when market discount rates are used, its timing lies outside of the control of the sponsor employer.

Concluding Remarks

As pension funds are often promoted because of their long-term nature, it is worth noting that any contributions to a scheme, beyond the initial contribution, which constitute part the long-term capital of the scheme come about by extinguishing a long-term liability of the company.

There is no net gain in long-term investment. In fact, it may be that there is a reduction in productive investment as the money that comes into the pension scheme is invested in the financial economy i.e. existing assets e.g. equity in the secondary market or credit that is already in issuance.

This thought experiment is intended to illustrate the extreme dependence of the sponsor company’s cost of provision on the level of funding imposed and the shape of this through time. We have kept this to a single valuation, but it is perfectly possible to extend this analysis to include multiple dates, stochastic variation, and adjustments such as ”prudence”,but there would be little by way of new insight to the logic illustrated here.

Taken together, funding is a very inefficient and incomplete solution to the risk management problem of DB schemes, namely sponsor insolvency.

(1) If the investment return is just 1%, the sponsor cost is the single contribution of 44.85% for the 1% discount
rate case, while the cost for the CAR case is 9.44% p.a.
(2)This figure is the discounted present value at 1% less the initial contribution and the accrual on that of 6%.
(3) We have ignored the taxable nature of withdrawals from the fund.
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Trustees have nothing to fear from making members money matter


Pension scheme members can be passionate about pensions!

How can schemes make ESG compliance meaningful?

that’s the question Angus Peters of FT’s Pension Expert asked his readership. It may not sound the snappiest of headlines but here’s what followed and after spending yesterday afternoon at the launch of Making My Money Matter, I’m pleased to hear a journalist speaking with some conviction.

 The UK pension industry’s first attempt at compliance with new sustainability reporting rules has left campaigners unimpressed, to say the very least.

Two-thirds of pension schemes in the UK failed to even submit their revised statements of investment principles, required to outline positions on environmental, social and governance risks, by the October 2019 deadline.

Analysis of their content by the UK Sustainable Investment and Finance Association suggested heavy use of boiler-plate statements drafted by consultants, and the organisation called the regulator’s response “as vague as trustees’ statements”.

How do we get beyond compliance?

The change that is needed is in the mindset of trustees who still see their job as managing the scheme to the rules. The rules say you minimize risk and so you don’t take the risk of embracing ESG as the guiding principles of your scheme. You do the minimum required to comply with the law and that means boiler-plate statements that nobody reads.

Yesterday Make My Money Matter launched a campaign to get some intention into pensions. On its website are two templates, one addressed to employers, another to pension providers, there should be a third , to trustees. Because despite the noise about workplace pension £2trn of the £3trn in UK pensions is under the control of trustees and committed to paying defined benefits.

Dear trustees

I’m getting in touch about my company pension. I’d like to know what impact our pension investments are having, and if that impact is aligned with our organisation’s values?

Through our pension fund we could be investing in things like fracking, arms, and tobacco. I think it’s important we find out if this is the case.

Can you tell me where our company’s pension fund is invested and what it’s doing for the world? And could you let me know what alternative options might be available to us to make sure our pensions are helping create a world we want to retire in to?

If you’d like to find out more about how we could have this conversation please visit Make My Money Matter.

I appreciate your support and hope this conversation will lead to our organisation having a pension we can all be proud of.

Thank you,

In Pensions Expert, Stuart O’Brien of Sackers explicitly mentions Make My Money Matters. Commenting on the failure of many trustees to talk with scheme members about what the trustees are doing, he says this reticence to give members the full picture extends even to schemes that are leading the market in terms of what they actually do:

“There’s a surprising amount of nervousness around putting information out there for members.”

Cautioning schemes to embrace transparency before it is forced upon them, he adds:

“There’s a risk here that if trustees don’t start being more transparent with members, we’re going to have organisations like Make My Money Matter putting pressure on them to do more. Some of that pressure might be well-intentioned, but not necessarily appreciate the environment within which trustees operate”.

As the “G” in ESG stands for “governance”, perhaps it would be in the trustee’s interests to help them understand this environment. Maybe I’m being naive but I thought the direction of travel of the Pension Schemes Bill was directly aligned with the direction of travel of Make My Money Matters.

While I appreciate that ESG can create conflicts between employers and trustees and that sponsors need to have a say in the management of scheme assets, I do not see why these conversations should not be explained to members.

Rather than fearing MMMM, trustees could be reaching out to them. Rather than worrying about receiving emails using the template above, they should be sending out requests to members asking them to look at

Indeed the chair of trustees of HSBC, Russell Tricot, was featured in yesterday’s launch and he spoke feelingly of the trustee’s duties. HSBC’s staff scheme, we should remember, has fully embraced the principles of ESG and is largely responsible for the FutureWorld fund run by L&G.

Make Members Money Matter

We are in no ordinary times, we can go two ways. Either we can lock down or look up. Locking down into the old ways of investment risks missing a chance to engage with members on the management of their money. All the research suggests that ESG clearly matters to people when properly explained.

Trustees have the opportunity to reach out to popular movements such as MMMM or to react to them.

I urge trustees to go to Make My Money Matter and make a pledge


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Making My Money Matter – all a little bit polite.


It didn’t feel like winning, it didn’t feel like losing. The launch of Making My Money Matter has just over 500 attendees and featured accomplished performances from Richard Curtis, Mark Carney, Helen Dean, Gillian Tett , Tanya Steele and Russel Picot.

Everyone spoke well and there was a chance for pre-selected questions to be answered but something was missing. I realized what it was when I pressed on Quietroom’s video. What was missing was the passion of the people speaking from outside the tent.

This is going to be the challenge for MMMM.  In terms of PR, the event has not registered, even in the pensions trade press.

If you google My Money Matters this morning , the listings are headed by an enterprising IFA whose website leads insidiously to a data capture not to Making My Money Matter but to the servcices of The Path Financial Ltd, Watch Oak, Battle, TN33 0YD.

There is no story, there is no protest, it is all feeling a little over-sponsored and underwhelming.

What is the call to action?

There are three calls to action on the MMMM website but they are going to need to be a lot louder than they are right now for this campaign to catch alight.

You can sign their petition ,

Together, we call on all UK pension funds to put people and planet on a par with profit when investing in our pensions.

Unfortunately doing so triggered me subscribing to an MMMM newsletter and I’m not clear who I’ve petitioned and how our call is going to influence UK pension funds to change their behavior.

You can share the campaign

This link allows you to send tweets mentioning up to ten pension providers which include (bizarrely) AXA, but don’t include L&G, Aegon or any of the 42,000 occupational pensions that don’t have master trust authorization.

Sorry to sound a little less underwhelmed but I don’t see anything in these calls of action that is going to catch the popular imagination.

This campaign is competing against some pretty powerful grass roots campaigns such as #BLM . It is going to have to speak with considerably more conviction and power than it has so far if it is going to extend the argument beyond the 500 who tuned in yesterday.

You can email your employer (or pension provider)

Here’s the text

Dear employer,

I’m getting in touch about my workplace pension. I’d like to know what impact our pension investments are having, and if that impact is aligned with our organisation’s values?

Through our pension fund we could be investing in things like fracking, arms, and tobacco. I think it’s important we find out if this is the case.

Can you tell me where our workplace pensions are invested and what they’re doing for the world? And could you let me know what alternative options might be available to us to make sure our pensions are helping create a world we want to retire in to?

If you’d like to find out more about how we could have this conversation please visit Make My Money Matter.

I appreciate your support and hope this conversation will lead to our organisation having a pension we can all be proud of.

Thank you,

there is a variant to the pension provider you can access here.

How will MMMM prosper?

It is going to have to tap into the deep wells of passionate support for change in a way that Greta Thunberg has and yesterday’s launch didn’t.

There appear to be a number of PR agencies and communication specialists on board but beyond the Quietroom video, I don’t see much on the MMMM website that is going to get people moving. The under thirties I introduced to the launch tell me the same.

People are going to have to buy into Richard Curtis and Mark Carney for this to happen and the two star turns are conspicuously absent from this blog because I have very little I can remember from what they said yesterday which I haven’t heard many times before.

So what can I share with you this morning?

I wrote this down because it was repeated throughout the morning, I believe the source is an article on

Your pension, savings or investments could have 27 times more impact on your carbon footprint, compared to all other activities combined.
I could also share the blog of Nossa Capital, which is integrated into the MMMM website. But I’m not going to because it is infact a call for you to subscribe to Nossa Capital’s newsletter.
I want to share with you my passionate belief in the power of people to make our money matter. But I do not feel that this campaign has reached out beyond the 500 or so who logged on to the webinar.  I will continue to promote the campaign with what reach my blog has, but right now I feel it has yet to find its spark.


Right now it all feels a little too polite


Remember what we’re up against

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For workplace pensions value for money means……..



One of the questions in the FCA’s consultation on value for money is whether its definition is ok or whether we can find a better one.

This is our definition

Pension value for money’s measured by the amount we can spend for the amount we’ve saved.  It takes into account the quality of service we’ve received and the amount we’ve paid in charges.

This is the FCA’s

The administration charges and transaction costs borne by relevant policyholders or pathway investors are likely to represent value for money where the combination of the charges and costs and the investment performance and services are appropriate
a. for the relevant policyholders or pathway investors; and
b. when compared with other comparable options on the market.

We think ours wins for four reasons

    1. Ours is inclusive, the FCA’s specifically relates to what IGCs are concerned with but doesn’t talk to people who contribute to defined benefit plans , members of trust based DC schemes and those who save outside the workplace. We prefer a universal measure – it was what the Work and Pensions Select committee called for
    2. Our is intelligible using phrases that people use in everyday speech. The FCA’s definition sounds like it was written by lawyers.
    3. Ours is structured to divide what ordinary people measure (outcomes and contributions) from what experts measure (costs and charges and quality of service). The FCAs is hinging the definition on a value judgement, what is “appropriate”. The prominence of this word in the definition suggests that VFM is out of the ordinary person’s reach.
    4. Ours does not require intimate understanding of the markets but is based on a simple metric – contributions against outcomes. This metric can be benchmarked because it is the internal rate of return – something common to all funded pensions.

Let me expand on that final point. If you read the articles of Iain Clacher and Con Keating, you will recognise that even Defined Benefit plans are based on am implicit rate of return which links assets to liabilities. If over time schemes cannot achieve this return they fall behind and can’t pay the pensions, the payment of pensions then becomes a problem for the sponsor (usually employer).

In Defined Contribution plans there is very rarely an internal rate of return implicitly targeted. One exception is Prudential’s workplace pension which has been set a target by its IGC of CPI + 3% as the return members should be getting. This doesn’t guarantee members any kind of pension but it is the benchmark internal rate of return for members.

The IGC can – using their own definition – tell members whether they have been getting value for their money by measuring how many have beaten the benchmark. This is a complex way of telling people what they can spend for what they’ve saved and it relies on all contributions going in being measured against what’s left after all monies have been taken out. Except where the money out has been a partial transfer or a drawdown, “what’s left” is the net asset value.

Since the money to be spent counts for most of what we value in a pension, we consider the impact of charges and the quality of service are of secondary importance. If someone has had a very high quality of service, they may forgive poor outcomes (the basis of the SJP business model). If the cost of managing the money is very high but the outcomes are good, then there may still be value for money (the private funds model). People can take into account high costs and high levels of service and still consider they’ve had value for money.

Phoney VFM

If the 100 or so IGC reports that I’ve read over the past five years are to be believed, 98% of the time VFM has been achieved. This begs the question – relative to what? The FCA are keen that benchmarking happens, but other than league-tabling the admin costs of workplace pensions to employers, they haven’t found a common benchmark.

We could take the Prudential’s CPI +4% and at AgeWage we seriously considered measuring IRRs against this. We rejected this as we thought that with 60m DC pots , a better benchmark would be the average return of the 60m pots. Ultimately we hope that AgeWage scores tell you how you have done relative to everyone else (simply by reinvesting your contributions in a benchmark fund representing the average person.

Which begs the question, how did 98% of people do better than average? We can only conclude that 50% of people did better than average and the rest is fake news resulting from a phoney marking system – phony VFM.

What of quality of service and cost and charges?

The best advisory service I ever saw was delivered to the steelworkers at Port Talbot. Their every need was catered for, right down to application forms being taxid to their doors. A high quality of service does not mean a great product and ultimately you can only paper the cracks so far (and this is not a pop at SJP who have realized this and are doing something about it). But generally there is a correlation between quality service and good outcomes which means service quality is not only a part of the equation but a validation of the assessment.

High charges are a flag that something may be wrong in the governance of the plan and even when returns are high, there is something to worry about. But we need to understand what charges really are before we say a charge is high or low. You get a lot for Terry Smith’s 1% AMC. As I’ve pointed out many times, some of the AMCs displayed by Fidelity and Old Mutual (two examples only) show only a small amount of the charge (with much of the charge hidden in the unity price) . Workplace pensions with combination charges are further examples.

We need to take account of costs and charges and quality of service in the VFM assessment but they should not drive the assessment itself. Ultimately what matters to savers is outcomes.

So what do you think?

We think our definition of value for money is one that could catch on. It’s not the snappiest but neither is it superficial. We hope it starts people thinking.

We do believe that if people feel they have a way of testing the value they get for their money , they will be more likely to engage with this complex intangible thing – called a pension pot.

We’ll be finding more about that as we test our AgeWage scores in the sandbox, but in parallel we’ll be testing our definition and that process starts here!

Please drop a comment on the blog or email  with your thoughts or what you consider better alternatives.



AgeWage evolve 2



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One love or schism?

“Batley and Spen is a gathering of typically independent, no-nonsense and proud Yorkshire towns and villages. Our communities have been deeply enhanced by immigration. While we celebrate our diversity, what surprises me time and time again as I travel around the constituency is that we are far more united and have far more in common with each other than things that divide us.” – Jo Cox (from her maiden speech in parliament -2015).

-ism; “the grand narrative”?

-ism is a suffix in many English words, originally derived from the Ancient Greek suffix -ισμός (-ismós), and reaching English through the Latin -ismus, and the French -isme.[1] It means “taking side with” or “imitation of”, and is often used to describe philosophiestheoriesreligionssocial movementsartistic movements and behaviors.[2]

The suffix “-ism” is neutral and therefore bears no connotations associated with any of the many ideologies it identifies; such determinations can only be informed by public opinion regarding specific ideologies.

When I talk of a grand narrative, I mean a way of explaining the world so that it makes sense to us in a grand over-arching way. We find isms everywhere, in 2015 Webster’s dictionary made -ism , its word of the year as it had appeared in more searches than any other. Perhaps we are looking for grand ideas, but all too often, the grand ideas collide and clash with each other. This is happening now, as people try to make sense of things at a confusing time. Take this tweet

Racism is a grand narrative that explains the subjugation of one race by another. Zionism is a particular kind of racism , colonialism another and anti-semitism another, these words are informed by public opinion. When we start out with one -ism , we can easily end up with several


A schism is a split or division between strongly opposed sections or parties, caused by differences in opinion or belief. 

Like many isms – it is a grand narrative gone wrong.

One love!

Bob Marley’s great hymn is the antithesis of schism. It is what Jo Cox was talking about and it brings people together. It brings black and white together, Jews and Palestinians , it heals the scars of colonialism.

I cannot think that we will prosper if we use the language of schism. We start with  a divided and unjust world  and reach out to a world where all are equal.

But that world is not another world. In olden days, preachers said that “heaven is under the earth” . That kept those who were oppressed, oppressed. The same man who wrote “One Love”also wrote “Get up, stand up” a song which demands we take action on earth.

Most people think,
Great God will come from the skies
Take away everything
And make everybody feel high
But if you know what life is worth
You will look for yours on earth
And now you see the light
You stand up for your rights. Jah!

It is possible to hold the idea of “One love”, while battling to free yourself from prejudice. I take it what the very wonderful Steve Simkins is saying here!

Steve Simkins

That final insight is very fine.

“One love” or schism

We can approach the injustices in this world in one of two ways. We can deal them by thinking positively in the spirit of one love, or we can throw rocks at each other and drive ourselves apart.

The lady in the tweet quotes Nelson Mandela, but she quotes the young Mandela who fought the law with violence. The old Mandela changed the law through love.

We can choose to fight inequality with violence or with love. I think love is more successful.

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

Sweden – a stark warning for Britain?


COVID-19 is really putting Sweden on the map, and maybe for the wrong reasons.

Unlike most EU countries, Sweden did not try to shut society down. It closed schools for the over-16s and banned gatherings of more than 50 people, but otherwise relied on Swedes’ sense of civic responsibility to observe physical distancing and home working guidelines. Shops, restaurants and gyms remained open

Authorities argued that public health should be viewed in the broadest sense, saying the kind of strict mandatory lockdowns imposed elsewhere were both unsustainable over the long run and could have serious secondary impacts including increased unemployment and mental health problems.

These are not the arguments being employed in the United States but the results are similar in terms of infections per 5 million population.


Sweden is now the Covid country of Europe and though Sweden may argue that it’s death rate per infection is low (511 deaths per million against our 650) , it look like popular support for the strategy is beginning to wane.

An Ipsos survey this week for the Dagens Nyheter newspaper showed confidence in the country’s management of Covid-19 had fallen 11 points to 45% since April, with backing for the national public health agency down 12 points.

The proportion of respondents satisfied with the centre-left government’s actions in the pandemic also fell to 38% in June from 50% the previous month, while the personal approval rating of the prime minister, Stefan Löfven, also slid 10 points.

The political consequences of high infection numbers is also important in the United States.

Over the past two months, Mr Trump’s approval ratings have nosedived, first because of his heavily-criticised response to the coronavirus pandemic and, more recently, his reaction to the antiracism protests following the killing of George Floyd by a Minneapolis police officer. Although most developed countries have succeeded in bringing down sharply the number of cases, the US on Thursday saw its biggest one-day total of new coronavirus infections as the pandemic spreads in southern states such as Texas, Florida and Arizona.

A lesson for the UK?

The UK has yet to see the kind of surge in cases we have seen in the US or Sweden , but we seem to be doing our best to catch up.

Having had the very worst numbers in Europe through the early days of lockdown, we appear to be putting ourselves “on the knife-edge”. Last night saw a rave on Clapham Common and isolated instances of youthful insouciance are all over social media.

We have got to keep ahead of the pandemic and if we do the right things in June ,July and August, medical experts say we can avoid a big second wave.

Public health is based on trust, testing needs to be in place, the vulnerable must be protected.

Perhaps the strongest safeguard that Britain has is the political imperative. Getting it wrong, whether for good or bad reasons, means losing public trust and no politician wants to lose its public.


Posted in pensions | 2 Comments

“Make my Money Matter” launches Tuesday; here’s your invitation

Make My Money Matter, spearheaded by Richard Curtis, Co-founder of Comic Relief, is launching a movement calling for the trillions of pounds invested in our UK pensions to build a better world – one that puts people and planet alongside profit.

After all, what’s the point of saving for retirement if we don’t have a world we want to retire into?

On Tuesday 30th June, there will be a   panel discussion and Q+A with leading sustainable finance, climate and pensions experts.

Moderated by Gillian Tett, Chair of the Financial Times Editorial Board, speakers will include:

Richard Curtis, Founder of Make My Money Matter

Mark Carney, United Nations Special Envoy for Climate Action and Finance, and Former Governor of the Bank of England

Helen Dean, CEO of Nest

Tanya Steele, CEO of WWF UK

Russell Picot, Chair of the Trustee Board at HSBC UK Pension Scheme

Make My Money Matter

I’m very pleased that after a long gestation, this initiative is now launching to the public. There is nothing that could be better for our pension money than to put it to responsible use.

Those of us who have been invested in responsibly invested funds during the past four months know that we have profited from the management of our money in this way.

I split my pension pot four years ago 50/50 between a passive fund with no responsible investment and a passive fund with the same allocations but strong tilts towards environmental sustainability , social value and good governance. I am £6000 better off for moving money into responsible investment and would have been £12,000 better off if I’d moved it all!

It will not always work like this but it is time we recognized that investing for good makes long-term financial sense for savers.

And it’s great to watch this video on the landing page of the MMMM website. This reminds me that getting people involved with their pensions as a force for good leads to the kind of behaviour that leads to better retirements!

It’s well worth you giving up some time on Tuesday (30th June) 13:45 – 15:00 BST to hear about




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The FCA promote a secondary market in workplace pensions


It’s an obscure section of a paper that will probably be read by a relatively few people expert in pensions. If I hadn’t published it this morning it might have been overlooked as it is buried deep in the cost benefit analysis of the FCA’s9 CP20/9  Driving Value for Money in Pensions

but it’s worth some discussion.

In what cases might an IGC/GAA tell an employer the scheme they ran for members was poor value for money?

4.21 We propose that for workplace pension schemes firms require their IGCs to
consider whether any of the comparable schemes assessed in the VfM assessment process offer lower administration charges and transaction costs.

This should drive competitive pressure on costs and charges of workplace pension schemes. We are confident that IGCs will have access to such pension scheme data to conduct this  comparison once scheme governance bodies begin publishing costs and charges information on their websites following our new rules in PS20/02.

4.22 We also propose new guidance that as part of this comparison, if any scheme offers lower administration charges and transaction costs, the IGC should bring this matter, together with an explanation and relevant evidence to the attention of the firm’s governing body and, if the IGC is not satisfied with the response of the firm’s governing body, inform the relevant employer directly.

The information referred to in PS20/02 is presumably

We proposed that provider firms must require that scheme governance bodies ensure all scheme members are provided with an annual communication which includes a brief description of the most recent costs and charges information available and how it can be accessed. This costs and charges information should include all the information set out in paragraphs 3.11 and 3.13 of CP19/10.

Should this include large employers with their own schemes?

The term “schemes” is ill-defined by the FCA and I am writing to the VFM team to discover whether it simply refers to the GPP offered to all employers on standard terms, or whether it refers to the special terms offered to employers for whom the provider has had to compete for business under a competitive tender. The terms for large employers like British Telecom from Standard Life will be very different from those offered to a start-up.

A comparable scheme to BT might be the terms on which Vodafone participate in the WTW Lifesight Master trust.  I would not expect IGCs and GAAs to be benchmarking  “schemes” which have non standard terms or funds, this is the job of pension consultants. I would expect “scheme” here to reflect the generally available terms.

A secondary market for smaller employers

The role of IGCs in escalating to employers is to make sure that employers who don’t have access to advisers, take action. PS20/06 includes in its cost benefit analysis this view of such employers.

Pensions products are often very complex, meaning that consumers struggle to
access and understand information about their pension. This makes any decision making about the value for money of their pension difficult for consumers. This lack of understanding also means that consumers have limited ability to exert pressure on their employers or providers regarding value for money.

Employers often lack the capability to challenge providers for the same reasons. There is also a lack of incentive on the employers’ side to ensure that their employees receive value for money in the long term. In DC pension schemes, employers are not liable for the final income that schemes provide for their employees, and employee turnover means that employers are further distanced from any long-term pressure to make sure their chosen pension scheme provides value for money.

The FCA is arguing for a secondary market where employers can review and replace workplace pensions. The IGCs/GAAs are there to promote change where change is needed. They cannot implement change and there needs to be a broking market for schemes as well, but they can be the agents of change.

I will also seek clarification from the FCA of the concluding paragraph

The combination of the complexity of pensions products and the misalignment of incentives for employers means that the demand side of the market for workplace pension schemes is weak. There is limited incentive for firms to ensure that their products provide value for money for their members.

Although the general sense is clear, it is as hard to work out what “firms” and “members” refer to as it is to tie down what the FCA mean by “scheme”.

Will this work?

For the FCA to see a more competitive market for savers into workplace pensions, it’s clear that employers are going to have to step up to the plate and the FCA thinks that IGCs can be the agent of change. This remains to be seen.

For the IGCs to tell the employers of the providers who employ them , to consider moving their workplace pension there will need to be considerably more distance between provider and IGC/GAA than we have seen to date. To date the FCA report only two instances of escalation by IGCs because of perceived poor VFM. Is there any grounds for thinking things will change?

The FCA are backing bench marking and are suggesting that where bench marking shows an IGC their provider is consistently in the relegation zone of any league table, they should demand an explanation of the manager and – should no satisfactory explanation be forthcoming – the IGC should recommend the manager be sacked.

This will only work if the IGCs become more independent, that the bench marking works and that employers feel, once prodded, that they are under an obligation to their staff to review and to change.

There are a lot of “ifs” here and having run the Pension PlayPen for 6 years, helping employers to choose workplace pensions, I am conscious that the numbers of employers who give a damn is quite small. There are relatively few advisers in this sector and those advisers who are active depend to be vertically integrated , typically advising employers to consolidate to their proprietary workplace pension.

Actually this is not a bad model. If advisers are to be incentivised to reach out to employers , they must have a means of getting paid and the accumulation of funds under management is a good way. Providing of course that the workplace pension run by the adviser is itself giving value for money.



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Give the funds industry an inch and they’ll charge you for 20cm.

london bus

London busses

It’s almost like having joined up Government. No sooner has the FCA’s consultation on VFM pinged into the inbox when along comes the DWP’s call for evidence on the charge cap. But I’m not complaining; “What Zoom has brought together may no blog tear asunder”.

But whereas the FCA consultation is a crazy-radical consultation, the DWP’s paper is just a call for evidence (which ends August 20th). It is a feisty paper which begs as many questions as it asks. Guy Opperman would like to see DC with social purpose – his department are nervous of the funds industry. The DWP want to protect small pots – HMRC are penalizing small savers. Pension policy isn’t easy, especially now.

I support the proposals in this paper but only if they are implemented as part of a consistent Government strategy which rewards the savers of small pots and makes it easy for small pots to be rolled into bigger ones.

First the important un-sexy stuff

The one new idea in the paper is to protect people with small pots from NOW’s £18 pa admin deduction . The DWP propose that flat rate fees are banned in certain instances


This will be painful. The two levies alone make small pots uneconomic, small pots are already causing a lot of pain to master trusts and they are moving to combination charges out of financial necessity.

People’s Pension has now has a flat fee of £2.50 pa , some Smart members pay flat fees and many of the smaller master trusts have “combination charges”. NEST is not impacted because its combination charge is different, it comes from the contribution not the pot.

There are rules around combination charging already and it’s worth noting that there are occasions when NEST’s combination charges has the impact of breaching the cap. For savers close to drawing benefits, NEST’s 2% contribution charge is very expensive.

The DWP are open to further criticism of market distortion by leaving NEST alone while threatening to remove the spark plugs from its rival’s financing engine.

Government is not in a strong position either as owners as NEST or as the collectors of taxes and the granters of savings incentives .  While the DWP get exercised about combination charging , HMRC are failing to fix an excess 25% contribution charge that  they  promised low-earners in net pay DC schemes – something that’s costing those who are in net pay schemes but pay no income tax around £63pa.

So just why are the flat rate chargers getting singled out? I can hear “disgusted of DWP arguing to the likes of NOW

but hold on: you took all these members on thinking they could safely charge their pots (employer’s money, taxpayer’s money, savers’ money) down to zero? Despite all the noise being made Work and Pensions Select Committee, Pension Bee and others? Why is that OK for you, when it’s not OK for the insurers, who for once are on the side of the angels

I think the flat rate charge on small pots is wrong but I don’t think its fair to demonise Peoples and Now and angelify L&G and Aviva,

The insurers have a culture of mono-charging which arrived with stakeholder pensions. They are set up to take their money at the back end of contracts which is what a mono-charge does.

The commercial master trusts (e.g. everyone but NEST) have done the heavy lifting during auto-enrollment while the insurers cherry- picked business.

Were it not for the commercial master trusts there would have been no choice for most small companies and that would not have played well. The legacy of being open for all is that most of the auto-enrolling master trusts already have more deferred members than active and actual pot sizes are so low as to require flat rate charging.

While the DWP are telling the master trusts, “you entered into this with open eyes”, the master trusts have every reason to feel let down.

The DWP are right to take on the ruination of small pots but there needs to be a quid pro quo in this.

If the Government wants to force People’s , NOW, to a degree Smart and several smaller master trusts it’s got to give them the means to mitigate the existential risk of small pot proliferation.

  • It must allow small pots to be exchanged in bulk between master trusts (what is not supposed to be known as prisoner exchange

prisoner exchange

  • It is going to need to detach the pension finder service from the dashboard build so that aggregators like Pension Bee and others can link into the databases of the big auto-enrolling master trusts and grab small pots.
  • Its going to make it clear that the rules that apply to DB pensions don’t apply to DC pots – certainly pots which have no need for safeguarding and that means modern workplace pensions.
  • Finally it’s going to have to fix the net pay problem because big Government is looking totally idiotic no paying promised incentives into the poorest pots.

Right now the direction of legislation is to make it harder not easier for ordinary people to transfer small pots and it looks as if moves to safeguard DB benefits may have the unintended consequence of slowing transfers down even more (Lords look to mandate guidance on pension transfers)

small pot

a proliferation of small pots

Now for the sexy stuff.

All this pounds shillings and pence stuff concerns the little loved pension poor and is  a million miles from where the action is in “the funds industry”.

Here the talk is of whether Guy Opperman’s plans for infrastructure and Private Equity firms plans for private equity are going to be dashed because the DWP impose an all inconclusive charge cap. It should be remembered that transaction charges were originally included in the charge cap.

Back in 2014 the IMA had argued that there was no way to identify hidden charges and indeed there wasn’t. They were hidden for a reason. The IMA went so far as to joke that hidden charges were like the Loch Ness monster

But 5 years later things are different , we can get the hidden costs and the FCA has adopted slippage as the way of measuring them. Of course there are ways of cheating at charges but (like golf) if you get caught cheating, there are ways of excluding you from the party. The charge cap is a way of excluding high-charging fund managers from the party.

So the argument is that the old objection has gone.  But there is a new objection to having an inclusive charge cap and that is it would stifle innovation and mean that the fourth road bridge can’t be repainted at the pension scheme’s expense.

If you’ve been reading Chris Sier’s articles in Pensions Week or on here , you’ll know that as soon as Trustees get a billion quid to play with , they go out and buy expensive asset management which usually turns out to do what cheap asset management does – more expensively.

The argument is that  this privilege should be extended to DC. Fortunately, people who run DC schemes are generally commercial animals that know that anything they spend on fund management is money they can’t spend managing pots of less than £100 for 0.75% (especially when they’re laying out 0.9% to pay the levies).

In short the platform managers of workplace pensions are not going to be buying expensive versions of what they can buy cheaply (for all the undying love of the fund management industry).

Fund management is actually a  pretty small cost for a DC platform manager. But it can become a much bigger cost if the hidden fees which were charged to savers now become part of the cap. That’s because those hidden fees are either going to put up the price (which isn’t going to make friends of employers and members) or it’s going to come out of the provider’s margin. So the provider’s platform manager is going to make sure that whatever’s bought has manageable hidden costs.

Putting hidden costs inside the cap makes them the responsibility of the platform manager. Continuing with the current regime means that firms like Fidelity who have hidden costs coming out of their ears, have to do something about them.

If you don’t follow my gist , here are the disclosed costs for Fidelity’s leading DC funds. (taken from this year’s  IGC chair’s statement which publishes  these numbers without comment). The bulleted numbers represent the impact of transaction costs on Fidelity’s three principle funds. These costs are not included in the annual management charge  which is what is capped.

Fidelity 10

Now if Fidelity had to declare those transaction costs in their AMC, they would be looking pretty expensive. But because they don’t include them in their AMC, they look very cheap.

If the Government want fund management houses like Fidelity to use proprietary funds in workplace pensions , they had better make sure that disclosure is on the total cost of ownership and not on a lite AMC with most of the charge being under the water.


And if it’s not Fidelity it will be someone else, even the passive managers who can make more money out of stock lending and other rinki-dinks than they can our of AMCs.   Give the funds industry an inch and they’ll charge you for 20cm.

It really does make sense to include hidden costs in the cap and make sure that hidden costs in a default trend to zero. This is not going to bankrupt anyone, it is just going to make sure that private equity and other expensive asset hunters go fishing in other ponds.

Posted in pensions | 2 Comments

7700 letters sent – 80% of advice wrong – £350m in compensation; lest we forget.

pension debate

It is good that steelworkers are getting compensation

On June 19th 2017 , 500 financial advisers crammed into the East of England showground’s hall to participate in the Great British Transfer Debate. It was originally to be a small meeting between First Actuarial and some IFAs, organised by Al Rush and myself. It’s explosion suggested that pension transfers were a much hotter topic than anyone had previously supposed.

Later that year Al Rush and I went to Port Talbot and reported back on what we saw. Jo Cumbo picked up on our reports, the Work and Pensions Select Committee interviewed steel men , the FCA and the BSPS trustees.

I got to speak of what I saw, Darren Reynolds failed to show up claiming he had been intimidated by Al, Al failed to show up being banned for allegations of intimidation. It was all rather messy, got a lot of headlines but the transfers went on.

We now know that one in five of those eligible to transfer did so and this resulted in over £3bn moving from a defined benefit scheme to a variety of DC plans, some of them wildly inappropriate for the steelworker’s needs.

The FCA has written to the 7700 steelworkers who took transfer values with a formidable intervention. This from New Model Adviser.

‘Our findings are sufficiently concerning that we have taken the formal step of contacting you directly and encouraging you to act. You should check the advice you were given and, where appropriate, complain in order to seek any compensation you are potentially due,’ Butler wrote.

The FCA provided the steelworkers with a link to its ‘advice checker’ which can help them decide if they should make a claim. It said that claims should first be made to the firm itself, before approaching the Financial Ombudsman Service (FOS). If the advice firm is no longer trading complaints will be considered by the Financial Services Compensation Scheme (FSCS).

Butler also warned steelworkers against using a claims management company (CMC) or a solicitor to make a claim.

‘It is quick and simple to make a complaint and you do not need to use a CMC or a solicitor to do this, if you do you will have to share any compensation you get with them.’


Mick McAteer, co-director of the Financial Inclusion Centre, a think-tank, and a former FCA board member, estimated the compensation bill could total more than £350m, on the basis that 80 per cent of members may have been given bad advice. The average value of awards so far made to BSPS members is £56,000.

We cannot allow this happen again – lessons must be learned

In a week when the FCA got a new CEO, it should be remembered that the FCA never went to that first Great Pension Transfer Debate, were nowhere to be seen in Port Talbot until the WPC put the wind under them and that it is now three years.

Although it is good that the FCA has finally taken steps to right wrongs and shut the stable door on contingent charging, it has acted too slowly.

The FCA cannot draw a line under BSPS with those 7700 letters, the cost of the compensation will be met by good advisers through PI bills and higher levies. Those costs will be passed onto people taking advice in the future. This bill could and should have been avoided by quicker and more decisive actions from the FCA and to a degree from tPR.

port talbot 4

The club where we first met steelworkers highlighted red


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A great report on tax injustice from the ABI at prayer.


The ABI has commissioned the PPI to model the impact of a flat rate tax-relief structure for DC pensions in the UK. The case for reform is evident from the PPI’s analysis of who’s getting what incentives.

But as the report reveals, there is a lot more to the ABI’s proposals than meets the eye.  I wonder whether the purity of the report’s main findings isn’t diluted by a partial analysis of the solutions on offer.

A brilliant explanation of the inequalities of pension tax incentives

Methodically and without emotion the PPI has dissected the UK pension tax-relief system to who it biased towards the wealthy, towards men, towards the haves and away from the “have nots”. In short, it shows the tax-system to be in a shocking mess and the sponsors to the PPI’s report, the Association of British Insurers are calling for change.

What is the report saying?

The report is talking specifically about DC pensions (that famous oxymoron) which implies that DC pensions should be treated separately from DB pensions

  • A flat rate of tax relief on DC pension contributions would increase the proportion of DC pension tax relief associated with basic rate taxpayers from 26% to 42%.
  • A basic rate tax-payer, who works and contributes continuously to a pension could get around one fifth more from their savings under the current tax advantaged system than under a non-advantageous structure.
  • A higher rate tax-payer could receive around half as much again from their savings.
  • For every £100 of DC pension contributions made from gross earnings or by an employer, £32 of income tax has been relieved.
  • The total value of contributions to DC pensions schemes was £29bn in 2018 from individuals and employers.
  • Around £9.3bn of income tax was relieved in respect of these contributions.
  • Since the implementation of automatic enrolment the proportion of pension tax relief going to those earning less than £30,000 has only increased from 23% to 24% despite the proportion of claimants increasing from 52% to 63%.
  • 71% of tax relief on DC pension contributions goes to men, who make 69% of the contributions.

The ABI issued comment as the PPI launched its paper noting that

“Basic rate taxpayers make up 83.4% of total taxpayers but only receive 26% of the pensions tax relief related to Defined Contribution pension contributions”

So what is the call to action?

The report will probably be remembered for the headline in light blue above. But it is surprisingly assertive in the remedy it calls for, moving DC pensions to flat rate relief (implying DB tax relief would remain unchanged).

The report says that introducing a different tax regime for DC pensions to DB pensions could prove tricky and give rise to “unintended consequences including arbitrage opportunities“.

It is surprising that the issue of reform across all forms DB pensions are excluded and no good reason is made in the report for doing so. It may be that the ABI as sponsors decided to stick to its own, having little skin in the DB game anymore.

It is also surprising that the report says little about the impact of employer contributions and so much about personal contributions. The impact of moving to flat rate contributions is that it could require higher rate tax payers to lose 50% or more of personal tax relief but also be lumbered with a tax liability of 20% or more of the employer contribution.

This impact is touched on lightly- but not modeled. It is – alongside the treatment of national insurance on pension contributions the most contentious aspect of the flat-rate proposal.

Is the PPI the ABI at prayer?

The reference is to the Church of England which is (in some circles) regarded as the Conservative party at prayer.

I am sure that the ABI policy team are devout believers in greater fairness in society, but they still guard the estate of the British insurance industry and Government incentives to drive pension saving remain one of the insurance industries great value adds.


This chart does not split out the impact of DC tax relief from tax relief on DB pensions. Since the vast majority of pension contributions into DB and DC schemes are by employers, the chart really talks to the strain on the exchequer, not to the argument about personal tax-relief.

The net cost (the thin blue line) has risen from £23bn to £37bn over the first 17 years of the millennium.

Set against this, the cost of DC reliefs (estimated by the PPI) are quite small (£9bn).relief 2

If we accelerate the HMRC 2017 net number through to today and call it £40bn, then DC is not even a quarter slice

Dealing with DC in isolation from DB, means dealing with less than a quarter of the pension incentives budget . Which is odd.

It is hard not to see the report as a “local fix” not a societal solution. The ABI may have gone to church , but they seem to  control the order of service.

It is up to commentators such as me to explain that there are other churches and that while all churches agree on fairness, some see solutions to the societal problems differently than others.


It’s a good and timely report and its analysis of inequality is excellent. But it is only addressing a quarter of the Government’s incentives bill and the solution it models is a lot more painful to the mass-affluent than the report implies. Lumping a 20 or 25% benefit in kind tax on an employer contribution of more than £10,000 would not sit well in the aisles.

I would have liked the report better if it had focused on analyzing how the inequalities it highlights are created and less on modelling various flat rate solutions.

The report also takes a  swipe at CDC schemes

Being a DC scheme primarily operating as an alternative
to DB they present a potential conflict point in the system.

This is unworthy of the PPI who know better. (They are looking to run a project on CDC as an investment pathway for DC funds). There is currently no DB pension scheme looking to convert to CDC nor any employer I know who wishes to convert DC to CDC who wants CDC to be considered as a defined benefit.

I am pleased that the report is vocal on the net pay anomaly, though there is more information in the public domain about its impact than the report picks up on. It was very good to see Lesley Carline of the PMI picking up on the net pay issue in the pages of Professional Pensions . Fixing incentives for the 1.7m low paid affected should not have to wait to a more general review of pension taxation.

Pensions Management Institute president Lesley Carline agreed. She said: “Amending the rate of tax relief is all very well, but the rate itself is just one inequality and fairness requires us to address them all. Firstly, there is the relevance of tax relief to members of defined benefit schemes since there is no direct correlation between contribution rates and benefit accrual. Secondly, and probably the most pressing at the moment, is the anomaly between the net pay arrangement and relief-at-source for DC members who are low earners.”

Posted in accountants, actuaries, age wage, pensions | Tagged , , , , | Leave a comment

Pension dashboards get a timeline to a timeline.


The Pensions Dashboard has at last got its own website which you can access here

It’s not the prototype website which you can still access here

Nor the excellent dashboard ideas site which is here

Nor does it link to the House of Commons website on the pensions dashboard here

Nor is it the MAPS website page,

It is the website or the Pensions Dashboard Programme


I am not saying it is the easiest URL ;

Nor that it’s strap line is  the most catchy;

dashboard program

But after 18 months of too-ing and fro-ing there is at least and last a place to go to find out what MAPS is saying is going to happen next.

For now we have Chris Curry’s blog which does at least give us a timeline to a timeline but stops well short of telling us when we can have tangible delivery by way of a pension finder service, let alone the delivery of the whole 9 miles.

If it did no more than find our pensions it would have worked.

We are about to set out on a consultation on what should be on the dashboard. There will be a data standards working group to work out what data standards we need and this will be informed by research being done by PWC on what the pension providers feel they want to share. We are still at the stage of establishing scope and definitions which is rather discouraging to those who remember promises at the beginning of 2019 that the single state dashboard would be up and running by the end of this year.

COVID-19 cannot be blamed for these delays. Most of us have been finding ourselves more rather than less productive over the past three months, there was ample opportunity for the consultation on these matters to have already have completed. Like the website, things are taking a lot too long and there’s too much complexity.

What we need to be able to do is find our pensions and have a nice bit of kit to see them in one place, that is the minimum viable product that we crave and if we can get 90% of that up and running by the end of 2021 that will be a win. My guess is that when we get a timeline (which now looks like in October) the pension finder service will be integrated into a lot of other stuff and the delivery date pushed back into 2022 or later.

My fear is that the pension finder won’t be available till we have close to 100% of all schemes sharing data on a mandated basis – which pushes the timeline for an integrated product back to 2025 or later.

I am a little outside the tent, but I do get to talk to Chris Curry and he is not just courteous but really helpful in getting me to understand the art of the possible.

My message to Chris, after reading his blog is that we must be able to launch a pension finder service sooner rather than later and that it should be the minimum viable product that keeps the pension dashboard in the public mind.

These are the top google searches that emanate from keying in pension dashboard


The questions the public are actually asking when they search “pension dashboard”


It is with a heavy heart that I remind myself that delivery of even an MVP such as the Pension Finder Service will be subject to a Government procurement process. This has at least started with a request for expressions of interest

All this is fine if it was being done at pace, but it isn’t. We know what happens to Government projects which are done at pace, look to the Isle of Wight. So you might ask why I want this sped up. It’s because when the Government worked out they could not track and trace themselves , they went to Google and Facebook and others who can, and so we’re going to track and trace as the market does.

The parallel is clear, while we embark on all this consultation and procurement, the answer is staring us in the face. Origo have built the kit and have planned the architecture for integrating, I imagine they have their data standard template which is ready for delivery, we should be up and running finding pensions as soon as we can get the standards into the public domain.

It seems to me that the best way forward for the pensions dashboard is to leave all the arguing about what should be shown on the single non-commercial MAPS dashboard to consultation and get on with delivering a service that the public overwhelmingly say they want, a way to find out lost pension pots and to see them all in one place.

Let’s get on with it!


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Don’t cash-out your pension #buildbackbetter !

sausage brick

You can’t buy a sausage with a brick

This blog is about how we make sure we have enough cash to pay the bills (including the butcher’s bills)

Cashing out pensions – the lure

In its recent policy statement (P20/6), the FCA leaves two carve-outs (loopholes) for advisers wishing to use contingent charging to ease the advisory bill. The first is in cases of extreme ill health and the second is where the client is proven skint.  I can see sense in both, very occasionally the rules of an occupational scheme will not sanction the taking of the lump sum prior to normal retirement date and even more rarely, it is in someone’s interest to take much more than 25% of the pot up front.

However it is only the exception that proves the rule, the rule is that a pension is a pension.

Since the client/adviser declaration will, on both occasions, need to satisfy the legal requirements of the FCA and the commercial strictures of professional indemnity insurers, it is unlikely that defined benefit schemes will be used to provide greater liquidity, more than once in a blue moon.

Safety in liquidity?

For most people , their three greatest financial assets are

  1.  property
  2. pension
  3. capacity to work,

Property is an immediate utility. It is linked to work only if you need to purchase or remortgage and sadly you are not able to get a sausage from a brick if you have no capacity to work. Selling the family home to pay bills is not going to be easy in the next few months and is only an option for those who own their home.

It’s work and pensions that are the primary source of liquid cash for most of us. Items 2 and 3 conflate in people’s heads. Especially for those over 55, the capacity to fall back on the pension has always been a comfort, it is the safety net if there is no capacity to work.

For many people there will be no capacity to work for much of 2020 and though many will still being paid, the inevitable conclusion is “no-work, no-pay”.

In the UK, money can only be released from pensions once you have reached 55 *.

In Australia , the situation is different. Rather than set up a furlough scheme, (borrowing against future taxation) the Government has allowed savers in Superannuation schemes the chance to take money from their pot early.

The latest results are now in and they make for interesting reading.


So of the 15m saving into Aussie Super around 2m are currently raiding their pots though the average raid is quite small $7.5k in Aussie Dollars is around £4,000.

 Would this work in the UK?

Giving people the right to raid their workplace pensions to fund them as they try to find another job seems , on the face of it, a reasonable thing for Government to do. This is after all an unprecedented time. But it would be the worst thing that Government can do.

The Pensions Regulator estimates that 10% of employers are currently under funding their defined benefit schemes , it could be argued that they are paying wages by not paying into pensions – which sounds rather like raiding pension schemes, but it’s not. There is a Plan B for a defined benefit pension scheme that gets into trouble and that is the PPF.

For private individuals there is no Plan B, in fact by taking money out of the pension pot early, many of us would scupper our own plan B’s.

Because as soon as you make pension funds part of you available cash, you give Government the option to rule you out of the Universal Credit till that money runs out.

Because the money that you’ve spent on yourself today, you’ve robbed from your future tomorrow.

And because if we extend the concept of pension freedom in the way Australia has, we corrupt any remaining legitimacy of pensions as pensions. In so doing we give Government the right for them to rid pensions of their savings incentives (as the Australians have done).

The Australian system works on compulsion, Super is effectively a privately operated tax on wages that defers compensation to later life. Government and unions can change the terms of the contract at their command. The Australian system demands a much higher contribution into funded pension and has been around fo longer.

In the UK, there is no compulsion, people enroll into pensions on a promise of certain incentives in exchange for certain restraints, the single largest constraint left is that the money stays in the pot until at least 55. Pots are typically small as most people haven’t been enrolled for long enough, or saved at Aussie rates to use their pension pots for partial encashments. In the UK, for most people “encashment” would mean taking the lot.

Building Back Better..

I expect the calls for an easing on early encashments will be restricted to  some hard-right policy wonks. They will point at Australia and call the numbers in the infographic a policy success, primarily because it de-risks the general tax-payer and passes yet more risk onto those finding themselves unemployed post-furlough.

But as with the carve-outs created in PS20/6 and the easements on defined benefit schemes to fund pensions, there is precedent for easements at a time of destitution.

I am pleased to see that googling “can I take my pension before 55” no longer leads to a page of paid adverts from lead generators taking you to Qrops and overseas SIPPs.  I am pleased to see that instead, MAPS and other government agencies have taken their place advertising a simple message “no”. Well done MAPS and well done Google.

Instead of entering a debate about early encashment of pensions, I hope that we will consider the positive  #BuildBackBetter .

There can be nothing so stifling of hope for the future than to give up on your retirement savings. Demoralizing indeed to have to raid your super to pay your bills, how much worse in the UK to put in peril the good work of auto-enrolment by turning the motorbike into the sidecar.

We can build for the future in a positive way by making pension taxation fairer, by ensuring that low-paid people get the incentives they’ve been offered and eventually by turning the system of tax-relief around so that it favors those who most need pensions.

* I am aware there are a few people in special professions who can take money from pensions before 55, but they generally know who they are and aren’t  part of this argument

Posted in advice gap, age wage, Australia, auto-enrolment, pensions | Tagged , , , , , , | 1 Comment

“Pandemics are catalysts for change- #buildbackbetter” (Stuart McDonald)


In his most confident thread yet, Stuart McDonald (@actuarybyday) looks again at the weekly data provided by ICNARC and focusses on two key issues, the particular impact on British BAME communities and the statistical congruence between high levels of poverty , high levels of infection and death and non-white ethnicity.

I am publishing the entire twitter thread because it provides a unique insight for us in the general public. I know many of my readers do not take their news from twitter and this is real news.























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Who’s protecting pensions from the impact of COVID?


Fairs ,Cumbo, Morley and Altmann

This is a very real and important question as the priorities of Government tend to be protect jobs and the businesses that create job over the incomes of those who have left the labor market. The key performance indicators of Government are the economy (stupid) and the measure of a healthy economy is Gross Domestic Product. The problem with pensioners is that they don’t produce much, so the tendency of Government departments other than the Department of Work and Pensions is to de-prioritize pensions.

So there have to be people in Government standing up for pensions and for pensioners and I’m pleased to say there are. Step forward Ros Altmann, who is reported in the Financial Times today.

“We hope to persuade the government to ensure that any assets pledged to a pension scheme cannot be sold during a moratorium without approval of the PPF and also ensure that financial operators cannot game the PPF by moving themselves into ‘super-priority’ status, leaving other unsecured creditors such as pension schemes with far less resources on insolvency,”

The Baroness was speaking after an important change of direction (aka climbdown) from the Department of Business Energy and Skills over the Corporate Insolvency and Governance Bill.

To quote Josephine Cumbo on the matter

Emergency proposals laid before parliament last month would have reduced the influence of both TPR and the Pension Protection Fund, the lifeboat scheme, in recovering debt owed to a company retirement plan by a sponsoring employer.

But   the FT were able to report

On Friday, the government said it had “listened” to concerns and would extend the bill so that both the PPF and TPR would be able to play a “key role” in ensuring that the interests of pension schemes were “fully taken into account” in any restructuring or rescue plan.

There has been an effective rearguard action by the pension industry and  everyone from Ros Altmann and Jo Cumbo (providing the publicity) to the PPF and tPR hammering within the machine  , to trade bodies such as the PLSA and the Society of Pension Professionals should be congratulated.

Of course Ros Altmann is more than a publicist, there is an effective group in the House of Lords who know about defined benefit pensions and understand what battle to fight in standing up for pensioners. The “Upper” House is of course the senior house in terms of years, and the maturity of most peers means that they have skin in the game.

It is also worth noting that most of the peers who speak up for pensioners are female and that they are cross party.

This latest intervention from the pensions lobby will be followed through on Tuesday 23rd June  when Ros Altmann and the peers will be able to table further amendements.

For those with a legal bent, the Bill – amended by Committee last week can be read here.

An effective pensions lobby.

It is easy to dismiss the House of Lords but it is no longer a gentleman’s club, it is (amongst many things) providing a very real service to pensions and pensioners both present and future.

And while I have dismissed in the past the Pensions Regulator and the pension trade bodies , in this matter I think we should be grateful for their effective lobbying. The PPF under its excellent CEO Oliver Morley, is also worthy of praise.

According to the Pensions Regulator , 10% of the 5500 DB schemes in the UK are not getting contributions meaning their sponsors are breaching their covenants with their trustees. This is highly worrying for deferred pensioners who have the very real possibility of having reduced pensions paid to them by the Pension Protection Fund.

But the financial difficulties of employers does not mean the pension scheme need to be abandoned to the PPF. So long as there contingent assets and other protections in place, pension schemes and the PPF can protect themselves from other creditors jumping ahead of them in the queue, selling these protections for the benefit of shareholders and those holding company debt.

We wish Altmann and company success next week and look forward to further positive reports from the always reliable Jo Cumbo.


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Dashboard customers form an orderly queue!

I sat in on a 90 minute Zoom last night hosted by John Moret’s Pension Network. I am allowed to say that the panel consisted of Paul Johnson, Emma Douglas, Jamie Jenkins and Steve Webb. I can’t attribute comments to individuals but can say with under John’s Chair we talked of the impact of the pandemic on people’s retirement planning and discussed pension policy.

One insight that came out of the conversation was the role of pensions policy in delivering or stymieing innovation. The two innovations that were discussed most were the pensions dashboard and the developments of defined benefit super funds.

In this article, I ask if the creation of safe harbor legislation to allow super funds to operate in a regulated environment might not be copied for the dashboard. Let me explain what I mean; it has long been possible to run multi-employer defined benefit schemes (the Pensions Trust is a good example). But only one defined benefit scheme exists where there are no sponsoring employers and that is the PPF, it gets sponsorship from a very large levy on solvent schemes.

Short of declaring insolvency (in which case your DB scheme goes into the PPF assessment period) , an employer has in the past been able to buy-out all or part of its pension obligations with an insurer , but there has not been an opportunity to sell-out to private markets. The two private market funds Clara and Pension SuperFund have been ready for business for some time but without the rules from the Pensions Regulator in which to operate, they have not opened their doors.


Like socially distanced shoppers, interested schemes have formed an orderly queue.

What the Pensions Regulator did yesterday, was offer super funds and prospective clients a safe harbor in which to negotiate terms and transact. It seems that the pensions regulator has applied the same methodology to authorizing super funds as it did DC master trusts. It is raising the bar but providing security for those operating within the authorized perimeter.

I am allowed to exempt myself from the Chatham House so can say that I asked the meeting last night, whether such safe harbor regulations might not be applied to the development of pension finding services – and indeed to those using those services to offer people dashboards.

The risk of not having

Despite not making it into the Pension Schemes Bill, the arguments for having super funds backed by capital rather than insurance have all been around protectionism. The ABI argued (and still do) that super funds provide buy-out on the cheap while pension schemes want buy-out on the cheap. Perhaps the solvency of many employers forced the DWP’s hand , tPR sees itself protecting the PPF and if a number of schemes can avoid the PPF by buying members into a super fund (where insurance was too expensive) needs must! Super funds are now competing with insurers which hopefully brings down the cost of insurance (guaranteed annuities). The risk of not having super funds became too great.

A similar argument could be made for the pensions dashboard. Progress of late has been painfully slow , there is a “new” website that has been published this week by MAPS, but it is just a better brochure but we are yet to see progress on common data standards for the pension finding service , the promised consultation on next steps or the onset of procurement. This cannot be blamed on any part of Government, it is just in the nature of large IT projects managed by Government that they go at the pace of the slowest.

Guy Opperman , the Pensions Minister, is aware of the pressing need. He is reported to have written to pension schemes telling them to be “dashboard ready”. There is much that DC schemes can do to make sure they have clean data to share and there is much that legacy pension providers can do to make sure their systems are ready with what is called an “API layer”. However the PLSA is right in saying that unless the Government makes it clear what data standards schemes are signing up to , there is not much they can do to give the Minister the thumbs up.

dash plsa

Here the slowness of the Government is creating new risks and not just the risk of confusing pension schemes .

It was mentioned last night that now that DB pension transfers are pretty much out of bounds, the focus shifts to DC transfers which are very much in the sites of the less savory parts of the pension community.

I have seen it argued that the creation of commercial dashboards that show people’s policies in one place will increase the likelihood of scamming. The FCA’s pension policy statement PS20/06 mainly focuses on DB transfers but does look at safeguarded benefits with DC schemes (GMPs and GARs  are treated as if DB). There are of course a lot more opportunities to lose money on a DC transfer – they include the loss of terminal bonus from a with-profits contract, exit penalties (especially for the under 55s) and the loss of loyalty bonuses or guaranteed life cover and waiver of premium.

For all these reasons, DC transfers should properly be conducted under the eyes of the FCA , But whether however all DC transfers need to be “advised” is another matter.

The FCA has said that it wants to regulate commercial dashboards and for this reason commercial dashboards have not emerged. Just as pension super funds had to wait for the safe harbor regulations, so with pension dashboards.

But just as the pressure for DB schemes to consolidate has increased, so the pressure from consumers to get to grips with DC pots. I’m pleased to see that we now have nearly 500 volunteers waiting to test our DC aggregation service in the FCA’s sandbox. This is around ten times the size of test group we had originally envisaged.

The risk of not having properly regulated DC aggregation services is primarily because it allows scammers to operate outside of the perimeter in much the way as we saw at the peak of pension transfers in 2017/18. But there is a further risk posed by pot proliferation, some master trusts already have many times more deferred than active members with small pots abounding. The increase in unemployment predicted at the end of furlough will create a further spike in deferred pension pots. The DWP estimate that unless something is done we could see 50m abandoned pots by 2050, the PPI currently estimate that there is £20bn of lost DC pension pots.

So long as there is not a safe-harbor for firms offering people the chance to see their pensions in one place, there will continue to be suspicion among pension providers of letters of authority used to find pensions, Pension aggregators increasingly need to be FCA regulated to properly carry out pension searches and it is only a matter of time before the aggregators find ways of displaying the various pension pots so that pension consumers can make informed decisions for themselves.

Since the cost of advice on transferring a DC pension pot can be more than the value of the pension pot itself, there is clearly a need for ordinary people with pots not subject to safeguarded benefits, to be able to use aggregation services without advice.

The risk of this not being allowed is that frustrated savers find help with those on the fringes of decency.

The right balance

It is great to have MAPS building its dashboard team and I admire the thoroughness with which Chis Curry is building the dashboard proposition. But we still don’t have a timeline for having a timeline and are unlikely to have a clear delivery timetable till the end of this year.

Online pension inquiries are, according to one insurer speaking last night – rocketing. Empowered by their use of new technologies during lock-down, people are using all kinds of financial services online. But there is no pension dashboard for them to use and commercial firms who have the capability to show multiple pensions on one screen are shying away from doing so because they do not want to jump the gun.

So while it is great to have MAPS building a non-commercial dashboard, the speed of progress is creating precisely the problem that we have seen in DB consolidation. It is important that Government looks to DC consolidation services and gives them safe harbor status , as it is doing in the DB consolidation space.


Consumers patiently waiting

shoppers 2

and not so patiently waiting


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Thoughts on the triple lock

rishi 4

There’s no doubt that the unwinding of the furlough presents the Treasury with a technical problem with the triple lock. You can read the details here

But that does not mean that the pensions industry can consider the state pension the tap which can be turned off to safeguard private and public pension privileges. With pensions as with COVID we are all in this together. We cannot dump on pensioners the problems of a flawed pension saving system.

I woke to Petrie Hoskins at 4am , announcing that she would be spending the next hour of her phone in discussing the Pension Triple Lock. At 7 am Jo Cumbo discussed the triple-lock with Nick Ferrari on LBC.


Clearly something is afoot and it looks likely that the manifesto pledge to retain the triple lock is being reconsidered.Whether it is suspended or abolished, it looks as if the benign climate in which the state pension has grown over the past decade is in for a change of temperature,

If so, I am worried.

Nobody wanted to talk with Petrie about the impact of the triple lock, I almost phoned in myself. The state pension, along with pension credit,provides a  way for many older people to get some financial independence. For those who do not have private savings or the benefit of an occupational pension, the triple lock has meant that the state pension has moved from “nugatory” (Michael Portillo’s descriptor) to something paying up to £173.75 pw increasing by 3.9% recently.

The system is complicated by changes to the state pension introduced under the coalition Government that mean that many older people get pension credits to top up a lower entitlement to state pension and these “pension credits” do not always get claimed.

Department for Work and Pensions figures show an estimated £2.2 billion of available Pension Credit went unclaimed in 2017/2018.  On average this amounted to more than £2,000 per year for each family entitled to receive Pension Credit who did not claim.  Official figures show that Pension Credit take up was similar for those under 75 (62%) and those 75 and over (61%) but was lowest among pensioner couples – with just over half of those entitled received the benefit.

There is real pensioner poverty in the UK and it results from a pension system which works well for those who are enjoying the benefits of a tax-privileged workplace pension system and not so well for people who are had to save for themselves or not save at all.

Kicking away the crutch of the triple lock, without properly reforming the taxation of workplace pensions, would be socially regressive. I accept that the £290bn that COVID-19 looks like costing the Exchequer this year needs to be found from somewhere, but starting with the pension poor is not sending the right signals.

The pensioner has not been shielded from COVID-19. If you read the article published on this blog yesterday by distinguished actuaries, it is clear that the opposite was true.

Economically, the old have not benefited from the main recipients of the £290bn of state aid. They have not been furloughed nor have they participated in business support. They have suffered the consequences of years of under-funding of our elderly care syste,

It now looks likely that they will be asked to accede to a u-turn in Government policy.

I hope that the Treasury will look at state funding of retirement incomes holistically , recognizing the huge inequalities that exist. They should not focus on any one item to the exclusion of any other. The main items HMT should be looking at are

  1. The long term implications of current state pension promises (of which the triple lock is only a part)
  2. The taxation system that is supposed to incentivise workplace and private pensions.
  3. The cost of Government guaranteed pensions to public sector employees
  4. The (self) exclusion of the self-employed from funded pensions.

In my opinion, the state pension , pension credits and surrounding benefits provide too weak a safety net for the poor pensioner, the taxation system (including the egregious net pay anomaly) is not properly incentivising saving and has become a safe harbor for otherwise taxable wealth. I do not think that we can continue to fund all state backed defined benefit pensions and we need to look at future promises sector by sector. Finally, I think it time Government makes a meaningful contribution mechanism available to the self employed through the tax and national insurance system , a system from which the self-employed can choose to opt out.

There’s no doubt that the triple lock was never built to meet the explosive consequences of the unwinding of the furlough on wage inflation. But this is a technical issue and shouln’t be confused with the strategic importance of dealing fairly with our older citizens.

Demonising the cost of the triple lock where there are such inequalities elsewhere is short-sighted and unfair. I hope that as well as the voices of the Treasury, the voices of those who stand up for poor pensioners (such as Age UK, Ros Altmann and our pensions minister) will be heard today and tomorrow.

Posted in auto-enrolment, pensions, self-employed, steve webb | Tagged , , , , , | Leave a comment

Care homes – forgotten by us- not by Covid

care three

Adrian and Dan

Adrian Baskir and Dan Ryan

This article can also be found at the COVID-19 Actuaries website


In their weekly analysis of deaths, the Office for National Statistics (ONS) reported that the total number deaths in excess of 5-year averages in the 12 weeks up to 5 Jun was 58,765 in England and Wales.  These numbers are much higher than the reported number of deaths from the Government briefings each evening, or the numbers where COVID-19 is reported on the death certificate.  In the absence of accurate reporting, excess deaths are the clearest indicator of the impact of COVID-19, both direct and indirect.

Within this tragedy is the realisation of the scale of the devastation that COVID-19 has wreaked within care homes across the UK and elsewhere. The prioritisation of provision of sufficient personal protective equipment (PPE) to NHS hospitals over care homes resulted in staff being placed at increased risk and increased the likelihood of rapid spread within the care homes.

Moreover, the mental impact of lockdown should not be underestimated for those in receipt of care, suffering from isolation in their rooms as well as disruption to normal routines and much needed support. Over 45% of those excess deaths in England and Wales were care home residents. From 13 March to 25 June, almost 1 in 7 residents died in their care homes, doubling the toll that we might have otherwise expected.


It is worth reminding ourselves of the timeline of the dawning recognition of COVID-19 in care homes in the UK, to compare the UK experience with that of other countries and to consider what lessons can be learned for future waves or pandemics.

25 FebruaryGuidance issued to care homes from Public Health England (PHE) on precautions and processes in the event of COVID-19 outbreaks. The guidance stated that it was “intended for the current position in the UK where there is currently no transmission of COVID-19 in the community. It is therefore very unlikely that anyone receiving care in a care home or the community will become infected.”

13 March – New guidance from PHE did not ban visits but advised care homes to “ask no one to visit who has suspected COVID-19 or is generally unwell, and emphasize good hand hygiene for visitors”.

23 March – General lockdown order issued

26 March – Sarah Pickup, deputy chief executive of Local Government Association, warned the UK health select committee hearing that “access to PPE is insufficient in the care sector” and that patients discharged from hospital risked infecting others at their care home (BMJ).

9 April – Care England warns that up to 1,000 COVID-19 related deaths may have occurred in care homes whilst the latest data at that time (up to 27 March) from ONS was reporting only 20 deaths with COVID-19 mentioned on the death certificate.

28 April – Care Quality Commission (CQC) starts two new series of publications in respect of deaths of care home residents.  First, a daily update to PHE of deaths notified where COVID-19 was confirmed to complement those that have been reported by NHS England since 2 April.  Second, an extension to the weekly deaths release from ONS which included deaths in care homes where COVID-19 was mentioned on the death certificate, as well as more detailed data by local authorities in England for all deaths and COVID-19 notified deaths.

16 June – Most recent publication on deaths in care homes from CQC and ONS.

The overall reported numbers of deaths from PHE have now been updated retrospectively to the beginning of the COVID-19 pandemic, but the CQC provides separate information on deaths in care homes going back to 10 April.

Figure 1 below sets out the number of deaths that were daily notified as well as a rolling 7-day average to compensate for reduced notifications over weekends and public holidays.  The peak number of deaths is almost 2 weeks later than in NHS England hospitals where the peak occurred on 8 April.

Since then the numbers have generally reduced but at different speeds in different regions, and there is a clear need to remain vigilant as lockdown restrictions are steadily eased.  A more focused strategy aimed at containment within communities and/or within care homes will be needed as there is further easing.  The need for shielding of care home residents will be increased in this phase where outbreaks are more localised.

Figure 1 – Deaths of care home residents notified to Care Quality Commission

care one

Source:  CQC data on notified deaths

The CQC provides an up-to-date directory of all care homes in England, with detailed information on care homes including location, number of beds and whether they provide services for older people. The most recent version of this directory indicates that there are 411,000 such beds available with occupancy rates of 90% in 2019.

Whilst more granular analysis should be conducted with more data, the publicly available data allows us to assess the excess mortality in care homes by local authority, split between COVID19 and non-COVID19 deaths. Figure 2 and Table 1 illustrate the high degree of heterogeneity of mortality experience across different local authorities in the seven English regions. (The blue lines in the graph correspond to the respectively labelled columns in Table 1.)

Figure 2 – Mortality in nursing homes across English local authorities (10 Apr – 5 Jun)

Care two

Table 1 – Variation in mortality across English regions (10 Apr – 5 Jun)

Region % of local authorities where non-COVID19 deaths alone are more than 100% of total expected deaths
% of local authorities where total actual deaths are more than 150% of total expected deaths
East of England 64% 73%
London 44% 63%
Midlands 35% 48%
North East 59% 78%
North West 13% 74%
South East 53% 68%
South West 50% 36%
ENGLAND 43% 63%

Source:  Analysis based on CQC data on notified deaths up to 5 June

These variations could reflect significant levels of undiagnosed COVID-19 given the inability to conduct systemic testing in care homes over the period. However, it may also highlight regional and local differences in the impact of COVID-19 on frail populations and the disruption of health services and normal routines through general lockdown.

Further analysis of these datasets would be of value to care home providers and health authorities.   This analysis would inform preparation for any second wave of infections, for better understanding of how to reduce the impact of future flu pandemics and benchmarking of best practice. This analysis would identify mortality and morbidity differences between different settings. Potential drivers of differences could be due to staffing levels, occupancy levels, home demographics (age, pre-existing underlying health conditions, length of prior occupancy), funding levels, availability of PPE, community transmission (carer and visitor access), and transmission from NHS transfers.

Further information and International dimension

COVID-19 has led to rapid innovation in many spheres, not least in the sharing of data and research findings. The International Long-Term Care Policy Network and the Care Policy and Evaluation Centre at the London School of Economics have been instrumental in ensuring the widest dissemination of data on care homes.

They set up a really useful website on March 21 as a rapidly-shared collection of resources for community and institution-based long-term care responses to COVID-19, aiming to:

  • Document the impact of COVID-19 on people that rely on long-term care (including unpaid care) and those who provide it.
  • Share information about policy and practice measures to mitigate the impact of COVID-19 in long-term care and gather evidence about their success or otherwise.
  • Analyse the long-term implications of this pandemic for long-term care policy.

Their blog on March 23 highlighted the international dimension to the problem of COVID-19 and care homes, sharing disturbing experiences from Spain, Italy and the USA.  This has led to a living repository that collates and summarises experience in different countries. is actively looking for contributors from elsewhere. They have developed a form to collect information on numbers of long-term care residents and staff who have had COVID-19, and numbers of deaths in different settings. This form attempts to gather data and insights on those that died with probable COVID-19, where they died and estimates the level of excess mortality. For example, in France deaths in care homes are estimated to be 34% of all COVID-19 deaths, whereas deaths of care home residents are 51% of all COVID-19 deaths as some patients transfer to hospital.

The list of countries for which data has already been collated currently includes:

  • Australia, Austria, Belgium, Canada, Denmark, France, Germany, Hong Kong, Hungary, Ireland, Israel, Italy, Norway, Portugal, Singapore, South Korea, Spain, Sweden, United Kingdom, USA.

A recent report on attempted to further compare the experience of different care homes in Ireland.  This followed a breakdown of 1,030 deaths in 167 Irish care homes that was published in the Irish Times and was broadly criticised for not considering the number of beds or more complex factors that would be likely to affect the outcome. In contrast, this report undertook a more intensive investigation and retrieved data for each facility from the latest HIQA inspection report on compliance, processes and occupancy, developing a multivariate binary logistic regression model of expected mortality.

The report found good compliance with standards throughout, but common challenges in obtaining appropriate testing and PPE as many care homes exist outside the traditional national health service model, a problem consistent with that in the UK. However, the report showed a significant association between the number of deaths reported and the level of occupancy. This brings into question current models of long-term care delivery during a pandemic, and highlights advantages for multi-unit care models over multi-occupancy buildings.

Lessons to be learned

“Necessity is the mother of invention”. The COVID-19 pandemic has forced individuals and groups at every level to innovate and to improve outcomes with resources available.  The experience of care homes around the world has identified both issues to avoid/address earlier and opportunities to innovate.

The following have been highlighted in different arenas as well as discussed in a further report from

  • Likelihood of asymptomatic transmission by both staff and residents means that regular testing is necessary rather than relying on symptom presentation. Moreover, the elderly may be more likely to display non-classical symptoms such as lethargy, lack of appetite and delirium. Furthermore, the elderly may have underlying health conditions which mask the obvious symptoms. This was acknowledged by the UK Government on 28 April when swab testing was made available to all care home residents and staff, regardless of symptoms, and when an online portal was subsequently launched.
  • Changing staff patterns and care home layouts to reduce maximum occupancy and to allow for segregation zones / quarantining of possible, probable and confirmed cases respectively.
  • Ensure that no patients are directly discharged from potential “hotzone” hospitals to care homes. Instead use suitably staffed “quarantine centres” or sections within the care homes as an intermediate step with final release dependent on repeated negative swabbing over multiple days.
  • Better information systems that monitor outbreaks in care homes and link care homes to supplies of PPE and medications.
  • Consider whether CQC ratings adequately reflect preparedness for future pandemic events.
  • Rapid response teams to be deployed where outbreaks occur to maintain continuity of care for all residents as resident illness is likely to be mirrored by staff illness.
  • Reduce risk of staff bringing infection by limiting staff to one care home and ensuring that staff do not feel that they have to work when ill. Where possible, staff could be accommodated on site rather than having to commute within the community.
  • Use of tele-medicine to limit need for visits from offsite healthcare professionals during outbreaks.
  • Blanket restrictions on visiting can intensify isolation, and alternatives such as social distancing and PPE for visitors could lead to better overall outcomes.

Further innovation will clearly be needed as both optimal infrastructure and modes of delivery of care are examined.  Such innovation will be more productive if the costs and benefits of each innovation can be identified and benchmarks established to aid comparison.  Some care homes may not survive COVID-19, but those that do should not only be better prepared but able to demonstrate how they are prepared.   The longer term impact of the potential closure of many care homes requires further consideration particularly where there are already capacity and funding constraints in the social care sector. Before the pandemic, in the Queen’s Speech on 19 December 2019, there was a commitment from the UK Government to reform the social care system but now, in our current situation, this reform is even more urgent.

17 June 2020


  1. Comas-Herrera A, Zalakain J, Litwin C, Hsu AT, Lane N and Fernandez J-L (2020 Mortality associated with COVID-19 outbreaks in care homes: early international evidence. Article in, International Long-Term Care Policy Network, CPEC-LSE, 21 May 2020.
  2. Romero, Ortuno R and Kennelly S (2020 COVID-19 deaths in Irish Nursing Homes: exploring variation and association with the adherence ot national regulatory quality standards., Iternational Long-Term Care Policy Network, CPEC-LSE, 1 June 2020.
  3. Comas- Herrera A, Ashcroft E and Lorenz-Dant K (2020) International examples of measrues to prevent and manage COVID-19 outbreaks in residential care and nursing home settings. Report in, Iternational Long-Term Care Policy Network, CPEC-LSE, 11 May 2020.
  4. Altringer L, Zahran S and Prasad A (2020) The Longevity-Frailty Hypothesis: Evidence from COVID-19 Death Rates in Europe.
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The best way to manage a DB Scheme (Keating & Clacher)

Ian con

Iain Clacher and Con Keating


This is the third of three blogs co-written by Con Keating and Iain Clacher informing on the current  consultation on the DB funding code of practice,

The other articles can be accessed at the bottom of this blog

Optimal Scheme Management

For the calculation of scheme liabilities this should be done as either the accrued value of contributions, or the discounted present value of the projected (unbiased i.e. with no prudence) best estimate of the ultimate benefits using the contractual accrual rate (CAR). While for scheme funding, we advocate that this should be to the level of liabilities calculated in this manner, with assets being valued using market prices. However, this leaves the scheme facing just one risk, sponsor insolvency at a time when this level of funding is insufficient to purchase equivalent benefits in the open market or alternately, to run off the scheme. There is a solution to this risk – pension indemnity assurance; a specialised form of long term credit insurance.

This class of business is effectively, offered by the PPF but in a manner that can be considered as both deficient and inefficient. The deficiency arises from the offer of only partial benefits; there is no valid justification for these cuts to member benefits. The inefficiency can be seen in the PPF’s excessive levy charges – the evidence for which is the massive reserves they have accumulated in a very short period, and this levy is effectively paid with corporate capital. This therefore raises the question: what is the likely cost of pension indemnity assurance for schemes funded to the level of best estimate? Here the PPF provides a poor guide, given its history of excessive levy charges.

There are many variables which determine the premium in any case. These include the quality of the sponsor covenant, the degree of maturity of the scheme together with its status e.g. whether it is open or closed, and the basis of calculation of the best estimate. Dependent upon these specifics, modelling indicates that the premium will lie in the range 0.2%-0.5% of liabilities for all but a handful of companies that are in particularly bad shape. It is also worth stating this again – this is insurance of the full benefits, not PPF reduced variants. The interval for premium setting may be either fixed for scheme life or set at some shorter period, such as annually.

Business models for writing pension indemnity assurance

There are two classes of business model possible. These differ in the annuity and deferred annuity treatment post insolvency; the indemnity assurer may either purchase these from another insurer/reinsurer at the time of sponsor insolvency or it may write these itself and run off the pension liabilities. Purchasing annuities on insolvency is less efficient from a return on capital standpoint as it reduces the modelled return on capital by between 15 and 25%.

This business model is also not hypothetical, with the most notable specialty insurer of this class of business being PRI-Pensionsgaranti. Several specialty insurers have also offered a related instrument, surety bonds, though these have a fixed pay-off rather being benefits related. PRI-Pensionsgaranti has already written a small number of policies in the UK, mainly in a form qualifying as contingent assets. In Sweden it has written insurance for some 1400 entirely unfunded, book-reserve schemes. It operates the less efficient business model of purchasing annuities from another company on an insolvency event. It charges 0.4% of liabilities as a premium and has been highly profitable. As a mutual, it rebates these as dividends to the member schemes. This premium is not a pure sunk cost; unlike the PPF arrangement, the policy is also an asset of the scheme and not a contingent asset. It is also interesting to note that as in this asset role it is an automatic stabiliser for the scheme.

PR-Pensionsgaranti has even insured funded schemes specifically to allow them to move from funded to unfunded status. This liberates scheme assets for corporate business investment. There are complications with respect to the taxation of such liberations, but the Swedish treatment has been at the generous end of the spectrum; no taxation if reinvested in corporate activities within a specified, short period. If liabilities were to be calculated using the CAR best estimate, many schemes would be materially overfunded and so the liberation of some scheme assets may be both feasible and desirable especially at a time when corporate profits and cash flow are likely to be severely constrained.

Advantages of pensions indemnity insurance for scheme management

One major advantage of the use of pension indemnity insurance is that the duties placed on trustees are significantly reduced. Trustees would be concerned only with the administration of pensions and the current valuation of collateral assets. No integrated risk management, no long-term objective. Consideration of the future performance of assets and all the risk management practices associated with that would be redundant and as such would save significant sums of money for the scheme and its sponsor.


For the sponsoring employer, they would be concerned with the extent to which the assets held as collateral security would defray their future costs. As such, the asset management style they adopt would be a matter of their risk tolerance and would most likely follow a simple risk and return analysis. Liability driven investment would not be necessary as the hedging of the spuriously introduced interest rate sensitivities is no longer required or desirable. As these currently account for around 40% of overall scheme assets in many larger pension funds, the net returns to sponsor employers should, ceteris paribus, be significantly higher than those which have or might be achieved under the existing or proposed models.

Creating a market for pensions indemnity insurance

To ensure a competitive market for pension indemnity assurance, private sector provision should be permitted and encouraged. The PPF should be required to offer full benefits cover and should also be privatised as an industry owned mutual insurance company. Shares in this mutual should be awarded free of cost to schemes in proportion to the total levy contributions they have made. This would augment overall scheme assets by an amount of the order of £6 billion and generate approximately £2 billion in tax revenues.

If the funding to best estimate model is followed, it will reduce significantly, almost entirely, the requirement for special contributions, reducing the tax lost under those arrangements by £2-£3 billion per year. The total cost of pension indemnity assurance premiums would be approximately £3 billion if all schemes adopted it, and the tax cost would be of the order of £750 million. Of course, in this situation there would be no justification for schemes participating in the PPF scheme as is or paying the £550 million of the scheme levy.

If funding were to be to the CAR best estimate, and all sponsors were to liberate their excess assets, the windfall tax gain would be of the order of £45 billion at standard corporation tax rates, and in the range £90-£100 billion at 55%, though at this latter rate it is highly unlikely that many sponsors would wish to liberate. The amounts available to be freed for new corporate investment would lie in the range £150-£250billion.

The DB funding consultation

The proposed new scheme funding requirements carry with them an annual tax cost of at least £1 billion, rising to £3 billion after a few years, and perhaps considerably more. The Regulator has stated: “Our funding consultation is about the balance between member security and affordability.”, which makes the absence of any cost/benefit analysis in the 175 pages of the consultation document noteworthy.

The consultation is principally concerned with management of the ’end-game’ for closed schemes now running off, but open ongoing schemes, though few in number, are not treated differently. The traditional solution of bulk annuitisation has been supplemented by a wide range of proposals and products; some, such as the efforts of the consolidators, have been widely publicised. others, such as surety bonds and Legal and General’s “insured self-sufficiency” less so.

In this series of blogs, we have concentrated on a few of the problems arising from DB pension regulations and the practices they induce. Our coverage was deliberately minimalist, there are many other issues which we might have highlighted. It is true that some people suffered and lost pensions in the pre-Goode days, but they were far fewer in number than the many millions who received their pensions routinely over many decades. The ‘fixing of pensions’ has been completely disproportionate and its cost outrageous – running to hundreds of billions of pounds and the remedy has killed all too many schemes which were in rude health.

Further reading

Pensions need a bonfire of regulation this blog calls for a radical shake-up of the rules governing DB pensions

The following blogs are designed to be read consecutively.

The other way to value DB schemes

A different approach to pension scheme solvency and funding

The best way to manage a DB scheme








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Managing means knowing what to measure

famous five

George Kirrin’s other famous five


One of the most interesting (and challenging) parts of running a blog is in encouraging and moderating comments. This site gets quite few (real) comments, but sometimes the comments are as insightful as the blogs they comment on. Such has been the case with the comments of George Kirrin and Derek Scott on recent articles from Chris Sier.

George’s challenge to Chris focuses on a credo of data science which Chris endorses. Chris argues that by not measuring the true cost of asset management, we risk not managing those costs. Recent blogs on the work of Ludovik Phalippou have argued that Private Equity carries just such risks , as this tweet explains.

George Kirrin’s criticism of the measurement/manage adage is different and more fundamental.

Out of many received wisdoms “what gets measured gets managed” or Chris’s version that “you can’t manage what you don’t measure” must be one of the more widely accepted as obvious. After all, how could we ever manage something if it isn’t being measured?

The quote is usually attributed to Peter Drucker, the late management theorist.

A bit of research reveals, however, two surprising things.

One, Drucker — according to The Drucker Institute even — never said it. The usual source given by others is Drucker’s 1954 book, The Practice of Management, but I’ve got a Kindle edition and searches for the term (and Chris’s version) both came up blank. I tend to be skeptical of all quotes attributed to great people unless I can find a written source. There are helpful websites out there like which should be used more often.

Let that penny drop. Various Harvard Business Review articles attributing the quote to him? Wrong..

Two, the fact that something is wrong with “what gets measured gets managed” has been argued for a long time.

VF Ridgway published a paper in 1956 criticising the measurement mantra.

Simon Caulkin, a Guardian columnist, neatly summarised Ridgway’s argument as:
“What gets measured gets managed — even when it’s pointless to measure and manage it, and even if it harms the purpose of the organisation to do so”. goes further and asserts that “What gets measured gets managed – so be sure you have the right measures, because the wrong ones kill.”

Ridgway’s 8-page paper is entitled “Dysfunctional Consequences of Performance Measurements”.

It’s common sense that not everything that matters can be measured. It also follows that not everything we can measure matters.

The tendency to report against certain metrics may even distort our priorities.

Pensions consultants tend to measure pension deficits using metrics which Jon Spain, Iain Clacher, Con Keating and others have shown up to be flawed. Other metrics are available, but for some reasons many pensions consultants choose not to show them.

To summarise: Drucker never said the infamous sentence, and since 1956, if not earlier, we’ve been warned that a “what gets measured gets managed” mantra is deeply flawed, Chris.

I will come to Chris’s defence here, because Chris has spent his life measuring the fractional costs of asset management without trying to prejudice wider debates to which George alludes.

Chris would argue that though he collaborates with Keating and Clacher, his work on the cost and charges templates which have allowed us to see and compare costs, has informed on “value for money”. I sympathize with Chris who is not about establishing value, just about money.

However, George’s criticism becomes real when Chris starts validating value in the products he is analyzing. Here Chris comes dangerously close to validating LDI in terms that echo Eugen Neaugu’s criticism of investor’s “obfuscating their own performance”.

And therein lies the point George: LDI, whether it’s reality of fiction, allows you to remove the volatility of valuation, further reducing the risk to the scheme sponsor. At least that is one hypothesis I’m considering.

George Kirrin had skillfully been arguing that “The volatility of gilt investment returns is masked by the obsessive measuring month-to-month of pensions “deficits
concluding through an analysis of gilt returns that “in fact there’s quite a lot of gilt volatility over time, yet the LDI measures show none of it, by simply assuming it away”.

Measuring should not mean validating

The act of measuring costs and charges within born by a pension scheme in executing investment strategies is a matter of standalone fact. If you can’t find out where Private Equity made its money then PE could be a sham, sooner or later the impact of those costs will work its way through to valuations. Which is why the work of Phalippou is important. The work of Chris Sier on LDI is important, but knowing the true cost of LDI doesn’t validate LDI (as Kirrin points out) anymore than knowing what Phalippou knows , endorses Private Equity.

Here the difficulty is similar to that observed in the NHS by Simon Caulkin

‘It seems unlikely that hospitals deliberately set out to decrease survival rates. What is more likely is that in response to competitive pressures on costs, hospitals cut services that affected [heart-attack] mortality rates, which were unobserved, in order to increase other activities which buyers could better observe.’

If by over-relying on the adage “what gets measured , gets managed” we introduce a false measure by which to judge management, we can accidentally do great harm (Calkin and Kirrin’s point).

Those, including Chris Sier, who see transparency as an end in itself are right to, in the context of the business that they run. But an over-reliance on “what gets measured gets managed” risks not just validating the wrong things but failing to measure the right things.

It is of course a nice irony that the adage itself is of dubious provenance , suggesting a phrase or opinion that is overused and betrays a lack of original thought. We may well think that “what gets measured , gets managed” is a cliche.

Further reading

You can read all Chris Sier’s articles in one place here. If you can’t access the link, then you should register to Pension Expert which is free. Chris has a new blog out asking whether paying more delivers more performance, you can read it here.

You can see all the comments mentioned in the right hand side bar of the blog or by searching “Chris Sier” and clicking through to the comments on each of his recent articles.

famous five 2

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Private Equity Laid Bare (by the FT)

private equity


Yesterday I wrote about Ludovik Phalippou’s report  “An Inconvenient Fact: Private Equity Returns & The Billionaire Factory”.

My interest had been prompted by an article of Chris Sier’s  I’d re-published on my blog. It showed that 2/3 of the costs of Private Equity investment are not revealed to the investor.

I wrote about private equity in the context of my work with UK DC pensions. But a much wider audience were reading a piece in the Financial Times by Chris Flood. 

The FT is one of very few financial institutions that speak openly on this issue. In February Katy Wiggins had reported

“While the most successful private equity funds still outperform public markets, the worst offer significantly lower returns”.

I was surprised that the FT were running Wiggins’ story questioning Private Equity’s current hegemony.

But Chris Flood’s article , written the other side of the first wave of the pandemic is much stronger in tone.

A handful of super wealthy multibillionaires have accumulated vast riches from running private equity funds that have performed no better on average than basic US stock market tracker funds since 2006.

Not only did the FT run Flood’s piece but it  followed up with this salient statement from its Due Diligence team

The Study that rattled the entire private equity industry

Report says it is difficult to see how the business model can add up given how costly it is

Nobody likes to be told they’re overpaid and that their work’s not that impressive.

Those are the charges laid at the door of the private equity industry in a report this week from Oxford university, provocatively titled

An Inconvenient Fact: Private Equity Returns & The Billionaire Factory”.

The report’s author Ludovic Phalippou says private equity funds have returned about the same as public markets since at least 2006, but generated about $230bn in performance fees for a small number of people.

He goes on to accuse the industry of a

“wealth transfer from several hundred million pension scheme members to a few thousand people working in private equity”

and to say it’s

“difficult to see how the private equity model could add up given how costly it is”. 

(Side note: the Harvard economist Josh Lerner also found private equity returns lagged behind stocks over the past decade, in this report from February.)

This is the kind of thing that really gets under private equity tycoons’ skin.

In an unusual move, Phalippou showed his academic study to Blackstone, KKR, Carlyle and Apollo and the lobby group the American Investment Council before he published it and invited their comments. They didn’t hold back.

Blackstone went as far as to write a 2,150-word statement accusing the academic of

“a number of very serious statistical and conceptual errors”.

There were sharp exchanges of words with the others, too.

You can read all of the to-ing and fro-ing in the paper here, and the FT recommends you should, because it makes for a rigorous debate even if it’s tediously predictable in places.

And you can delve into the reams and reams of online commentary that the report has provoked,

In an era when nuance on social media often seems to be dead, some of the debate is pretty high quality.  Things get particularly contentious when it comes to the reasons why institutions choose to invest in the funds — a timely consideration since the US’s largest public pension scheme, Calpers, has just said it’ll move deeper into private equity, seeking to juice returns.

Phalippou’s take on the pension funds question: some institutions’ private equity specialists don’t complain about returns for fear of losing their jobs, and some trustees may lack financial literacy.

Blackstone is unimpressed.

“We fundamentally disagree with your portrayal of public pension officials,. These are exceptionally sophisticated investors.” 

“Exceptionally sophisticated investors”

Nobody likes to be told they’re overpaid and that their work’s not that impressive.

That goes for the buy-side as much as the sell-side. In  a separate interchange on diversity yesterday , Phalippou commented on

C-suite white males whose main talent has been to be best-buddy with the other white males that were controlling promotions and appointments

This circularity of praise for and from private equity  and its investors is at last being questioned and it’s good to see that it is being questioned by the FT, Oxford Said Business School and Ludovic Phalippou.

This blog’s for all the public pension officials who aren’t such sophisticated investors to accept the received wisdom of private equity.


One such person commented on another Chris Sier article

 Many larger schemes – who tend to have followed their herd into alternative assets – should also take a hard look at their own agents, whether external consultants or in-house officers, who put them into these onerous (cost) contracts apparently without realising the full ongoing costs of their contractual commitments.

The Railways Pension Scheme now appears at conferences alongside Chris Sier and others and almost boasts of how they went from underestimating their full costs of management and transactions by a factor of five or six times, I think, to now having costs under better control.

If I were a member of that scheme – I’m not, but I know a few who are – I think I’d want to know first of all how the well paid executives of their scheme got them into such onerous contracts in the first place through ignorance or negligence or both.

And I’m sure there are similar tales to be told about other very large UK schemes, the ones which win all the awards but seem unable to own up to their shortcomings on cost control.

It is not just DC pension schemes that need to read Ludovic Phalippou’s work.

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DC challenges the Private Equity billionaires

Robin Powell (the evidenced based investor) makes a bold claim.

Ludovic Phalippou is a hero.




Who is Phalippou?

Ludovic Phalippou is an economist who has written a paper detailing the workings of the Private Equity industry and how it manages to pay itself $230bn from our money.


You can download or browse the paper from this link

For those who want to see the data on which Phallipou’s conclusions are drawn, it can be downloaded, curated by Phalippou himself on linked in .

As promised, my last piece. I sign-off. I wrote all I know. All the calculations and data are on my website (which is not finished/updated yet: As I wrote in the intro, questioning returns in PE is akin to questioning the existence of god. It makes people very emotional.

Moving in mysterious ways…

Private Equity, like God, moves in mysterious ways. Here is the synopsis of Phalippou’s argument.

Private Equity (PE) funds have returned about the same as public equity indices since at least 2006. Large public pension funds have received a net Multiple of Money (MoM) that sits within a narrow 1.51 to 1.54 range. The big four PE firms have also delivered estimated net MoMs within a narrow 1.54 to 1.67 range. Three large datasets show average net MoMs across all PE funds at 1.55, 1.57 and 1.63. These net MoMs imply an 11% p.a. return, which matches relevant public equity indices; a result confirmed by PME calculations. Yet, the estimated total performance-related fee collected by these PE funds is estimated to be $230 billion, most of which goes to a relatively small number of individuals. The number of PE multibillionaires rose from 3 in 2005 to over 22 in 2020. Rebuttals from the big four and the main industry lobby body are provided and discussed.

Having read the 40 pages of the paper I agree with Phalippou’s fundamental message  “PE is a surprisingly expensive form of financial inter-mediation”.

…. its wonders to perform

If , as Phalippou’s analysis suggests, PE is delivering what public equity delivers, only with a fee extraction of gargantuan proportions, we have to wonder who is paying the $230 bn bill. Anyone who has worked for an organisation that is funded by private equity knows what happens. Margins are squeezed, jobs cut and businesses run on the margin of effective delivery. Most UK care homes are owned by private equity, when COVID-19 came, most UK care homes did not have the capacity to cope. The wonders of PE have been cruelly exposed and we now know who paid the biggest price of all.

The examples in Phalippou’s analysis are various, he takes the leveraged Buy-Out of  Hilton Hotels as a case study and analyses what actually happens. He looks at other cases in details and then deals with the various rebuttals to his analysis by the big four PE houses (Blackstone, Carlyle, KKR and Appollo).

What Phalippou points to in terms of finance, we experience in terms of value (or should I say negative value).

Have private markets anything to offer DC pensions?

At first sight- yes. There are those, the Pensions Minister among them, who have argued that there should be scope within the defaults of large DC schemes for “alternatives”, of which private equity plays a major part. The argument is that this is the way for these pension funds to invest into social enterprises (under the private financing initiative). Private Equity and Private Debt are  seen as part of “patient capital”.

I support the investment of my pension fund into long-term liquid assets provided that it does not render my pension pot so illiquid that I can only access my money when my fund’s gate is open.

Several large DC pension schemes offer property funds without and within DC defaults that are currently “gated” to protect the fund. I have met trustees who are concerned that they may have a statutory obligation to “open the gate” if a member wants to transfer or take money at retirement.

Whether the risk is born by the trustee (and so to the sponsoring employer) or by the member, the risk of illiquidity is not  born by the fund and asset manager who protect their performance numbers by not selling assets. This is the kind of chicanery identified by Phalippou, it is no more than a transfer of risk from the fund to its owners and so to the beneficial owners.

The social purpose of illiquid investment is clear, but where control of the capacity to liquidate is lost to trustee and member, the social purpose is of no use, you cannot eat social purpose.

Can large DC pensions access private equity?

The received wisdom is that the larger your pension scheme, the wider your investment options. For one thing, they can dilute the liquidity problems mentioned above by investing significantly without gating the fund as a whole.

In recent papers, Chris Sier has pointed out that larger DB funds (with more than a billion pound of assets) tend to swap public equity for private equity. Sier argues that private equity appears to provide less volatile but equivalent returns over time. Here his research and Phalippou’s seem closely aligned.

Recently I have been on several calls where large DC scheme trustees and platform managers are being pitched “alternatives” (mainly private equity) because that’s what £1bn pension schemes do. The IFoA are running such a seminar this week (details here- NB £35 joining fee for non-members).

It appears the privilege of a larger scheme that it can invest in alternatives. They  are sold as producing the outcomes of a with-profits fund “equity type returns without the volatility”.

$230bn – A victimless crime?

Sier’s analysis suggests that this argument is accepted by the CIOs of large DB funds but it also  suggests that the hidden costs of PE investment are high

In private debt and private equity, for example, annual management charges only account for 33 per cent and 38 per cent of total costs

This appears to make private equity more “affordable” than it really is. The platforms that pay for asset management through private equity funds only need to pay a third of the real cost, the rest being passed on to savers through hidden charges that impact performance.

This slight of hand appears attractive if it enables members to get equity like returns without the volatility and trustees being able to show they are punching their weight.

But I am not buying the argument.

Firstly, while I can just about see why DB schemes are prepared to invest in PE to dampen volatility, I do not see the same need for DC schemes as they accumulate. DB schemes (ridiculously) have to account for solvency on a mark to market basis but DC members do not have a solvency issue, their only issue is to accumulate over time. They do not need to dampen down returns – which is why with-profits has not made a return into workplace pensions.

Secondly, there is a very real cap on charges on any DC fund that savers are defaulted into. While hiding 2/3 of the cost of running a fund in the unit price may look commercially attractive, it is not good governance, it is certainly not the kind of thing that trustees should be doing – not if they believe in transparency.

If the overall cost of PE is declared to members, what started as commercially possible -becomes difficult at all kinds of levels.  And if the justification of investing in private equity is based on higher levels of ESG then trustees are going to have to deal first with the lack of transparency detailed in Phalippou’s paper  

Second they are going to have to explain to those who are looking for responsible investment , how the plight of redundant work-forces and under-funded care homes equates with good societal values and good governance.

DC cannot afford illiquidity, has no budget for Private Equity fee structures and should not run the reputational risks highlighted by Ludovic Phalippou


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“We’re racist , and that’s the way they we like it…”

The prequel

It’s a sunny June morning, I had just cycled down the embankment from Blackfriars to turn left over Westminster Bridge. As I crossed Bridge Street I could hear a chant but not the words, I looked into parliament square and it was full of people, I turned my bike towards Lambeth.

The chant I heard is the chant on the tweet. It’s a male chant and you can hear it in any football ground in the land, except if those words were used, the club would identify the fans singing them, and ban them.

But when we watch the football, we know there are people in the crowd who would sing those words to themselves and not feel uncomfortable. We probably know friends and even family who secretly like being racists. When we consider our own reactions, can we always say that they aren’t colored by prejudice?

The sequel

Turning east I made my way along the south side of the river into Southwark and along Jamaica Road to Rotherhithe, I swung round to Surrey Quays and rode down to Deptford and New Cross, returning to Central London on the A2 (the Old Kent Road).  Because I was wearing a mask and gloves, I didn’t get to chat to people but I got to observe.

I saw people queuing outside supermarkets and grocery stores – obeying the distancing rules.

I saw thank yous to key workers in people’s windows, I saw tributes to the NHS , to postmen and on one occasion to council workers who’d kept an estate clean.

People were in the parks, behaving  responsibly, people drove cars carefully and cyclists stopped at lights to respect pedestrians.

Society was not broken, these things co-existed with the events in Westminster though the only link was the faint sound of police helicopters.

Society isn’t broken – it’s being tested.

Right now we are asking honest questions about our society and finding some disturbing truths.

I know racist people, I meet them in my pub. When black or Asian people walk into my pub I see the reaction. I still love the pub. There are racists among the supporters of my football team, I still love Yeovil Town. Many people I work with are racist.  I still work with them. There is racism within me, I am still proud to be me.

Society integrates very slowly and sometimes not at all. There are many sites of synagogues in the City of London, but few synagogues. Each synagogue that closed did so because of some anti-semite purge. And yet Jewish people have continued to live and work in the City and they are now as much part of our society as the WASPS.

We are at one of those points where we are testing our capacity to work as a society. For the rest of this blog I think about our identity, and how we define it, both in relation to categorization and in terms of our personal values (#IAM)

Don’t call me WASP – I won’t call you BAME

We don’t like being categorised, I don’t like to be called a White Anglo Saxon Protestant (though that is exactly what I am.

This article , by Zamila Bunglawala (of Indian descent) says why she shuns BAME as a self-descriptor.

BAME for her WASP for me, a shorthand for a part of society which is useful in analysis but only in understanding the differences that still divide us.



There is no doubt that WASP and BAME have had different experiences of the pandemic. And there is no doubt that the two communities are not fully integrated. And there’s no doubt that the people who were singing that they liked to put down people of a different race than theirs, “liked it”.

Pretending that we are all the same is as dangerous as pretending that we are not racist. We are not all the same and our differences are to be wondered at and admired. In her article, Zamila points out that even in White ethnicity, minorities such as Gypsy, Roma and Traveller exist as heritage groups . Tyson Fury has brought a better understanding of aspects of these minorities but he has not brought them from the margins.

WASP and BAME may be useful in talking about demographics and as scientific short-cuts but we want to define ourselves better. A Bangladeshi and an Indian have radically different identities and they want their identity to have a capital letter to denote it. I would be insulted to be called english and I’m sure my friend Rahul wouldn’t like being called indian! The capitalization says it loud and proud and BAME and WASP says nothing about our identity.


Recently we’ve taken to going on social media to promote our identity using a selfie and a placard to define #IAM . Many of these placards start defensively ( #saddenedby ), but  lead to a positive affirmation.

I think this is my favorite statement  about personal affirmation but I love them all. It is a privilege to read the statements on personal identity from people I’ve known for a long time

I found out about #IAM through Dawid Konotey-Ahulu who has also introduced me to a load of good stuff going on in financial services on diversity.  

Change begins at home and this feels like home to me.

But what of the events in parliament square?

Society isn’t broken but it’s being tested. Individually we can say #IAM but there is still a groundswell of prejudice against what we aren’t. there are tensions between Indian and Bangladeshi , Jew and Muslim and within the white ethnicity.

The events we saw in parliament square yesterday were only the whistle of the kettle, the simmering water within the kettle can erupt at any time in any place. We are being challenged by the conditions we find ourselves in and as the furlough ends , the hardship that brings the kettle to the boil will spread. We will see more outbursts and each will have a focus.

We started with Dominic Cummings, move to Colston, now it’s Winston Churchill. Each iconic figure becomes a target of our intolerance. We must learn to stop blaming others and stop fighting those who have different views than our own, If we are have prejudice (as I think we all do) we mustn’t like it.  We mustn’t allow us to wallow in our own sense of superiority. We must keep the #IAM humble.

If we allow ourselves to see those chanting and throwing stuff at policeman as the problem, we miss the point of  #IAM.   I am not blaming racists for being racist, I am discovering my own racism. I am the agent of my own change.



Dawid – a mentor to many




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Estimating R for the UK using Publicly Available Data (Stuart McDonald)

Stuart mc

Stuart McDonald


By Stuart McDonald for

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

Screenshot 2020-05-21 at 05.12.58



The Rate of Reproduction

Key to understanding the spread of a virus is the reproductive rate “R”. This rate varies over time so we refer to the rate a time t as Rt (R0 is the R value at the start of the epidemic).

To measure Rt in real time requires extremely widespread testing at a scale which has not been available in the UK. Instead we can look at the rate at which events such as hospital or intensive care admissions and deaths vary over time.

R is of course a simplification and there are clearly differences in the distribution of the virus by geography, age, sex and other factors. Nonetheless, we believe our approach to estimating R gives us a reasonable picture of how the rate of transmission is varying over time in the UK as a whole. We will provide more detail of our method of R estimation in a future paper, including details of how actuarial techniques can be used to produce a more up-to-date estimate than is used in this bulletin.

Data Sources

Useful sources of reliable data are:

  • Deaths of patients in hospitals in England who had tested positive for COVID-19 or where COVID-19 was mentioned on the death certificate produced by NHS England
  • Deaths where COVID-19 was mentioned on the death certificate for England and Wales produced by the Office for National Statistics (ONS)

In this bulletin we use data from:

  • NHS deaths registered by 8 June (published 9 June)
  • ONS weekly deaths registered by 29 May (published 9 June)

These reports contain daily time series which can be used to examine how deaths are varying by day. By choosing the ONS reporting by date of death rather than date of notification we avoid distortions caused by weekends and public holidays. NHS reporting is also by date of death.

Deaths peaked on 8 April with 1,341 deaths total deaths in England and Wales where COVID-19 was mentioned on the death certificate (ONS). 899 of these were in English hospitals (NHS).


We looked also at ICU admissions, applying similar techniques to see if we could get more up to date Rt estimates. The estimates were consistent when daily admissions were high but became noisy as daily admissions fell through April.

Estimating R

We can estimate the reproductive rate of the virus at a historical point by examining how the number of deaths was changing, after allowing for the average interval between infection and death. We assume a 19-day interval between infection and death, consistent with the 26th Report from Imperial College London (ICL).

R is a function of the ratio between the number of new deaths and the equivalent number at an earlier point. In order to reduce the volatility of our estimate caused by random fluctuations we use a measurement interval of five days and average over a three-day period.

Estimated Rt values are illustrated in the following chart, showing values estimated from ONS and NHS data and a weighted average of the two estimates.


Several observations can be made from our estimated Rt values.

The estimates are reassuringly consistent with Rt clearly falling over the period in question. It was around 2.5 at the start of March and was in the range 0.6 to 0.8 throughout April.


It appears that R may be rising back towards 1.0 at the end of the period for which we can currently estimate it. This is the weekend in which the VE Day Bank Holiday fell and the emphasis from Government relaxed from “stay at home” to “stay alert”.

There are no clear step changes in the data as might initially be expected in response to the introduction of control measures. There are several reasons for this including:

  • Natural variation in the gap between becoming infected and infecting others
  • Natural variation in the gap between becoming infected and being admitted to ICU or dying
  • Control measures were introduced in stages, often just a couple of days apart
  • Different groups responded more or less rapidly to control measures; for example, large employers were moving towards working from home before the instruction to “stay at home” was given by Government
  • Our averaging approach smooths the underlying time series
  • The transmission rate naturally falls as the susceptible population falls. This has only a very small effect over the period considered.

The relationship between the R estimates is interesting. We know that the average age at death in hospitals is lower than for deaths occurring elsewhere, for example in care homes. We can therefore surmise that when the estimate of R from NHS data exceeds that from ONS data, as in the latter period, then R is higher among the working age population. When the estimate from ONS data is higher then R is higher among the older and more frail.



As noted above, this method results in apparently gradual changes in R over time. This means that it is not possible to reliably identify the date at which interventions have had an effect. To demonstrate this we have created an artificial projection of infections and deaths, setting R to be 2.0 until 23 March and 1.0 thereafter. We have then applied our method to estimate R to see how close we get to the actual answer (the actual answer in this artificial exercise being “2.0 becomes 1.0 on 24 March”).

stuart changed


As can be seen on the graph, the estimate produces a smooth transition beginning before the actual fall in R. This could lead to an incorrect conclusion that interventions were unnecessary as R had already fallen before they were introduced.

It is likely that other estimates of R over March may suffer from similar methodological limitations, casting doubt on the validity of statements that R was starting to drop below 1 by 23 March.

Next Steps

Having estimated R at different points in time, we could now produce scenarios estimating how different the number of infections (and ultimately deaths) would be if R had stopped falling.

We can apply similar logic if Rt begins to rise as social distancing measures are relaxed, having been clearly under control for nearly two months. We can also produce regional estimates using the breakdown of NHS deaths (noting that smaller numbers mean these will be less certain).

It is clear that infections and deaths are highly sensitive to relatively small changes in R. Great care will be required, and close monitoring of early warning indicators of change, as we relax control measures. We will continue to update and share our estimates of Rt over the weeks ahead.


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It’s isolation for me for the next few weeks!

Wonky tapper

Groundhog day


Just as I thought I’d be coming out of lock-down it seems I must stay indoors for another month. A year ago I found myself in Guys hospital and under the knife, the alternative being most unpleasant. On July 5th I must go back for the same operation but this time at a time of pandemic. This means two weeks isolation before and after and that greatest of luxuries – a COVID-19 test to ensure I don’t have surgery while infected.

I am one of the thousands of people who has treatment delayed and I don’t complain about that at all. My symptoms are sleepless night and abdominal pain but in the context of what’s been happening in hospitals (like Guys) , I have nothing to moan about. But the seriousness with which I have to take the COVID-19 threat prior to and after surgery has come as a reminder of just how immune I have come to the threat that surrounds us.

In practice I will still be working as usual and will simply swap WeWork for homework. If I find I am an asymptomatic COVID carrier, I will thank my strong immune system and start wearing tubes in unusual places.

The person who will bear the strain will be my partner Stella, for whom i have undying love! She has only my irascibility to look forward to!

Having immersed myself in medical science as a result of publishing the COVID-19 actuaries various publications , I now feel much more comfortable with my position. I may have co-morbidities! I may even be of interest to medical science. It is always good to look on positives!

One positive is that I have the kindest and most sensitive of doctors who I find out has got married in the time of the pandemic to a lady who has been working on a COVID ICU. Now that really is quite something.

There are many positives to spending the summer stuck inside and I am going to rehearse them all.

Despite this,  the word that is on the tip of my tongue starts with an f and ends with a k.

Apologies to those who expected to come on the boat!

Lady Lucy June

one day!

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Not all asset managers are created equal

This is the second of ten articles written by Chris Sier which were originally published in Pension Expert. The original can be found here and is republished with the kind permission of the editor


In the first piece of this series, I stated that asset managers were not the problem when it comes to cost collection. That said, not all managers are equally committed to, or enthusiastic about, transparency.


It turns out that providing cost and performance data can sometimes be difficult for managers, both practically and emotionally. You learn more about an asset manager when they are asked to do something difficult or new, than when they are asked to do something easy.

We think this manager performance should be assessed according to three indicators: willingness – the willingness of the manager to give data; ability – the technical ability to generate and give the data; and responsiveness – an assessment of the attitude of the manager and those we deal with at the

For each interaction, ratings are awarded based on a scoring from one to four for each of these dimensions, and these scores are reported to clients along with a commentary describing why the managers were rated as they were.

Few managers refuse requests

To date we have requested data from well more than 400 managers in and outside the UK, and very few have declined to supply data at all. Only two managers have been reported to the Financial Conduct Authority by their clients, although there are a couple more that are close.

However, beyond this small number of ‘detractors’, we have seen a range of increasingly warm responses from managers, and below is a list of the highest-rated managers with which we have dealt so far. This list represents those that have regularly scored three or four on each of the three characteristics of willingness, ability and responsiveness.

Data crunch table_0705_350

This list has obviously grown and changed over time, not just because we have gradually increased the scope of our mutual clients’ requests, but also because those managers that were initially reluctant have come around.

In basic terms, if you work with these managers they should give you no trouble at all in supplying data.

Within this highest-rated list there is a best-of-the-best group, and recently we were asked by Pensions Expert to name these to be put forward for the Pensions Expert ClearGlass Transparency Award.

These nominees are marked with an asterisk, and one of them will win the Pensions Expert ClearGlass award, to be announced in September.

There are many more managers who are now fully compliant with data provision requirements. At some point we will list them, so pension funds can have a head start in understanding which managers will be compliant.

For a trustee, this will be one less thing to worry about, which is important given that academic research shows that some trustees are reluctant to ask for data on their costs because they are afraid of its complexity.

Private sector leads the way

The list of managers we recognise as willing to give data is different and significantly larger than the list of managers that have signed up to the LGPS Code of Transparency. This is a clear indication of the willingness of most managers to submit data without the need for the compulsion imposed by the LGPS code.

What is also important to understand is that just because a manager is willing to give data to LGPS clients, and has publicly signed up to the LGPS Code to indicate as much, does not mean they will give data to you if you are not in the LGPS. We saw this a number of times initially, with managers offering LGPS clients a better service than non-LGPS clients, but this is increasingly rare as transparency has become ubiquitous.

This confirms for me that private sector pensions and their consultants, rather than the public sector, are leading the way on cost transparency. And that is very good news for everyone.

Dr Chris Sier is chair of ClearGlass Analytics and led the Financial Conduct Authority’s Institutional Disclosure Working Group

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The public just want a pension dashboard


Gregg McClymont and Darren Philp


Yesterday afternoon was busy but I had time to catch a headline in Professional Pensions

 Lords pensions bill amendment could confirm single dashboard approach, says TPP

I’ve retained the original article as a PDF and here is how it appears.

A small amendment to the pension schemes bill on 8 June has been labelled ‘significant’ in meeting criticism of the pensions dashboard and could confirm a ‘water-tight’commitment to run a single dashboard, The People’s Pension says.
Director of policy Gregg McClymont said he believed the amendment made
by Lord Young of Cookham to clause 122 of the bill this week would oblige
the Money and Pensions Service (Maps) to provide a single dashboard and
see out terms laid down in the clause.

McClymont said the wording within the clause was changed from ‘may’ to
‘must’ regarding specific functions and delivery of the dashboard.
Clause 122 of the bill states that as part of pensions guidance function, a
single financial guidance body must provide information about state
pensions, basic and additional retirement pensions, and state pension
information relating to an individual by means of a pensions dashboard

McClymont said: “This is very welcome and suggests that cross-party support
is building to ensure that a commitment on government to deliver a single
dashboard is written into law. The public – as the government’s own research
confirmed – is more likely to trust a non-commercial dashboard model.”
He added: “There was much criticism of the dashboard clauses during the
bills Lords second reading and it is notable that a senior government peer
has now tabled an amendment to try and ensure the bill contains a watertight commitment to publicly run single dashboard.”

By the time I finished my meetings the headline had changed and so had the story

Lords pensions bill amendment sparks confusion over dashboard approach

The breaking news was that the original report had sparked confusion over whether it could confirm a ‘water-tight’ commitment to run a single dashboard.

The reason I’ve retained the original of the article was because I had written to Gregg McClymont wanting an explanation for a story I couldn’t understand.

It appears I wasn’t alone. The later version of the article suggests the first  “has sparked confusion over whether it could confirm a ‘water-tight’ commitment to run a single dashboard”. It now concludes..

Smart Pension director of policy Darren Philp said: “We have a very different understanding of the amendment. All this amendment does is to simply say that the Money and Pensions Service has to provide a dashboard.

This is our understanding of government policy, so all this does would enshrine that in law. It says nothing about single versus multiple dashboards and we are pleased that the government’s approach is for multiple dashboards.”

Smart got there before me and I’m glad it did, the original story was just another attempt by a lobby group to rubbish private sector innovation in favor of a centralized approach. Anyone who has had to manage their medical records online knows that a centralized approach to data and document management is not something that the Government does well.

It is irrelevant whether the MAPS or private sector approach is trusted more. If there is no dashboard in place the public will trust nobody. 

We are a demand not a command economy!

The Government’s position has been to first build the minimum viable dashboard within MAPS and then allow the private sector to develop alternatives, each private dashboard working to the data standards established by Chris Curry and the steering group and delivered by MAPS.

But of course there are prequels to the dashboard. The public has a taste for seeing all its pensions in one place and has a reasonable expectation of seeing all its pensions in one place. Where there is demand , supply will follow and organisations like my own are laboriously finding pensions and helping people see their entitlements on one screen so they can make informed decisions on how to consolidate and how to convert pension pots into retirement plans.

Since the dashboard steering group has been unable to publish a delivery timeline, even for a minimum viable product, the private sector has assumed that it will not be able to build from a MAPS dashboard for several years. The development plans of the kind of innovative Fintechs that work in this space are rarely longer than five years. This means building on the assumption that the MAPS dashboard will arrive too late for the needs of the 650,000 people who get to 55 each year.

For firms like Zippen, AgeWage , Pension Bee, Profile Pensions and others, the MAPS dashboard is already going to be delivered too late. The reality is that pension dashboards are germinating now to meet public demand and have been and will be tested within the FCA’s Sandbox before Lord Young will even get the Pension Bill to Royal Assent.

While Gregg McClymont may hanker for the delivery of public services at the command of Government, the private sector innovates. Smart Pensions is a prime example of innovation and I’m pleased to see that Darren Philp was able to put the record straight with Professional Pensions.

Let’s just follow the agreed plan

If we had adopted the path of open banking and agreed a series of pension data sharing protocols in 2016-17, Origo would now have built the architecture for finding pensions and we would have the dashboard in the palms of our hands – today.

Instead the DWP and the Treasury argued over ownership, proto-types were built and ignored and experts spent days in conferences arguing over projection assumptions, the inclusion of DB CETVs and how to include DC pensions disgraceful tail of 42,000 micro schemes that may never share their data , it being so poor.

The result is that we are still awaiting the next consultation and we are still to see a timeline for delivery of the MAPS minimum viable product. This is what happens when with a  command economy and it’s why the demand of ordinary people to see their pots in one place is not being met.

Every time that the single dashboard lobby intervene, there is more confusion, more delay and the interests of the dashboard consumer are further prejudiced.

Can we please let Chris Curry and co get on with their laborious job so that we can see a dashboard delivered within the next five years. If we continue to argue over a pin, we won’t see a universal dashboard this decade.

In the meantime, the innovators will have to get on with things with no help from Government at all.

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Let’s stop blaming everybody else!



Blame the Crossfit CEO, blame Sainsburys, blame Peter Shilton and blame Little Britain. The twitter hits of the day are consistently pointing fingers at others for the state we’re in.

Thankfully we aren’t blamin Prince Philip who is 99 today and I hope in a year’s time he will get a telegram from his wife!


I don’t blame anyone for blaming everyone but I do think a lot of people would be better off considering the public service of this happy couple than by putting everybody else down!

So here are the five blogs published on here which I’d point you to for positive alternatives to the deepening despond.

  1. Con Keating and Iain Clacher propose an alternative way of funding DB pensions which better balances the interests of pension scheme members and shareholders. If you want to see both companies and pension schemes stay solvent read this
  2. I praise Michelle Cracknell for not blaming Dominic Cummings for 65,000 excess deaths (keeping her head where all were losing theirs)
  3. Demonstrating how an insurance company can respond positively to the crisis in our care homes and provide a better way for the elderly to plan ahead
  4. Nicola Oliver provides a scientific analysis of the merits of wearing a face mask at the current time
  5. I urge the Treasury to engage with the over-payment of pension contributions by 1.7m savers who need every penny they can get.

These are five of the 345 blogs published in 2020. That’s nearly 350,000 words or around seven novels worth!

Keeping this blog positive

I publish and I’m frequently damned. But the blog is read and I hope read positively. Readership is running at around 40,000 per month and has remained consistently at this level for around three years.

And though I write blogs that are critical of Government, companies and often of individuals , my aim is to raise issues and create positive change. Of course there is dissent but there is not hate. Where I see hate I will delete it.


These two comments were deleted from the site yesterday. They came from the same computer and  John Peters and Duncan Ferguson are bogus. The ongoing defamation of Angie Brooks is shameful. I will stand by those who persistently stand up for others.

Let’s stop blaming everybody else

There is much kindness to be found on the web and on social media. I see kindness in the queen and indeed in her often curmudgeonly husband (happy birthday). I see vulnerability everywhere and can often forgive a personal attack , knowing that it comes from a personal sensitivity which it were better I understood than exploited.

Last year, when I had two serious health scares, I saw much good in those whose views I don’t share and that has made me more tolerant.

This blog and its sentiments are dedicated to Naibuka (Sam) Qarau

Today I am attending, virtually, the funeral of a man on whose face I never saw anything but a smile or a look of concern. He died too soon and we will mourn his passing.



If you would like to read a tribute to this man by Leslie Griffiths, here it is in full.

If you would like to spend time between 1.30 and 2.30 in his honor, his funeral service will be streamed here


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A different approach to pension scheme solvency and funding.

Ian con

Iain Clacher and Con Keating –  authors of this blog.

Solvency and Funding

This is the second of our blogs answering questions which arose from our original essay written in response to the proposed DB Funding Code. It covers issues of solvency and funding.

Solvency estimation involves the comparison of assets with liabilities. Current practice is to use market prices for assets and discounted present values for liabilities, making this approach mixed attribute in nature. The consequence of a mixed attribute approach is to introduce spurious volatility and bias into the solvency estimate.

In an ideal world, we might consider projecting the cash-flows associated with the asset portfolio and compare this with the projected pensions payable. The comparison is most easily done in terms of their present values using a common discount rate. Regardless of the rate chosen, any deficit would be proportionately correct but measured in terms of the value attributed to assets. However, the value attributed to liabilities would not accurately reflect the obligations of the company sponsor, unless this discount rate were the contractual accrual rate.  Moreover, the value arrived at using a present value discounted cash flow would mean that asset values would likely differ from the current market price of those assets.

When this projection method for assets was in use it frequently led to higher values for assets than their market price, and was open to abuse, which led to its discontinuance. For the avoidance of any doubt: we advocate the use of market prices for assets and a discounted present value using the CAR for projected liabilities.

Best estimates, prudence, and dual discount rates

Projected benefits should be derived using standard actuarial techniques using the best estimates of the factors which determine those ultimate pension payments e.g. mortality and inflation. As time passes, experience will mount and any errors arising from faulty factor or parameter assumptions will diminish; put another way, the projected values of benefits will converge to the ultimate pension over the life of the pension promise, even if those factor assumptions are not revised.

The value of liabilities calculated in this manner is the best estimate of the accrued corporate obligation. There is no place for estimating this value in a conservative manner in the mistaken belief that this is ’prudent’. So-called ’prudent’ values imply inequitable treatment for other stakeholders and mislead scheme members by overstating the true amount of their pension accrual. It is also worth noting that accounting practice has also abandoned ’prudence’ in favour of ‘faithful representation’ i.e. economic substance has been substituted for legal form.

Some actuaries have developed the practice of using two different discount rates to value liabilities; one, usually bond-based, for pensions in payment and another, usually higher, for the pre-retirement accrual period. This approach is also present in the proposed Funding Code. The usual justification for this is that growth assets are attractive in the accumulation phase and bonds best suited to meet the cash-flow demands of paying pensions in retirement.

This is problematic in several ways. First, as noted in previous blogs, the amount of the liabilities of a company, and by extension, its pension scheme, is independent of the manner in which those liabilities are funded. Second, all the pension liabilities, regardless of their class (in accrual or payment), are secured by all the assets of the scheme, and the sponsoring company. Third, members must be treated equally; there can be no segregation of the assets of a scheme for the benefit of one or other class of members. Preferential treatments within the membership are prohibited.

The purpose of pension fund assets

Implicit, but unstated, within the practice of dual discount rates is the idea that the fund exists to pay the benefits when due rather than to secure the accrued liabilities of the sponsor. It is also evident in the proposed Funding Code’s ambition to reduce or eliminate the scheme’s dependence upon its sponsor. This is motivated by the principal risk faced by a scheme and its members, sponsor insolvency. However, this difference in purpose for the fund is not some subtle and nuanced philosophical distinction, it is substantial and important, and merits close examination.

The pension promise is a long-term liability of the sponsor company and is created by the company as part of the terms under which staff are employed and compensated. It is in many regards comparable to a long-term debt security issued by the company. A corporate bond promises a return on the subscribed amount and the return of the full principal at maturity. With a DB pension the company promises a return on the initial contribution(s) and payment of the pensions in retirement. DB pensions share a common characteristic with zero-coupon corporate bonds, whereby the interest accruals are much larger than contribution or subscription amounts, often by an order of magnitude.

As the concern is with sponsor insolvency, we should consider the treatment of ordinary long-term corporate debt in such situations. The amount of the claim of a bond holder is the return of the original subscription plus any unpaid interest due to the date of insolvency. With a zero-coupon bond, as no interest is due or paid until maturity, the majority of the claim is usually unpaid interest. Note that the rate is endogenous to the insolvency process, drawn from the original contract terms; it is not some arbitrary exogenous discount or accrual rate. It is also not a replacement cost of the future elements.

If this is a secured bond, this claim amount is the amount of collateral security required; it is the amount arising from the due performance of the company accrued to the date of insolvency. If collateral security is held to this level, then the bondholder has no further claim on the insolvent corporate estate. It is usual to hold such collateral security in a trust, to ensure their bankruptcy remoteness.

The duties and concerns of bondholder trustees are light. These trustees are concerned only with ensuring that the current value of collateral security equals this amount and if there is a shortfall requiring cure of that deficit within the term specified in the contract. This is usually a very short period of time e.g.90 days.

Given the immediacy of the situation, mark-to-market is an appropriate valuation technique for these assets. Here, trustees are not required to consider what may or may not happen in the future; they are not required to consider whether the assets held will generate the returns needed to service the promise made by the company. These practices have come about because they are equitable among all stakeholders of the company.

DB pensions belong to the same class of creditor and so they should be treated in the same manner. Any other treatment will be inequitable to one or more other stakeholders. Of course, Section75, PA1995, defines the pension claim amount as an open market replacement cost estimate, less the value of assets held by the scheme. This is inequitable to other stakeholders and should be expected to result in other creditors making arrangements under higher priority status and requiring more restrictive covenants for their advances. It is notable that many private equity and turn-around specialists will simply not engage with companies with DB schemes because of this.

While the section 75 value is relevant for solvent companies wishing to abrogate their obligations, it is wholly inappropriate in insolvency.


The ambition of the proposed code is to have schemes funded to levels which eliminate any dependency on the sponsor company. This is far higher than current levels. It amounts to raising the cost to that of purchasing an insurance policy externally. It is one thing for a company to offer a generous pension when the cost of that generosity will be borne over the life of the pension but quite another when that cost must be fully borne immediately.

To understand why such an approach is wholly inappropriate, it is useful to go outside of DB pensions and consider another stakeholder group i.e. shareholders. Shareholders have two sources of return: capital gains and dividends. Dividends are a major source of income for shareholders, but dividends are risky and can only be paid if the company exists.

If the company becomes insolvent, then as the residual claimants, shareholders will get very little once everyone with higher priority has been settled. If a company were to decide to direct corporate funds to set up a fund that paid dividends to shareholders irrespective of whether the company existed or not, then this would be challenged in court.

This is the logic of self-sufficiency. The aim of trying to remove risk from members is laudable but misconceived in this way. Member risk has been reduced via the existence of the PPF. Any funding above best estimate is, effectively, to give one stakeholder group preferential status and to misdirect corporate capital, which could be used for a myriad of purposes e.g. higher wages, expansion, dividends etc.

However, if schemes were to be funded to replacement cost levels, we would expect the application of section 75 in insolvency to be challenged in the courts. It is one thing for other creditors to tolerate inflated claims when the recoveries are highly uncertain, but quite another when there are substantial and visible assets involved.

The argument could rightly be made that funding to this level was improper in the exact same way as the placement of some company assets in bankruptcy remote vehicles for the payment of dividends to shareholders after insolvency or more generally under the principle of equity.

The problem which all the regulatory paraphernalia is seeking to resolve is that of sponsor insolvency and the desire to preserve member pensions as promised. This is a question of credit and may be addressed by credit insurance, which will be discussed in the third of our explanatory blogs.


Posted in advice gap, de-risking, economics, pensions, Retirement | Tagged , , , , , , | 5 Comments

Pension committees “stay alert”!


Stay alert

Local Authorities must stay alert through the storm


Alarm bells rang when I read Stephanie Hawthorne’s report on the reaction of some Pension Schemes to the challenges of the current pandemic ‘Lockdown spikes fears of democratic deficit in LGPS’ 

A survey of 83 local authorities conducted on behalf of the Local Government Pension Scheme Advisory Board and the Local Government Pensions Committee of the Local Government Association showed that some councils are sluggish to adapt to the new normal, with 61 per cent of respondents not going beyond mere planning of virtual meetings.

The research, conducted in the first two weeks of May, also showed that other local authorities were delegating decisions to senior officers such as the section 151 officer, the chair and the vice-chair of the pension committee. One council delegated decision-making to the chief executive with appropriate advice from officers, while another had a Covid-19 special committee.

The concern at this comes from within LGPS and specifically from the uber-proactive Jeff Houston, LGPS head of pensions. 


Jeff Houston

Comments from the various advisers interviewed by Hawthorne in late May , do not reflect much pro activity.  They seem to accept pension torpor in the face of the crisis.

 “Meetings tend to be planned on a quarterly cycle, and this (survey) was less than two months into the lockdown.”

“the main local government regulations about how to manage matters with Covid-19 in terms of virtual meetings, and enabling access to the public, were only issued by the government on April 4”

Anyone charged with managing a UK business through the COVID-19 pandemic will recognize such behavior as a voluntary furlough. Three monthly meetings in a time of crisis? Two months to digest instructions on virtual meetings?

These committees are there to protect the public from the pension risks  created by the pandemic. These include the probability of many participating employers going bust and ceasing contributions, many members losing pension rights and the scheme losing its primary source of funding.

There is genuine distress within many participating employers and that distress will extend to staff when the furlough ends. Council tax-payers should be demanding more.

If ever we needed the pension committees of local authorities to raise their game, now is that time.

Has time stood still?

Third party providers to the LGPS are clearly comfortable to maintain the status quo. Hawthorne quotes a spokesperson from JP Morgan

“No doubt there will be some permanent change that will come from the current experience. Some companies will not survive while others will thrive, as we emerge into a post-Covid-19 world. But, overall, we do not believe long-term growth prospects have been fundamentally changed.”

So should Local Authorities be taking asset manager’s word for it?

Any council tax payer in the land is going to blanch at the assertion that “long-term growth prospects”, haven’t “fundamentally changed”.  Perhaps this remark refers to the asset management industry , for whom the furloughing of 61% of pension committees could mean business as usual.

And are local authorities right in thinking pension administration is business as usual through the pandemic.

very few authorities appeared to be revising administration budgets to deal with the current situation, with 87 per cent not making any changes.

My experience as a small company dealing with my local authority is that it is virtually impossible to get any answer on any matter. Small employers with very real pension issues may find that the “spike in the democratic deficit” means they have, like me- no one to talk to. I find myself agreeing with Stephen Scholefield




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Does not discussing salaries, only benefit employers?


Having kicked the traces with corporate reward strategies, I now operate a company where everybody knows the wages of the company. For good reason I am AgeWage’s lowest paid employee and I’m proud that we are able to talk about salaries in an open way,

Transparency being the best form of disinfectant , we have got used to seeing the reward packages of company’s senior managers published in corporate accounts.

Khaleesiana is  lucky to have a chance to discuss her wages with her colleagues. This should not be a privilege but sadly it is. Because most of us are not allowed to disclose our earnings to our colleagues. There is an assumption of fairness out there that’s like  ‘most favored nation’ status. If you confer most favored nation status on your reward strategy, you are implying that  no one has anything to  gain by comparing salaries. It is then easy to say that by comparing salaries you are de-stabilizing the trust in place.

And as soon as people feel disclosure could lead to a leveling down or even dismissal, non-diclosure is – as Klaleesiana says , of exclusive benefit to the boss

I do agree that there needs to be some flexibility within pay grades to pay more or less for what appears to be the same job. But is it really ever sensible to allow the gap between Khaleesiana and her colleague to develop?  Would such a gap have developed if disclosure of all salaries had been place? Would the publishing of grades and of who is in what grade be enough or do we need absolute disclosure?

The truth is we are terrified of litigation and in fear of own reward strategies. We consider the collusion between Khaleesiana and her colleague as against spoken or unspoken rules but in reality, once a gender pay gap issue is in the open, it can be resolved. Much worse is the lingering doubt engendered by the leaking of salary information over time which leads to a culture of distrust within a company.

As a start-up, we’ve started the way we mean to go on but I am no reward expert. I’d be interested in anyone’s thoughts on Khaleesiana’s behavior and what you think of her employer’s pay strategy.  Is there a point where a company has to impose non-disclosure of salaries on staff or is transparency on pay as important on the shop floor as in the boardroom?

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Let’s not forget the low-paid’s pension problems


The initial financial shock of the pandemic was on markets.


and the headlines about mortality



The occasion was a Zoomed up pension conference and specifically a break-out session with Glyn Jenkins .

We were discussing the impact of COVID-19, with concern that the sharp drop in markets in March might have driven savers away. NEST spoke with authority that savers had not panicked  but that they recognized that the pandemic was going to hurt them financially.

nest analysis


Emboldened by stirring remarks from Glyn on the importance to ordinary people of the state pension , I thought it time to introduce the issue of the low paid who are overpaying their pension contributions – (typically by 25%),

Here as I remember is the conversation (anonymised as we were under the Chatham House rule)

Chair: I can see Henry has his hand up and has been asking a question in chat. Henry, I do hope you aren’t going to bore us about net pay?

Me: yes, that’s what I asked my question about.

Chair; is there an investment solution to this

Me; no this is not about investments, it’s about being fair to a group of people who are currently not getting value from their pension contributions because they are over-paying by 25%

Chair; oh go on – if you must…..

I am grateful to the chair as she is one of the very best minds in pensions and she can properly said to care for people.

She wasn’t trying to shut me up on her behalf  but she knew the other people in the room were not thinking of defined contribution pension schemes as they touch the bottom decile of earners in this country.  But pension pots matter to low earners as much if not more than to the people on the call.

NEST’s research on its membership shows a consistent worry about the impact of COVID-19 across age groups, gender , sex and those with and without children. Where there is greatest financial worry is among those on low incomes and where there is leas worry is among those with incomes above 30k.

The question of how we manage pensions for those on the lowest incomes is the more important for these savers, as they feel most vulnerable

nest analysis 2


Everybody’s pension matters

Here, for her and for all the other bright people who are desperately searching for ways to embed alternatives into DC defaults is the latest information solicited by Baroness Ros Altmann the low paid saving into workplace pensions

‘HMRC estimate that 1.3m individuals earning below the personal allowance in 2017-18 made workplace pension contributions via Real Time Information (RTI) using relief at source arrangements. About 65% of these individuals are estimated to be female and 35% are estimated to be male.  The personal allowance in 2017-18 was £11,500’.

Those in NEST are in a relief at source pension, which means that low earners saving into NEST are getting the promised Government incentive which amounts to 25% of their personal contribution under the 4+1+3 formula set out for auto-enrollment contributions.

However there was another and more sinister disclosure to the Baroness;

HMRC estimate that 1.5m individuals earning below the personal allowance in 2017-18 made workplace pension contributions via Real Time Information (RTI) using net pay arrangements. About 75% of these individuals are estimated to be female and 25% are estimated to be male.

HMRC’s Survey of Personal Income (SPI) and administrative data was used to produce the estimates. The 2017-18 SPI data (published in March 2020) is the latest year available. The SPI is updated annually.

For 1.5m of us not saving into NEST or People’s Pension or into an insurance company GPP or the relief at source section of the L&G master trust, the 25% incentive is still going missing.

It’s a poverty issue and especially a gender poverty issue

From these two disclosures we can get a picture of what is actually going on when the low paid let themselves get enrolled. We should be grateful to Kelly Sizer of the Low Paid Tax Reform Group for crunching the numbers.

Individuals earning below the personal allowance and contributing to pension schemes

Estimated for 2017/18


RAS(1) NPA(2) Difference – number of NPA contributors compared to RAS
Total 1,300,000 1,500,000 +200,000
Female 65% =      845,000 75% =       1,125,000 +280,000
Male 35% =      455,000 25% =          375,000 -80,000



What does this mean?

  1. The pension tax system is discriminating against one and a half million low paid people who have been promised a 25% top up on their pension savings and are not getting it.
  2. The pension system is discriminating against women who represent 65% of the people who aren’t getting the money promised them.
  3. Despite promises in the Conservative manifesto ‘this will be sorted’ and the budget which promised the Government would ‘shortly publish a call for evidence on the subject, nothing has happened. My message to the group on the Zoom call was simple,

Pension’s thought leaders cannot be complicit in Treasury delinquency.

A problem that is going to get worse.

You will notice that the numbers sourced by Baroness Altmann are for 2017. The net pay action group which she chairs estimates that the true number of people who aren’t getting their fare shares is now 1.7m. The Real Time Information system seems to be lagging.

But even if we work on the 1.5m figure, it is  shameful that  this matter is still considered ‘boring’. There is a simple way to sort this important issue and it simply requires HMRC to do some coding of their systems to put the 1.5m right.

But so long as we don’t bring this up at pension conferences or dismiss the issue as ‘boring’, we are indeed complicit in the Treasury’s delinquency. Around the world people are protesting to make every life matter. We need to adopt that attitude to pensions. We should all be concerned about the net pay anomaly and we should not allow COVID-19 to be used as a reason not to reward the low-paid for saving as they’ve been promised




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The impact of banning contingent charging for pension transfers

FCA balance

The end of an era

After over three years of mounting pressure, the FCA yesterday announced it would be banning the practice of contingent charging for work on Defined Benefit transfers from October 1st. Although some pipeline cases will conclude in the next four months, it is unlikely that advisers will embark on any new work on a ‘no transfer no fee’ basis.

From now on advisers will have to charge the client the same if the transfer proceeds or if it doesn’t. This will either lead to uneconomic work for advisers (in which case transfer case-load will decrease) or the  risk to clients of no transfer and a big bill , in which case the transfer won’t go ahead.

There may be some advisers who see the lure of funds under advice as sufficient to offer transfer analysis as a loss-leader, but the cost of professional indemnity insurance around transactions will probably make such a service unsustainable.

This does not spell the end of DB transfers, there will be a ‘carve out’ for people in extreme ill-health who will be able to capitalize future pension payments from their scheme , provided they are not within a year of normal retirement. Some wealthy people will pay for advice rather than the outcome of the advice.

But as a mass-market activity, the practice of transferring the pension promise offered by a defined benefit scheme to a pension pot with full market exposure, is finished.

If you want to read the comments of IFAs on the announcement, you can read there are around 100 behind this post

If you want to get the back-story, then you can read the parliamentary briefing published in mid May, and available here

The impact on IFAs

Many IFAs became heavily dependent on DB transfers not just for immediate income from the conditional charge, but for the embedded value to their businesses of advising on the proceeds. Many who had the permissions were able to take a charge on the transferred assets in return for discretionary management agreements that made them not just advisers but fiduciary managers.

The cessation of new flows is likely to have relatively small impact on IFAs who have seen the end of contingent charging coming. It’s estimated that 700 IFA firms have already resigned their transfer permissions and some have had them taken away.

The FCA are currently carrying out a number of investigations into the activities of some advisory firms including Lighthouse, that was recently purchased by Quilter (formerly Old Mutual and previously Skandia). Quilter are reported to have set aside a substantial sum as a provision against future claims.

Ominously for many IFAs , the FCA have announced that they will be writing to all 7700 steelworkers they can find, who transferred out of the British Steel Pension Scheme. The inference to steelworkers is that there is money on the table. In the case of Lighthouse advised cases the source of that money is clear, but many smaller advisers with less resource behind them will need to rely on their insurers. In many cases the excesses they will need to meet themselves will severely impair their businesses.

The FCA’s sampling of transfer cases from BSPS only gave a clean bill of health to one in five cases, in total well over 3bn GBP was transferred and BSPS is only one of a large number of schemes that were systematically targeted by advisers.

While criticism of the FCA has focused so far on the impact on the availability of advice, the much greater worry is the impact on the sustainability of adviser’s businesses.

The impact on pension providers

In terms of pension provider finances, the continuation of a pension transfers was a win-win. Defined benefit schemes were able to de-risk, sponsors reported transfers as improving the corporate balance sheet. Money arrived in SIPPs and to the large insurers with no risk attaching. The major insurers who benefited included Prudential, Royal London , Zurich and many other household names. Those insurers who had vertically integrated propositions such as Old Mutual, Standard Life and in particular St James Place were particularly well positioned to benefit from transfer inflows.

Tom McPhail, now released from PR duties at Hargreaves Lansdown has commented

It will be interesting to see how the markets see the FCA’s intervention with regards insurer’s liabilities.

Fund managers

The further from the retail coalface you go, the more beneficial the flows from DB to DC became. Retail margins on funds transferred are not subject to any cap and the pressure experienced on fund management margins by trustees and their advisers made for good business ‘upstream’.

Whether transferred monies are going to stay in high margin funds is hard to predict. If the FCA review is ongoing , it is likely that it will focus not just on what happened but on what’s happening and this will mean having to justify the high cost of ownership of the personal pensions managed by wealth managers.

DB pension schemes

News of the FCA’s announcement has been welcomed by the PLSA . But I suspect that it is not over-celebrating. Many large pension schemes have invested in technology to give members on-line transfer value quotations. This at a time when large numbers of members face the likelihood of redundancy. These transfers are now all dressed up with nowhere to go.

Only last month, British Airways announced that online transfers were available days after announcing that 12,000 jobs were at risk. The trustee and corporate agendas were to some extent aligned since – in the dystopian world of pension accounting, transferring members out at today’s high CETV values, benefits the scheme’s funding position (and the corporate balance sheet). It also sets the FCA’s agenda of protecting consumers against the Pension Regulator’s agenda of protecting the PPF.

Workplace pensions

One of the very few areas within pensions that has been untouched by DB transfers has been the DC workplace pension. Since the transfer process was inextricably bound up in advice, it was likely that the advised solutions to the ongoing management of the transfers would be controlled by the adviser – not by an insurer+employer +IGC.

I have yet to read one IGC report that mentions the influx of money into the insurer from DB schemes, this is because the IGCs look after the workplace pensions not the SIPPs . Ironically much of this money may be destined for unadvised investment pathways (for which IGSs and GAAs are responsible.

I argued during BSPS’ Time to Choose that Tata and Liberty’s workplace pensions (with Aviva and L&G respectively) should have been promoted by IFAs as a transfer alternative. I have never seen figures published on how much of the BSPS CETVs made their way to the workplace pension schemes that active steelworkers had open to them.

However I suspect that many who have transferred from schemes such as BSPS do have good quality schemes (such as NEST) into which transfers could be made. It would be good for the FCA to be thinking of investment pathways for funds orphaned of advisers or needing a radical rethink with regards value for money.

The impact on the public

The FCA have had this question in the front of their minds since the day when Frank Field and the DWP Select Committee first grilled Megan Butler and her team.

Last summer I met with the FCA’s Chairman who asked me the simple question “do you think contingent charging should be banned?’ I said yes (with a carve out for the very sick). The discussion focused on the impact on the public of losing the freedom to do what had been granted it in 1986 by Norman Fowler – to freely move DB rights into a personal pension.

The FCA have not of course banned that right, but it has made it sufficiently difficult for most people to transfer as to have taken this freedom away. For those who have not taken a transfer, the door has effectively been shut and it will be interesting to see whether there is public outcry.

It will also be interesting to see the extend that the public seek redress. This is taken from the aforementioned Parliamentary briefing (updated yesterday).

Where a DB transfer has been made on the basis of unsuitable advice, the individual may be able to make a complaint and, if upheld, get redress to put them, as far as possible, back into the position they would have been in if they had not received the advice.

To get redress consumers must first complain to the firm that gave the advice. If the individual is not satisfied with the firm’s response or the firm has not responded, they can complain to the Financial Ombudsman Service (FOS). If the firm that gave the advice is insolvent and cannot pay compensation, a claim can be made instead to the Financial Services Compensation Scheme (FSCS).

Both the FOS and the FSCS have reported rising levels of pension complaints. Financial advice firms have expressed concerns about the consequent rising costs of the levy and professional indemnity insurance.

Some have speculated that there might have been a “multibillion-pound mis-selling scandal” related to this financial advice. The extent of any problem might only come to light in the event of an economic downturn, when the implications of a decision to switch to a DC pension might become clearer to members.

We wait to see.


Posted in advice gap, BSPS, Change, DWP, FCA, pensions | Leave a comment

What happened in week 10; science from the COVID Actuaries


Screenshot 2020-04-10 at 12.03.32


Every week, more is written on COVID-19 than any individual could possibly read. Collectively, the COVID‑19 Actuaries Response Group read more about the outbreak than most, so we’ve decided each Friday to provide you with a curated list of the key papers and articles that we’ve looked at recently.

Modelling – reports

Effects of non-pharmaceutical interventions on COVID-19 cases, deaths, and demand for hospital services in the UK: a modelling study (Davies et al, 2 June)

This paper, from the Centre for the Mathematical Modelling of Infectious Diseases COVID-19 working group, is a useful summary of some of the modelling that was carried out at the start of the outbreak. It sets out the key analyses and scenarios presented to decision makers over February-March 2020, based on information available at that time. The group modelled the impact of four key interventions (school closures, physical distancing, shielding of over-70s, and self-isolation of symptomatic cases), alongside phased lockdown-type restrictions, and found that

  • Interventions without lockdown would not be sufficient to bring R0 below 1;
  • An unmitigated outbreak would have led to 350,000 deaths by December 2021;
  • The most stringent lockdown scenario would have resulted in 50,000 deaths by December 2021.

Clinical and Medical News

Racial Disparities

There has been growing concern that those from BAME populations may be more vulnerable to COVID-19 in terms of both risk of developing the illness, and risk of mortality. The reasons for this are considered in this rapid data review published in April. The review finds that:

  • There is evidence that morbidity and mortality within all ethnic groups is strongly patterned by socio-economic position;
  • There is growing evidence that racism plays a role in the poorer physical and mental health of minority ethnic populations via direct personal experience of racist victimisation or discrimination and via the fear or expectation that racism may be encountered;
  • There is clear evidence that ethnic minority people reside disproportionately in areas of high deprivation with poor environmental conditions, with concomitant negative impacts on health;
  • There is growing evidence of differentially poor access to primary and secondary preventive and curative healthcare that could help to reduce inequalities in the major causes of morbidity and mortality;
  • There is widespread consensus amongst geneticists and epidemiologists that genetic factors contribute only marginally to ethnic inequalities in health.


Surgical Outcomes in Patients with COVID-19

Whilst we know are starting to understand the impact of COVID-19 from a clinical perspective, little is known about the impact on those with COVID-19 who require medical procedures/input for something other than COVID-19.

Analysis of patients undergoing surgery finds that pulmonary complications occur in half of patients with perioperative SARS-CoV-2 infection and is associated with higher mortality. Men aged 70 years and over who have emergency or major elective surgery are at particularly high risk of mortality, although minor elective surgery is also associated with higher-than-usual mortality.

Physical distancing, face masks, and eye protection

We’ve recently reviewed the effectiveness of facemask wearing for the general public, , and the UK government has now mandated facemasks on public transport with effect from 15 June, likely spurred on by this excellent analysis by Professor Trisha Greenhalgh.

The impact of all personal protection measures reviewed by the COVID-19 Systematic Urgent Review Group Effort (SURGE) study authors on behalf of the World health Organisation  finds that:

  • Current policies of at least 1 m physical distancing are associated with a large reduction in infection, and distances of 2 m might be more effective;
  • Wearing face masks protects people (both health-care workers and the general public) against infection by these coronaviruses;
  • Eye protection could confer additional benefit.

Diabetes and COVID-19

Diabetes, cardiovascular disease and hypertension are the commonest chronic long-term co-morbidities in people with severe COVID. Analysis seeking to understand the relationship between hyperglycaemia and other modifiable risk factors including obesity, and risk of COVID-19 related mortality in both community and hospital environments provides some insights into this.

The authors report that the total number of deaths per week among people with diabetes in England has more than doubled since 3 April 2020 compared with what would be expected in this period. In addition there was a clear relationship between COVID-19 related death and socio-economic deprivation among people with diabetes of either type; the level of hyperglycaemia was also associated with increased risk of mortality.

Accessing Treatment During Lockdown

The British Heart Foundation (BHF) have reported that half of people with existing cardiovascular disease have had difficulty accessing medical treatment during the pandemic. This includes access to medicine, and cancellation or postponement of planned tests, surgery or procedures. Patients also reported reluctance to put extra pressure on the NHS, and fears about contracting the virus in healthcare settings.

Hydroxychloroquine Controversies

A rare retraction has been issued by the authors of a paper that originally concluded that  hydroxychloroquine or chloroquine decreased in-hospital survival and increased frequency of ventricular arrhythmias (link). The authors state that  the veracity of the data and analyses conducted by Surgisphere Corporation and its founder and our co-author, Sapan Desai, could no longer be relied upon. The supply of flawed, and possibly fabricated data for analysis is at the heart of this controversy.




ONS – Analysis of death registrations not involving coronavirus (COVID-19), England & Wales: 28 December 2019 to 1 May 2020 

It has been clear for some weeks that the simple count of COVID-19 deaths in England & Wales has been significantly lower than the overall excess mortality – what has been less clear is whether these deaths have been related to COVID-19 (and not recorded as such) or deaths not directly related to COVID-19 deaths.

ONS have analysed the causes of excess mortality up to 1 May 2020, and found the largest increases to be from dementia and Alzheimer disease, as well as ‘symptoms signs and ill-defined conditions’ (typically frailty / old age). Their conclusion, based on the information available, is that undiagnosed COVID-19 could help explain the rise in non-COVID-19 excess deaths, although they do note that a full analysis of non-COVID-19 excess deaths will not be available for several months.

Comparing mortality data

We, and other commentators, have noted that it is very difficult to compare COVID-19 mortality figures – the ONS analysis above illustrates how hard it is to compare within a country, as it seems likely that the ‘official’ COVID-19 figures may need to be increased.

Cross-country comparison is also very problematic, and could lead to inaccurate conclusions. For example, it was widely reported that Spain recently recorded no daily COVID-19 deaths on a couple of occasions, but this is based on a change in reporting such that they only add additional deaths if they occur and are reported in the 24 hours before the daily bulletin . Whilst the numbers of COVID‑19 deaths in Spain are lower than in the UK, it is not possible to compare the figures directly.

And finally …

What’s in a name?

The pandemic seems to be influencing the choice of names by new parents. Names such as Cora, Corina and Viola have fallen from favour, whilst ‘secure’ names are more popular. These include Florence, Hero, Hope and Joy for instance


However do spare a thought for the twins Covid and Corona!

5 June 2020

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

Why planning for “care” is everyone’s business

fp ltc

Whether we are carers or ‘cared for’, we are likely to be involved in caring in the future. Of course the pandemic has highlighted the under-funding of residential care homes and the lack of support given to many home carers, most of whom are not professional but doing the job out of love.

Yesterday, I and around 100 others attended a webinar organised by Legal & General looking at the issues of later life care.

The session was hosted by John Power of Legal & General Retirement Living Solutions


and featured

Andrew Parfery, CEO and co-founder of Care Sourcer,



Tish Hanifan, Founder and Joint Chair of the Society of Later Life Advisers (SOLLA)


and Phil Bayliss, CEO of Later Living, Legal & General


Care touches everyone

Mention was made of the many younger people also “in care” and getting care in the community. But it focused on those in later life for whom care will be needed through to death, this of course includes palliative care but is most widely needed by those who lose physical and cognitive independence as they grow older.

Many of us have been shielding elderly people from the current pandemic. Many of those shielded would otherwise be independent and this is an extension of later life care. Almost everyone has been made aware of the vulnerability of the old by Coronavirus, if only  by mortality statistics.

The key message coming from this meeting is that while caring might in the past have been considered a specialist area, it is no longer. This goes not just for our general responsibilities to the old, but very specifically , to those advising people in retirement. Whether you are considering care for yourself or for those you love, care and the cost of providing it, are part of later life financial planning.

To demonstrate this, Legal & General shared important data which I will reproduce from screenshots here.

The media headlines are on residential care and its cost (especially to self funders)

L&G care 1

L&G Care 2

This is critically important to our understanding of the financial burden of care as that £139bn figure is an opportunity cost to those in retirement. Largely unpaid, our home carers are effectively sacrificing salary for love. They may also be sacrificing future pension prospects by being out of workplace pensions.

L&G Care 3

Not only are people needing care for longer, but carers are caring for longer. This is not a steady state situation, it is an escalating problem – at least in terms of the financial implications. This is because we are not just living longer

L&G 4

This is why we have to have a financial plan that not only takes into account the financial cost of residential care but the cost of prolonged social care, whether that cost is directly falling on us (as future carers) or on our parents’ wealth and our future estate.

And when we talk “estate” we are talking typically of housing. We need urgently to address the housing needs of those in later life and ask whether the homes they currently live in, however emotionally attached we are to them are fit for purpose.

L&G 5

So we have many issues to face, both personally and – if we are advising others- professionally.

L&G 6

We can all play a role

The idea that later life planning is separate from retirement planning is daft. COVID-19 has let the elephant out of the care-home and let it trumpet some uncomfortable messages about the lack of funding in the care sector and the miserable conditions many older people have to endure because of lack of planning.

The message is clear, care touches everyone and we must make the planning either to care or to be cared a priority item in our financial planning both in later life and at the point when we approach retirement.

I will be focusing much of the resource that AgeWage brings , to dealing with these uncomfortable and previously under-recognized issues.

Everyone needs advice about these things but most people simply don’t get it.

agewage advice

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

Facemasks for public use – Nicola Oliver



Nicola Oliver




The question of whether to protect yourself from becoming infected with the SARS-CoV-2 virus by wearing a mask in public places is one that has been vigorously debated. The counter-argument to mask use is that it will produce a false sense of security in the wearer who will then take other protective measures, such as physical distancing, less seriously.

Types of face mask include:

  • Cloth;
  • Medical (non-surgical);
  • Surgical
  • Filtering facepiece respirators such as N95 masks and FFP masks.

In this bulletin, we will explore the evidence on mask efficacy and benefits of use by the general public.


Jan Mikulicz-Radecki, a Polish surgeon born in 1850, is the first doctor to record the wearing of surgical face masks during surgery in around 1897. In addition, it is worth noting that he was a pioneer in infection control as well as in what were considered ground-breaking surgical techniques and an inventor of surgical tools that have been permanently assimilated in the world’s surgery[1].

His practice of mask wearing was initially met with scepticism; however, a study of more than 1000 photographs of surgeons in operating rooms in US and European hospitals between 1863 and 1969 indicated that by 1923 over two-thirds of them wore masks and by 1935 most of them were using masks[2].

Face 2

Face mask wearing to protect the wearer is likely to have emerged during the 1918 influenza pandemic with the US mandating police officers, health workers and some residents to wear them. This signalled a shift in the concept that the mask could protect the wearer, rather than protect the vulnerable surgical patient.

The two other corona-virus outbreaks in this century (SARS 2003, MERS CoV 2012) witnessed the widespread adoption of mask wearing by the general public in the affected countries as a means of personal protection.

Evidence of Effectiveness for Personal Protection

Generally, when guidance is issued for health-related purposes, the issuing body will carefully weigh up the evidence, the risks versus the benefits, and may rely on controlled trials of the intervention in order to reach an evidence-based conclusion. In normal contexts this is essential to protect us from the potential harms of an intervention, such as new pharmaceuticals, or surgical procedures.

One of the arguments against the use of face masks for personal protection by the public is that there is a lack of such evidence. However, we do know that the particulates expelled during a cough or a sneeze have the ability to spread several metres and to linger in the air for many minutes. For a cough, the distance travelled is up to 6 metres and for a sneeze, 8 metres[3].

Additionally, we now have insights into contaminants expelled during normal exhaled breath[4] (figure one). This analysis suggests that in addition to droplets, SARS-CoV-2 may also be transmitted as aerosols.

Owing to their smaller size, aerosols may lead to higher severity of COVID-19 because virus-containing aerosols penetrate more deeply into the lungs.

It is therefore logical that placing a barrier over your mouth and nose will reduce the emission of contaminants to other people and your environment. The Mayo Clinic in the US states clearly that face masks combined with other preventive measures, such as frequent hand-washing and social distancing, help slow the spread of the virus[5]. The ECDC suggest that due to increasing evidence that persons with mild or no symptoms can contribute to the spread of COVID-19, face masks and other face covers may be considered a means of source control complementary to other measures already in place to reduce the transmission of COVID-19[6].

One key analysis published in Nature on respiratory viral shedding and the efficacy of face masks provides additional evidence on using face masks to prevent transmission of the virus[7]. A key finding relates to the earlier point on aerosol transmission. This study sought to quantify the amount of respiratory virus in exhaled breath of participants who had medical attention for acute respiratory virus illnesses (ARIs) and to determine the potential efficacy of surgical face masks to prevent respiratory virus transmission.

Figure two shows the results of viral shedding (in terms of viral copies per sample) identified in nasal swabs, throat swabs, respiratory droplet samples and aerosol samples with a comparison of the latter two between samples collected with or without a face mask. The results indicate that surgical face masks could prevent transmission of human coronaviruses and influenza viruses from symptomatic individuals.


Cloth Masks?

However, given the concern regarding the supply of surgical face masks to healthcare workers, what about the efficacy of cloth masks? Testing of various fabrics to examine their filtration efficiency finds that multiple layers of fabrics with different properties can be effective. In particular, if the combination of fabrics can offer mechanical and electrostatic filtration as illustrated in figure three.

Combinations of fabric (such as cotton−silk, cotton−chiffon, cotton−flannel) achieved the ideal mechanical/electrostatic effect, but, it is worth noting that correct fitting of any mask will affect its efficacy. Improper fitting can result in a more than 60% decrease in filtration efficacy

Impact of Masks on R0

A pre-print evidence review published 12 May 2020 [8] finds in favour of the wearing of face masks by the general public. This review identified the following key questions to consider:

  1. Do asymptomatic or pre-symptomatic patients pose a risk of infecting others?
  2. Would a face mask likely decrease the number of people infected by an infectious mask wearer?
  3. Are there face covers that will not disrupt the medical supply chain, e.g. homemade cloth masks?
  4. Will wearing a mask affect the probability of the wearer becoming infected themselves?
  5. Does mask use reduce compliance with other recommended strategies, such as physical distancing and quarantine?

Figure four shows the impact of public mask wearing under the full range of mask adherence and efficacy scenarios. Clearly, compliance needs to be high to be most effective at reducing spread of the virus. Recommendations from this review include that mask use be mandated by governments. When governments do not, then by organizations that provide public-facing services, such as public transport providers or shops, as “no mask, no service” rules. Such mandates must be accompanied by measures to ensure access to masks.


Recent meta-analysis published in The Lancet which investigated the e­ffects of physical distance, face masks, and eye protection on virus transmission in health-care and non-health-care (e.g., community) settings finds that a combination of the three approaches provides the most effective protection.


Finally, a campaign by Professor Trisha Greenhalgh and colleagues point to the precautionary principle, such that a strategy for approaching issues of potential harm when extensive scientific knowledge on the matter is lacking. “As with parachutes for jumping out of aeroplanes, it is time to act without waiting for randomised controlled trial evidence.”[9]

Professor Greenhalgh is one of more than 100 health experts to call for cloth mask requirements[10] for the general public based on the following:

  • People are most infectious in the initial period of infection, when it is common to have few or no symptoms
  • Cloth masks obstruct a high portion of the droplets from the mouth and nose that spread the virus
  • Non-medical masks have been effective in reducing transmission of coronavirus
  • Cloth masks can be washed in soapy water and re-used
  • Places and time periods where mask usage is required or widespread have been shown to substantially lower community transmission
  • Public mask wearing is most effective at stopping spread of the virus when the vast majority of the public uses masks
  • Laws appear to be highly effective at increasing compliance and slowing or stopping the spread of COVID-19

“Whilst not every piece of scientific evidence supports mask-wearing, most of it points in the same direction. Our assessment of this evidence leads us to a clear conclusion: keep your droplets to yourself – wear a mask.” (Professor Trisha Greenhalgh and Jeremy Howard)[11]


Appendix: Guidelines

The table contains a snapshot of the guidelines and advice that have been issued by various governments on face covering either through mask or cloth covering.


Country Advice/Guidance
Angola Outside the home
Argentina Public transport, any one in contact with members of the public (Buenos Aires) (fines for non-compliance)
Austria Outside the home
Bahrain Outside the home
Benin Outside the home
Bosnia & Herzegovina Outside the home (mask or cloth covering)
Burkina Faso Outside the home
Cambodia Shopping and public places
Cameroon Outside the home
Canada Where it is not possible to keep enough distance between one person and the other
China Public places
Colombia Public transport, shops, outdoor markets and banks
Cuba Outside the home
Czech Republic Supermarkets, pharmacies & public transport
Dominican Republic Public places & the work place
DR Congo Outside the home (Kinshasa)
Ecuador Outside the home
Equatorial Guinea Outside the home
Ethiopia Outside the home
France Public transport (fines for non-compliance)
Gabon Outside the home
Germany Public transport & shopping
Honduras Outside the home
Hong Kong Public transport & crowded places
India Certain states outside the home (mask or cloth covering)
Indonesia Outside the home
Ireland Enclosed public spaces where it’s difficult to maintain social distance
Israel Outside the home
Italy Outside the home (Lombardy & Tuscany)
Ivory Coast Shopping
Jamaica Outside the home
Kenya Outside the home
Liberia Outside the home
Lithuania Public places
Luxembourg where it is not possible to keep enough distance between one person and the other
Malaysia With symptoms ((delivered to each household)
Mexico Metro stations & trains
Mongolia Public transport
Morocco Outside the home (fine for non-compliance)
Mozambique Public transport & large public gatherings
Nigeria Outside the home
Pakistan Outside the home
Peru Outside the home
Philippines In areas under enhanced community quarantine
Poland Outside the home (mask or cloth covering)
Qatar government and private sector employees and clients, shoppers at food and catering stores and workers in the contracting sector (fines and potential prison sentence for violation)
Russia Outside the home
Rwanda Outside the home
Sierra Leone Outside the home
Singapore Outside the home
South Korea Public transport & taxis
Spain Indoor public places & where it is not possible to keep enough distance between one person and the other
Taiwan Public transport (fine for non-compliance)
Turkey Shopping and crowded places (free delivery to every citizen)
UAE Outside the home
Uganda Outside the home
UK In enclosed spaces where social distancing is not always possible (mask or cloth covering) & public transport. (Scottish government on all public transport)
USA Non-medical cloth face coverings when in public places (some state variation)
Venezuela Outside the home
Vietnam Public places
Zambia Outside the home
Zambia Outside the home

Further links















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WTF- AgeWage wins 4 nominations for UKP awards!

I got a call from a journalist friend of mine congratulating AgeWage on being nominated for a Professional Pensions UK Pensions Award.  I thought it was a wind up – but being a vain sort, I thought to see if there was any substance in this.

I googled UK Pension Awards and found this.

UKPA date

But then my heart fell, for the screen switched to this…


When you think of all the money in pensions, all the innovation – all the brilliant minds, how could a small start-up, setting out to change the world possibly be recognized to be among the best?

I sadly scrolled down , looking for the great organisations that Professional Pensions had picked as finalists, hoping that one day I’d see AgeWage’s name. And then I saw this!


i blinked, I rose from my chair and I ran whooping and hollering around the 7th Floor of my WeWork  – except I was the only person on the 7th floor. So I went back to my laptop and scrolled down and  found this


and then this


and the very last award showed this!


And I was so proud!

Thank you Professional Pensions

Thank you Professional Pensions for thinking outside the box and finalizing AgeWage four times. Let’s hope by October we’ll be able to meet in the Brewery and have a night of it.

Till then we will bask in the reflective glory of those whom we compete against and dream that one day, we will be as good as them!

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

The other way to value DB schemes- Clacher and Keating.


Ian con

Iain Clacher and Con Keating

DB scheme value Valuation – the long way round

Our blog (May 28th) calling for a bonfire of pension regulation led to a surprising amount of interest and a wide range of questions and even some requests for expansion of subjects touched on within that short piece. Given this, we will do so now, and in two further blogs.

Liabilities and assets

We will start with the relation between a corporate liability and its corresponding asset.

The identity here is one of rigid rotation (multiplication by -1) i.e. the cashflows are equal and opposite in sign, and so £1 paid to the holder of the liability is a cost of £1 to the firm.

However, the value of the asset to its holders is determined by its utility to them whereas the market price of an asset is determined by its utility to the marginal buyer.

There is no reason to believe that the company creating a liability and its holders share a common utility, and, as we shall see later, good reasons why they should not.

This means that it is inappropriate to use the market price of an asset to evaluate the cost of the liability to the company, as the bases for valuation are so clearly and fundamentally different.

This also extends to pension liabilities, and so even if the pension liability were tradeable and traded, it would be wrong to use of the market yields[i] on gilts or corporate bonds as the discount rate because the utility is different depending on perspective i.e. member vs sponsor.

The pension contract

Another key aspect of understanding this problem is the ambiguous effect of the non-negotiability of the pension contract, and the fact that pension contracts are complex and non-tradeable assets from the perspective of the member.

The terms of the pension contract may be changed, but only by a process of negotiation and agreement.

However, the pension contract may not be freely traded or even charged e.g. a member cannot sell their pension rights to a third party. Ordinarily, if an asset is traded it commands a higher price than if the same asset were to be non-tradeable i.e. liquidity has a value.

However, in the case of pension schemes, there may well be members who value the pension fund’s futurity; that is, the fact that the pension cannot be accessed until retirement without incurring punitive tax penalties.

Dangers of market prices

Another missing part of this debate is the fact that an asset may serve speculative, short-term purposes for trading.

Ignoring this means market price is therefore considered to wholly impound its future returns and their distribution, which is not true.

A consequence of the relation between an asset (the pension to the member) and corresponding liability (the sponsor’s obligation to the member) is that the symmetries of these distributions are reversed; the company’s cost/(risk) is the asset holders’ gain/(return).

Add to this the overwhelming empirical evidence that risk and return (gain and loss) are not valued (priced) in a similar manner, and the case against using market prices to value liabilities is obvious.

Using inappropriate methods can also be expected to yield paradoxical results e.g. the use of market prices to value corporate debt during the 2008/2009 financial crisis. During this time, we saw the prices of the debt of many financial institutions plummet as their viability came into question.

However, the actual obligations of these companies had not changed, and indeed in many cases had become harder to service, but this ‘valuation’ resulted in many companies reporting substantial, often multi-billion dollar, profits. The paradox is obvious.

The use of market yields therefore introduces bias and volatility into the valuation by sponsors of their pension liabilities. The exogenous nature of the market yield leads to a further problem, an absence of time continuity. The value of the liability arrived at by discounting at this rate will not equal the amount arrived at by accrual of the contributions at this rate.

This is problematic, as it can materially distort sponsor performance and as a result, corporate behaviour.

One case of this being liability driven investment.

LDI can be seen as an attempt to counter the volatility introduced by the valuation method;- and so sponsors are managing the volatility in measurement rather than underlying risk, as the contractual obligations remain unchanged. But these are hidden by a yield-based valuation approach.

Expected Return on Assets

Determining the discount rate as the expected return on assets is a method permitted by legislation. However, the amount of a company’s liabilities is independent of the way in which they are funded.

Pensions are no different.

There is no economic linkage between the amount of the pensions ultimately due and the assets held by a scheme as security for the accrued pension promise.

This is important and warrants repetition: a company’s liabilities be they pensions or otherwise do not rise or fall in amount with either actual or expected performance of the assets held to meet the promise.

There is also a question of achievability in the sense that subsequently realised returns rarely accord with assumed expected returns.

While the expected return method was discontinued for assets, the method is not entirely useless. The use of the expected return does provide an indication of the degree of scheme dependence upon the sponsor.

 Whereby, if the value of the pension assets and discounted present value of the pension liability (using the expected return on plan assets) are equal( i.e. there is no deficit), then there would be no deficit recovery calls on the sponsor at that point in time.

Likewise, if there were to be a deficit then this would show the extent to which the scheme is reliant on the sponsor to make good any shortfall via additional contributions.

There is an assumption in such an analysis however, that implies that deficits may be one, immediately funded, and two, earn the same expected return as the existing portfolio of pension fund assets.

This method is also exogenous and will introduce spurious volatility and bias, though to a lesser extent in practice than gilt or bond market approaches. It lacks time consistency, and so both methods specified in legislation are counterfactuals to the question: what is the accrued amount of sponsor liabilities?

Contractual Accrual Rate (CAR)

The problem of liability valuation at a point in time between its award and its discharge by payment is generically one of amortisation.

There are many possible schemes for amortisation e.g. straight line. Indeed, it is possible to argue that many are superior (notably those which are time invariant) to the existing methods currently in use, as they do not have the property of being time invariant.

We choose an amortisation or accrual method which is consistent with the manner in which the projected benefits actually evolve and crystalize, namely standard compound growth. We call this rate the contractual accrual rate (CAR).

In the case of a single year’s award to an individual, it is the rate at which the contribution must compound to meet the projected benefits. The projected benefits are derived using standard actuarial techniques and the contribution is a matter of record. For a scheme, the CAR is the aggregate of these across members and time.

As was noted in our previous blog, this rate is time-consistent and fundamentally invariant.

It, and the liability valuation, will only vary to the extent that experience of the factors determining the projected liabilities varies from that expected;- or those assumptions or expectations are themselves revised.

In other words, these variations are all based in real changes to the amount of the pensions promised.

The second theme to our first essay concerned the role and level of funding, which we will cover in a later blog.

However, a prerequisite for the proper level of funding is the accurate and consistent valuation of liabilities and the use of the CAR delivers that, in addition to providing true and fair values for corporate accounts.


[i] A bond yield is an alternate form of presentation of price.

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

Chris Pond and Financial inclusion

chris pond

If all the little announcements that Linked in gives us, the one that’s given me most pleasure is that Chris Pond has been promoted to Chair the Financial Inclusion Commission. For those who don’t know the Commission, this is what it has to say of itself

The Commission is an independent body of cross-party parliamentarians and policy experts which aims to make financial inclusion a national priority. It seeks to explore the measures most urgently needed to extend access to financial services to those currently excluded, and to gain support from all major UK political parties so that its recommendations may be meaningfully integrated into their election manifestos.

Words that come to mind when thinking of Chris include, ‘gentle’, ‘considered’ ‘funny’ and ‘wise’, he has empathic skills that make for inclusion and this is why Chris can also claim key roles as Chair of the Lending Standards Boar, Chair of the Equity Release council and a member of Tech Nation’s Fintech Delivery Panel as well as governing numerous charities.

Between 1993 and 2005 Chris was an MP and for a time a secretary of state in the DWP. He also spent time in the Treasury and is widely respected across parties as being on the side of the ordinary person. Inclusive, non-partisan and compassionate, he is precisely the person who we need driving policy right now.

Financial inclusion

It matters that as we go through and come through the crisis caused by the pandemic, we keep as many people solvent as we can. Our well-being is tied up with our solvency and the consequences of financial failure are typically linked to a deterioration of mental and physical health.  In extreme circumstances , as we are seeing in America, the consequences extend as far as civil strife.

Chris is someone who bridges the striving world of financial innovators with a concern for those who are marginalized by financial services. For me he represents a mentor and inspiration and I am very pleased his hand is strengthened by moving into the Commission’s Chair.



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Why partial disclosure of pension cost and charges is bad news for savers.


Historically pension costs were none of the savers’ business.

One of the things people find hardest to understand is what they’re paying for when they put money into a workplace pension.

Historically , the answer is a promise of an income paid according to a formula which lasts the rest of your life. That was the DB covenant and it holds good for those in public sector schemes and for a few people still accruing in private sector DB schemes.  In these cases all the costs of paying the promise are taken care of by the scheme itself. The only worry consumers have about costs relate to the employer’s capacity to fund the balance of costs needed to meet the promise. For this reason costs and charges have not historically been a member issue.

I suspect that many savers thought that they got a free ride when paying into a defined contribution plan. Indeed some munificent employers have historically picked up the charges of employer sponsored DC plans, as an extension of the DB pledge. But for the most part, the members of workplace pensions have been expected to pay for their own costs, the employer being on the hook only for the contribution paid into the scheme. This has contributed to the acceptance of the provision of workplace pensions as BAU for UK employers.

In the early years of workplace pensions , there was no charge cap and practices such as active member discounts allowed advisers to take a chunk out of workplace pensions through what was briefly known as consultancy charging. This practice was knocked on the head by then pensions minister Steve Webb who levied a charge cap on default funds of 0.75% pa.

This 0.75% was originally thought to include all costs (what is now known as the total cost of ownership to the saver). But the Government stepped back from this allowing some of the management costs of a workplace pension to be disclosed and some to be hidden (and impact the performance of the fund in a clandestine way).

This ‘partial disclosure’ of the costs of workplace pensions was considered pragmatic at a time when there was no proper way of reporting on the hidden charging. But lately there have been advances in reporting that mean that these hidden costs and the disclosed costs could be reported on in one single charge.

But this has been resisted by pension providers , who see that it could easily become a single charge under the existing price cap, with the provider’s margin picking up the strain of the hidden charges where in aggregate costs exceeded the cap.

But there is another confusion amongst the public about what the annual charge they pay on their fund actually pays for. Understandably, because the AMC is charged against the investment fund, it is thought of as an investment charge – the cost of managing the money.

But it is not an investment charge, most of the money raised from a workplace pension AMC doesn’t go to the fund manager but stays with the pension provider, to meet the cost of supporting the member. Sometimes the amount paid to fund managers is negligible.

We know that fund managers can manage our money at no cost to the investor, so long as the investor gives the manager rights on the investment that make the manager money. For instance, investment managers can make money by lending stock out to third parties and there are all kinds of side-deals going on that mitigate fund management expenses.

The trouble is that the more ways that fund managers find to reduce the cost of their fund managers to workplace pension providers, the more the temptation is to transfer costs onto members through hidden charges.

Full disclosure of cost and charges is only just beginning

Last week, CACEIS published a startling number

Screenshot 2020-05-30 at 17.56.26

It suggested that hidden costs are on the rise (though this may be just because CACEIS are getting better at reporting them).

The worry is that as workplace pension providers try to squeeze better deals out of fund managers, fund managers just bury more and more of their charge into the hidden charges  which – falling outside the cap, means that members end up paying more while providers pay less.

This is why vigilance amongst trustees and IGCs is so important. They should be able to see the Investment Management Agreements between the pension providers and the fund managers and check what is going into the AMC and what is being buried in hidden charges and they should be able to make sure that providers are properly disclosing all the costs of managing funds, including the costs they trigger by moving money from fund to fund (life-styling).

Who watches the watchers?

Just how much access fiduciaries like IGCs and Trustees get to these investment agreements seems to vary, I suspect the amount of close attention to the detail of these agreements also varies. The agreements tend to be long and the bits which allow hidden costs to be passed on to savers – tend to be hidden.

And IGCs and Trustees tend not to want to antagonize providers by probing too deeply into the revenue sources of the fund managers and the providers themselves.

And because the general public are often not aware of what they are actually paying for, when they pay into a workplace pension, there is very little pressure on workplace pension providers not to let the hidden costs creep up.

If the IGCs and Trustees aren’t pushing back on hidden costs, who will?

We may know the answer to this question this summer when the FCA publishes its review of IGC performance. I would like it to cover this question of cost disclosure as the FCA is the organization that watches the watchers.

What further disclosure do we need?

In the past I have pushed for proper disclosure of what pension providers are paying for fund management. This information is detailed in the Investment Management Agreement but this is subject to non disclosure agreements that prevent savers working things out for themselves.

I’ve wanted this figure to be in the public domain so that savers can see that most of the money they pay by way of AMC and other overt charges, does not pay for fund management.

It would also have the benefit of showing just how much of the cost of investment management is hidden and how much is disclosed. If CACEIS are right and the hidden costs are just over a third of the total cost, then the situation is manageable.

But look at this extract from the Fidelity IGC’s 2020 report. It shows that transaction costs for those in the Fidelity default fund are running at 0.31% pa. That is as much again as the cost to members of being in the Diversified Markets Fund.  Here the transaction costs are not 37% but 100% of the fund management cost.

Fidelity 10

I have urged the Fidelity IGC to push back on what appears to be an unacceptably high level of non-disclosed costs (the saver only gets to see this in the IGC report – which are seldom distributed to savers).

The advantage of full disclosure

Savers into workplace pensions are not good buyers, nor for the most part are employers buying workplace pensions on behalf of staff. That was the finding of the 2014 OFT report on workplace pensions and their findings remain true today.

IGCs and Trustees have the powers to escalate matters to the FCA where they see poor practice. They seldom declare they have done this in their reports and I suspect that most issues are sorted out without escalation.

But I am also sure that many trustees and IGCs are simply unaware of the problems highlighted in this blog, They may not be aware that fund managers can offer better deals (IMAs) to pension providers, without sacrificing margin, by adding extra costs to the hidden charges . They may not be aware that these hidden costs are not capped and can mean savers pay more than 0.75% for a default. Finally , they may not be aware that the choice of fund manager may be influenced by a complicity between fund manager and provider to pass costs on to members through hidden charges.

So the more disclosure IGCs and Trustees can get on IMAs the better. I have given up on being able to see these IMAs myself but I very much hope that the FCA are checking that the IGCs and GAAs they oversee, are making it their business to be very nosey indeed!

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Is there wisdom in this crowd?

Screenshot 2020-06-01 at 05.33.21

This picture was taken in a time of lockdown (May 31st). It was taken at a time when the Government advice is still to stay at home where possible. It is taken in a country that has more than 60,000 excess deaths to last year, that has probably the worst outcome from Covid-19 of any nation on the planet and I don’t understand it.

Unless we believe in mass-immunisation , an idea tried and rejected at the onset of the pandemic, our behaviour in flocking to the coast appears unwise. This is not a surreptitious dash to the family home for childcare, this is a pleasure beach this mass-congregation is an affirmation of a return to normality.

The collective madness was even worse close to this beach scene in Bournemouth when tourists found their way in thousands to Durdle Door, just the other side of the old Harry Rocks.