Real money and real people need real regulation.


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

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

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

The Regulator needs to get real

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

scams 1

which contrasts with this

Scams 2

I think you can guess where Angie is on this

scams 3.PNG

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

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

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

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

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

No hostages to fortune

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

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

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

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

Time to change the tone.

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

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

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

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Why we’re forever blowing (transfer) bubbles!




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

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

Al concludes

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

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

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

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

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

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

The Trustee’s duty of care is to the member

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

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

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

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

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

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

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

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

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

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

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

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

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

The momentum trade is hard to stop

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

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

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

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

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

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

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




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


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“Ease of use” or “value for money”?

lewis price

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

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

Rhetoric –  my definition “persuasive without sincerity”.

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

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

No vfm in wealth management

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

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

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

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

Why are workplace pensions different?

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

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

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

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

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


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

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

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

Price shoot out

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

up to 5% on the way in – £20,000

1.85% a year  – £7,400 or £617 pm

6% exit fee year one -£24,000

Slippage – no idea.

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

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

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

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

Take your pick.

Thanks Paul.






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NEST’s dirty laundry on the line!

nest debt

The NEST Debt mountain


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

Here’s how to read

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

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

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

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

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

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

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

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

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

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

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

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

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

 Is this value for money?

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

nest grant

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

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

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

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

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

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

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

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

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

NEST still on track – (just about).

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

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

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

NEST justification by Hague

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

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

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

NEST scale

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

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

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


Further reading

You can access a copy of the Robert Devereux letter to the Public Accounts Committee here.

You can read William Hague’s case to the EU for state aid for NEST here;

You can read NEST’s justification for spending all this money here;,PDF.pdf

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

NEST estimate of total costs

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

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


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


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


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

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

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


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

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

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

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

Following the Jags

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

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

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

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

Evidenced based

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

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


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

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

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

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

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

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

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Winning and losing IGCs – class of 2017!

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

IGC2017 framed

Who are the winners?

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

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

Who are the losers?

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

Favourite report?

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

What of the GAA’s?

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

What of the Master Trusts?

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

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

What about those links?

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

If you know of an insurer that has published an IGC report that we do not track, please send details, (I will be adding B&CE to the list in the next few days).


Royal London                                                   
Legal & General                                               
Scottish Widows                                              
Friends Life                                                       
Zurich Assurance                                             
Standard Life                                                    
Asset Managers
Legacy providers
Old Mutual                                                       
Abbey Life                                                        
Virgin Money                                                   
New breed SIPPs
HL Vantage                                                      
True Potential                                                  
Intelligent Money                                                      not published yet
Posted in IGC, pensions | Tagged , , , , , | 4 Comments

Are pension advice tax-exemptions washed-up?

washed up


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

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

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

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

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


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

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

This brutal demolition of process demands public protest.

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

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

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

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

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

This is no way to govern.

washed up 2

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


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Snap elections – people – and policy! #GE17

snap 2Snapping people

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

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

Get snappy!get snappy

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

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

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

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

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

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

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

Snapping policy


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

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

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


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

Snap chat

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

I wonder if she does electronic signatures.snap 3

Further reading

Royal London paper on the snap general election election-mean-for-our-pensions-steve-webb-royal-london/?amp%3Bepslanguage=en

FT article (Jo Cumbo) on the snap general election

Addendum – problems with the reading of the 2017 Finance Bill

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

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

The second reading was on 18th April with what should then have been a normal progression through the houses and Royal assent in July. See

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

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

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

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

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

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

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

You can read the original of Susan’s comments at

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

What a “strong mandate” means for pensions.


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

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

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

Opportunism or agility?

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

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

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

beeching 2

George Osborne

To the point

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

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

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

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

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

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

Will reform of pension taxation happen?

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

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

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

The triple-lock seems doomed.

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

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

A strong mandate means a swing to the right

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

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

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

I would be happy to be proved wrong!


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Meeting the Pensions Minister

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

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

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

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

A duty of care or an act of good faith?

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

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

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

The knowledge gap on workplace pensions

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

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

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

What of tomorrow?

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

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

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

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

Creating a way to compare pensions,

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

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

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

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

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

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

The state of today

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

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

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

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


Meeting the Minister

I have two objectives when meeting Richard Harrington;

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

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

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

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

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A pensions dashboard brings its own risk.

A need for pension

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

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

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

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

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

A need for enterprise

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

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

Martin Clarke 4

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

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

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

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

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

And a need for circumspection

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

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

Further reading –

Government report on last week’s tech sprint;

Daily Mail article showing examples of pensions dashboards;

Martin Clarke’s blog about pension adequacy and the state pension age;

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Slow and steady – the Zurich IGC


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

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


From the 2017 Zurich IGC

What can Zurich do?

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

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

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

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

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

Better late than never?

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

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

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

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

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

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

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

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

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

You can find the Zurich IGC report here;

IGC zurich.PNG

The Zurich IGC

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A time to be angry

royal mail

This makes me angry


I got angry yesterday…

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

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

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

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

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

Postal workers are angry

Royal Mail 4

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

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

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

The posties should be angry, very angry.

In place of strife

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

Nor will the advice of John Ralfe;

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

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

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

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

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

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

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

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

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

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

It ain’t necessarily so

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

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

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

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

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

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

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

I could (and won’t) go on.

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

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

As my friend Hilary Salt points out;

royal mail 9

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

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

Read more (and get an FT sub!)

Read about the DB closure and the strike threat here;

Read about the CWU alternative proposal here;

Read the latest news on Private Equity pre-packing pension rights into the PPF here;

Get angry!




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Ombudsman 1 – Freedom 0

pensions ombudsman

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

Mr T

There is an excellent report of the judgement here ;

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With dementia in mind.

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

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

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

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

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

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

Learning about it

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

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

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

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

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

Doing something about it

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

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

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

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

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

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

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

An inequality of opportunity?

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

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

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

An insurable event?

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

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

Fraud prevention

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

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

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

A change of mind set

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

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

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

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

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

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


Further reading

For a broad overview of the issues,  this OECD report is  a good start: .

You can see all the OECD publications on long term care here:

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


The Local Government Association 2016 State of the Nation report on social care funding:


The King’s Fund is a highly (probably the most) credible think-tank commentator on the issue:  – for their publications see: . The King’s Fund have a ‘reading list’ facility on their website us a very useful and up to date resource on the future of funding social care, here it is:


The PSSRU is the leading academic consortium that investigates social care and has produced some excellent research:


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Keith Popplewell – Yorick’s sorry tale.


Alas poor Keith .. I knew him…

When I joined Eagle Star in 1995, Keith was the  star turn, an exceptional speaker, a mine of technical information and a bon viveur, Keith was a sales director’s dream.

And like any showman, he was crying inside, I saw the vulnerability then, and loved him for it.

I am sad to hear that Keith’s business failed and that he failed his clients in a sorry way. I don’t know how pensions best practice translated into transferring life savings into Store Pods. Something went very wrong.

The 8% guaranteed return offered by Store First (through Capital Oak) is – in retrospect – the classic pension fraud. It was marketed by Keith’s Liverpool sales team at his Pension Office.  If you listen to the BBC article on Store First – you can hear how Keith Popplewell became part of a scam.

Now Keith has been publicly humiliated and can no longer practice as a financial adviser. For those scammed the punishment will cannot be harsh enough. (pace Angie Brooks).

The FCA’s judgement against Keith comes in a week when those who have invested in the Capita Oak schemes he promoted, get tax-demands from HMRC for pension liberation. Whatever sorrow I have for Keith, is tempered by my sympathy for the victims of the investments he signed-off.

I lost touch with Keith in around 2005. I would like to give him the comfort that the Keith Popplewell I remember – was quite splendid.

Keith of course is not the only casualty of the time. John Quarrell and his wife Sue have similarly fallen from their public pedestal. They too, vulnerable and generous to a fault.

Though the Freedom SIPP was not itself  fraudulent, it too became a pension nightmare. Some freedom – little pension.

Are John and Keith similarly the product of their own celebrity?

Alas poor Yorick

Hamlet takes up the skull….

Alas, poor Yorick! I knew him, Horatio: a fellow
of infinite jest, of most excellent fancy: he hath
borne me on his back a thousand times; and now, how
abhorred in my imagination it is! my gorge rims at
it. Here hung those lips that I have kissed I know
not how oft. Where be your gibes now? your
gambols? your songs? your flashes of merriment,
that were wont to set the table on a roar? Not one
now, to mock your own grinning? quite chap-fallen?

Many will read of Keith and of others and take some miserable delight that they are not like him. Though Hamlet understands that Yorick’s skull is no different than the others dug up in the graveyard – no different from how he’ll soon present his head. The mournful tone is not just for Yorick, it’s an elegy for us all.

But Yorick’s skull is different to Hamlet, it reminds him, as Keith reminds me, of a life that was once well led.


Keith’s linked in profile, sits – derelict – it reads like an epitaph

I was voted financial services personality of the year 1999 to 2001 before becoming semi-retired.

And a  reminder of happier times

Activities and Societies: Publisher of school magazine School Brass Band and concert choir School 1st XI Football

The vanity of human wishes

After putting down the skull, Hamlet’s thoughts turn to the vanity of fame. Hamlet’s tragedy is that he never sees a point to living sufficient to keep him out of harm’s way.

He dies a pointless death.

I don’t know what Keith is doing now, hopefully he finds some comfort from semi-retirement, he has a wife (cited in the case), he has kids and I  imagine he is still bringing happiness to those close to him, (for all the bad advice he has given).

Like thousands of others, Keith brought something to my job back in the nineties and no-one has done the same since. Sitting with him at the bar in the early hours, I remember his humanity, not his technical wizardry.

So – here is to you Keith Popplewell!  While I hate what became of your career, I cherish what I remember of you. Like Hamlet, I cherish the memory and mourn what has become of you.

Let’s hope that Keith can sit back and retire, let’s hope he find a little more point to life than Hamlet.

Further reading

This article from Money Marketing in 2001, gives a flavour of the affection in which Keith was held.

If you want to find out about Store First investments and the damage it and its sales team did; listen here

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Don’t blame pensions for corporate mismanagement

Pre packs.PNG

The FT has come up with some excellent research on why pensions find their way into the Pension Protection Fund. It has discovered that a substantial proportion of the so-called “pension failures” over the past ten years, resulted from sale and re-purchase arrangements (known as pre-packs).  Pre-packs exploit a loophole in the 2005 Enterprise Act which allows management to walk away from pension liabilities through corporate restructuring.

A total of £3.8bn of pension liabilities have “gone to Croydon” home of the PPF. The  haircut people take on their pensions entering the PPF is around 20%, so this amounts to a real loss to ordinary people of around £750m. Pre-packs are not crimes but they’re not victimless either.

The vilification of defined benefit pension schemes.

There has grown up a kind of thinking, inspired by management consultancies , that considers the defined benefit pension scheme a toxic threat to the balance sheet, to the P/L and to cash-flow. Extending this train of logic, pensions can be blamed for lack of investment , lack of productivity and a long-term loss of shareholder value. Since the architects of the pension schemes are several generations removed from a company’s current management and ownership, it is quite safe to blame the pension for everything,

For managers and owners who have no interest but shareholder-value, the DB pension scheme can easily become an asset to be exploited; if a corporate valuation is weighed down by a pension deficit, then transferring (dumping) the problem on someone else, immediately releases cash for the shareholders.

This is the corporate equivalent of fly-tipping. And yet it goes on under our noses (as the chart shows).

Why deficits are over-egged

It is in the interests of those for those who “de-risking” corporate balance sheets to talk up pension deficits. The propaganda war against pensions is being won by the major consultancies who bombard us every month with numbers based on the cost of winding up our pension system, because that is high on their agenda.

There is more than a hint of jealousy at play. The pensions that are paid are not being paid to the new managers and owners but to previous managers and owners (who were responsible for the architecture of the arrangements). Current managers and owners argue that they are only evening things out.

But this is to ignore those people who do not benefit from pre-packs at all, the ordinary pension scheme member who loses pension rights – at the shareholder and current management’s expense.

Put in this context, the incessant noise about pension scheme deficits is a direct attack on the rights of a generation of workers whose compensation was based on a company pension promise.

What can be done about this?

There’s no doubt that for many smaller companies, some form of de-risking of pension liabilities is right. The steps that most firms have taken- closing for new hires and now for future accruals, may well have been necessary. But what is happening now is going beyond reasonable and it must end.

As the FABI Index shows, the estimates of deficit that come from valuing pension schemes in worst-case scenarios, are wildly at odds with the valuations that take a more progressive view of the economy.

If we were to value GDP growth on the basis of gloomy pension forecasts, we would pre-pack the UK!

The first step in ensuring that DB schemes are not fly-tipped into the PPF is to make those who sponsor them (both employers and employees) aware that there are more ways to value a pension than against a risk-free discount rate.

The second step is for all interested parties, shareholders, members and trustees to align interests to ensure that no one party is allowed to dominate decision making (this is the idea behind the Pensions Regulator’s integrated risk management framework).

The final step is for pensions to be protected against the corporate vandalism, examples of which are quoted in the FT info graphic.

Turning the tide

It is really encouraging that responsible journalists are bringing this to general attention. Thanks to the FT (who I have been quite rude enough to in one week!).

There is no need to give anyone extra-powers. Gaming the PPF is an offence as is abuse of the Enterprise Act. What is needed is greater awareness, not just within government but without.

The tide will be turned when people sit back and ask – “if not pensions what?”

Dismantling the pension apparatus that made a generation secure has happened, other generations will not benefit as the baby-boomers will. That decision has been taken. But no decision has been taken on how the risk will be shared going forward.

Already we are seeing signs that the ultimate model of de-risking “pension freedoms” may be – for ordinary people – a cracked model.

There are dissenting voices (even in pensions) arguing that the pooling of collective pensions to provide long-term economic capital, should make pensions a source of productivity games (rather than the scapegoat for productivity stagnation).

The reasons that the majority of pension schemes go into the PPF is not usually bad pension management, it is poor corporate strategy and poor execution of that strategy.

Pensions are a convenient scapegoat for failures elsewhere. “Risk transfers” may look plausible in the boardroom but they impact the long-term finances of those on whom the company’s prosperity has been built. It is simply not good enough to use pensions as a trampoline for “value extraction”. A line must be drawn and not crossed and I hope that line is being drawn today.

silent night

pension miscreant


The pension research in the Financial Times, on which this article is based , can be found at

Posted in Pension Freedoms, pensions, Pensions Regulator | Tagged , , , , , , | 8 Comments

The Grand National – a race of not taking yourself too seriously!

aintree 2

Thanks to Aintree, a course that has not drunk the Cheltenham Kool-Aid, not sold its soul to corporate hospitality and kept a little sense of humour!

The final day of the Grand National Meeting was characterised by brilliant weather. Stella and I got the early train up and had the chance to walk the course. You cannot be told how fearsome the riding challenge is, till you get up close to the fences.


aintree 3

Jumps racing is still a sport for the enthusiast and the day kicked off with a winner that had been brought up in the owner’s garden. The Grand National itself was won by One for Arthur owned by a couple of battle-axes who called themselves the Golfing Widows

battle axes

and trained by Lucinda Russell with some help from Peter Scudamore.


A horse trained and owned in Scotland , ridden by a journeyman who’d been off for a month with injury. He’s rephrased “exceeding expectations” with the great

“better than  I  even thought it would be!”

Here is David Fox with his Mum and sister!


This had nothing to do with the trainers championship, let alone the Jockey Club and the infrastructure of racing. This was all about a bunch of 70,000 people having a lot of fun!

aintree 1

People to go to Aintree to have fun, they go to Cheltenham as a pilgrimage to racing’s Mecca! While Cheltenham immunises those on corporate hospitality, Aintree integrates everyone into the fun.

It was great to see , our hero Colin Tizzard and his team having a great time. He is so unpretentious about what he does and he still gives the impression of a dairy farmer who’s got lucky!

aintree 5

If I give the impression that horses come second, then forgive me – this was a great day for the horses! There were no fatalities, despite the high temperatures. Aintree took the correct decision not to parade tired horses after the National (Cloudy Bay in mind). We had seen the parade of champions before the racing and it was great to see so many previous winners in fine form.

Aintree 6

I can’t remember a better day’s racing. Stella and I had so much fun! We got home near midnight and watched the whole day again on the TV.

Thank goodness we can still do these great things well!



You can watch the 2017 Grand National here;

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Confusion reigns at the Royal London IGC

In general IGC reports and press releases don’t mix. We’ve had two reports which have been advertised to the press and both fail to impress me. We are not asking IGCs to sell their workplace pensions, or even themselves, we’re asking for a clear view of what is going on.

I like Phil (not Philip) Green and I like his team, I like the way they brought on a new member from among the policyholders and I’ve enjoyed my meetings with members last year.

But having spent much of the last two days , trying to get my head round the report, I am still confused about what is really going on.

I’d like the IGC to focus more on its readers and less on its press-coverage!

Let’s start with value for money

Royal London’s analysis of the costs incurred in running its funds is weird.
Royal London

I am afraid I don’t recognise any of the columns. The method for calculation is obscure and though the eventual numbers are close to those of L&G, they don’t seem to have been arrived at with the help of the FCA’s slippage methodology.

But if I’m confused by this, I’m positively scared by the pounds shilling and pence calculations which suggest that for every £30,000 I have with Royal London, I appear to be losing £25 (as opposed to an unexplained TER (??) which loses me £204).


Royal London 3

The incidental costs of running the fund are compared with a TER which is unexplained and we are then presented with investment growth numbers which presumably relate to performance tables published a little later on.]

Royal London 2

the performance figures suggest that the funds are generally underperforming but against an undisclosed benchmark.

I am left totally dazed by a lot of numbers and research , none of which seems to add up to a value for money assessment! I am left asking the question

How do we make sense of this?

I suppose the conclusion I should be drawing is that I should be speaking with an IFA. But it would seem that Royal London are keen we consumers understand these things for ourselves.

For instance, the IGC tells us that Royal London has developed a do it yourself transfer service used by policyholders wanting to bring their pots together,  this service (used by 4,000 policyholders)  is available to those whose advisers have confirmed that “they don’t want to be involved”.

This confuses me as earlier in the report we are told that

“Royal London continues to attract new workplace pension business solely through corporate and financial advisers and does not offer its services direct to employers.”

There is this ongoing dialectic within the report between the need to provide services directly to the customer – and a need to keep the adviser in the loop.

My experience is that the needs of the employer, primarily to have a direct interface with Royal London in the most efficient way possible, aren’t being addressed. The API interfaces being developed between payroll provider and the intermediaries such as pensionsync have passed Royal London by.

The employer’s needs are simply ignored in the IGC report, despite the bulk of the report concerning itself with workplace pensions.

Just who is Royal London trying to please?

Confusing tone

I am confused by who Royal London sees as its customers and I’m confused by the charts produced by Royal London’s IGC. I am also confused by the tone of the report which at times appears to be eulogistic about Royal London. This is typical of its style

Royal london 5

This is not measured and it doesn’t inspire confidence. The profit share (which is adding 0.18% to returns this year is a great thing, but it is generated from excess profits after the payment of business expenses. There is no analysis of whether Royal London is an efficient business, of executive remuneration or benchmarking of the costs levied on employers and policyholders in the first place.

I fear that the lack of investment in new technology will make the Royal London proposition increasingly uncompetitive against its rivals (in terms of the employer interface). I wonder to what extent the advisers (through whom Royal London’s workplace pensions are established , help in the maintenance of the schemes). In short I am quite confused as to the sustainability of the workplace pension business and the profit share.

Finally there is the question of effectiveness

Royal London have got Professional Pensions to publish coverage of their IGC report with the headline

Royal London IGC: Charges down by £15m and transaction costs are fair value.

I have no doubt that Royal London have cut out a lot of dead wood from their legacy books (insurers such as the co-op). A £15m write off in charges is impressive.

I’ve been through the report a few times now but I cannot see where the £15m reduction in charges is talked about.

As with so much else in the report I find I want to believe but find my belief suspended as I try to make sense of the statements.

If the IGC has been effective, it cannot prove it using the rambling style of this report.

As a final point, it is not effective to publish a report in April , (signed off by the chair on March 2nd) and call the report the 2016 report. It actually makes it hard to search for and confusing to file!

Confusion reigns!

This report is simply not focussed, it seems to be trying to please everyone but is a pain in the backside to read. It is often confusing to read and at no point did I get a coherent sense of whether Royal London were doing a good or bad job.

I really would like to give this report a better score, as I would give it an A+ for effort, but I can’t.

For tone I give it a red– it reads like a peon of praise for its provider and though enthusiastic throughout, is full of undigested Royal London jargon. As with last year’s report it does not read as a critique.

For its work towards value for money I give it a green, clearly there has been a lot of progress since last year and it is good to see a real attempt to make the numbers real for members. I suspect that once they have a proper method of doing things (from the FCA), the IGC will do great things!

For its effectiveness, I give the IGC an orange, if the report weren’t so hard to read, I suspect i could have given it more. But there are important areas of governance that seem to have been by-passed. There is no statement on ESG and precious little scrutiny of Royal London’s workplace strategy – at least from the perspective of the workplace!

Royal London are an anomaly, not just as the last significant mutual , but as an organisation that is dependent for distribution on IFAs, I’d like to see next year’s report look at how this strategy impacts the member and the employer.

It’s a quirky, thought provoking and often quite brave, but ultimately this is a bit of a mess and I suspect its most important test – it is very hard to read!

Further reading

The IGC report can be found here;

The Professional Pensions coverage of the report can be found here;

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FT seminar sparks pension transfer fury!

Last night the FT put on a seminar on final salary pension or – more exactly – how to slip the noose of a pension for life for pension freedoms.

FT journos have been willy-waggling their new found pensions wealth . Martin Woolf has transferred and so has Baroness Altmann, Clear Barrett and Merry Somerset Webb bemoan their lack of defined benefits to liberate.

Yesterday’s room was full of baby-boomers split between those with bulging DC pots, those worrying whether to press the button and a hard-core of DB faithful.

The debate was not particularly balanced. Ros Altmann claimed “Brexit had sent CETVs sky-rocketing”. This is a partial truth, CETVs are calculated using  scheme specific discount rates; where the scheme has moved to invest in gilts, the discount rate was vulnerable to fluctuations in gilt rates and there was a Brexit bonanza, for schemes invested in a mix of growth and matching assets, there has not been a CETV bonanza.

This subtlety wasn’t picked up in the ensuing debate. Indeed Chris Darbyshire of Seven Investment Management told the audience their transfer values were calculated using the risk-free rate, which is just wrong. Darbyshire went on to describe his wealth management model, which included an 8% return on assets – this didn’t encourage one delegate.





It got worse

Worse was to follow with Altmann claiming that in ten years time we could not be relying on the pension increases we (DB pensioners) are currently enjoying. Luckily for me I’d spotted top Mercer actuary Mike (Monckman) Harrison in the room and held my fire!

Mike didn’t – making it quite clear that there is no plan within Government to reduce indexation on existing benefits, other than extreme distress (where schemes join the PPF). .

It is odd (and disturbing) that our former Pension Minister is now arguing that pension freedoms are a way to avoid non-payment of DB promises. The argument used by Altmann echoes the arguments used by the scammers. This kind of talk is sensationalist, scare-mongering and irresponsible.

A very unbalanced debate

The debate, such as it was, pitted Ros Altmann and Chris Darbyshire against Stephanie Hawthorne, (about to become ex-editor of Pensions World). Stephanie did a pretty good job of arguing to stick with your DB pension but she was given too little support from Chair Claer Barrett.

Stephanie was presented as a relic (which is what  Pensions World – which closes next week- is about to be!). Could the FT have chosen a more poignant symbol of the passing of the baton?

There are plenty of great advocates for DB who would have stood beside Stephanie, I wished Mike Harrison, or Andy Young, or Hilary Salt or Con Keating had a place at the table. But the bases had been loaded.

And since there was no-one who actually knew the rules behind transfer values, we spent much of the time talking about the wonders of wealth management, multi-asset funds and the happy lot of the fund manager managing his own wealth.

Where concern was shown, it was for the ad-valorem fees charged by advisers. Again there was no proper debate about why adviser charges are linked to the size of transfers though it’s pretty obvious that the biggest overhead an adviser has is his Professional Indemnity Premium (which is ad valorem the CETV). Chris Darbyshire said he begrudged paying an adviser but by that time he’d already shown he didn’t understand what his CETV was valued at (certainly not the risk-free rate).

The reason that insurers charge such a premium to insure transfer advice is that they trust no-one (not Government, advisers or those seeking the transfers). On the evidence of what I saw last night, they are right.

The speculative and the specious

There were plenty of advisers in the room and I wondered how many of them really knew the value of the DB benefit.

John Mathers, who sat beside me, demonstrated a greater understanding of tax strategy than the panel. He showed me a list of 11 tax treatments of the pension crystallisation event since the introduction of the annual and lifetime allowance. Ros Altmann’s arguments that pension freedoms were a means to pass wealth across generations sounded speculative if not specious.

Ros Altmann talked down the value of an indexed income stream as inappropriate for a generation facing long-term care obligations. These obligations are nothing new but veteran journalist John Lee was dragged into the debate as someone who’s retirement strategy was quoted as building up a multi-million war-chest to keep him and his wife in a top care home.

As the debate drifted into the “How to Spend it” territory of FT’s Weekend, I wondered whether I was inhabiting a parallel universe. Not only have I failed to pick up on the Brexit Bonanza, I actually started drawing my pension in November 2016, at exactly the point when the “guilt-free rate” was highest (pun intended). Not only did I not cash out my pension, I did not take my tax free cash. I want a certain income for the rest of my life.

There is nothing speculative or specious about my pension , I know what I’m getting, when I’m getting and I know my payments will last as long as me.

70% of those asked by Aon in their recent retirement survey said they wanted a certain income for the rest of their life.

The one thing you know what you are getting from a defined benefit scheme is a defined benefit, nothing – not investment returns, not sequential risk, not tax and certainly not the arguments around LTC,tax and longevity gave me any encouragement that those exercising freedoms had a plan,

Dr Beeching and his witless accomplices

George Osborne has done for Pensions what Beeching did for railways.

He has ripped up the tracks and trusted that the future will bring an adequate replacement. Ros Altman finished the job by putting a stop to the collective decumulation regulations resulting from her predecessor’s work on Defined Ambition.

She told us the market would offer us a replacement for DB and DA,

The replacement on offer (according to my FT goody-bag) was the chance to discover my future today with Seven investment management.

The Wealth Management industry does not have the answers for the vast majority of people who cannot afford its fees, or the advisory fees that come with it. It has no answer to longevity, no insurance against long-term care and is about as much use as rural bus services.

What ordinary people need is a proper debate on pension transfers based in fact not prejudice, which looks at the value of the benefits lost and the cost of replacing them. This was not that debate.

Ros Altmann has since published her thoughts on transferring out of DD schemes – you can read them here;

Posted in pensions | 6 Comments

Fund cost disclosure, arrived on Friday – and it’s here to stay. L&G IGC report- 2017


We are now well in to the IGC reporting season, where Independent Governance Committees tell us how well the insurers they oversee are behaving.

I had had low expectations going into this round, 11 of the key insurers had spent much of the year collecting feedback from 15,000 of their members telling them (what they already knew), that people wanted a good investment return and good information along the way.

I had assumed that this would take care of the “value for money” debate for another year and that we’d have to await the final report from the FCA on how we established value for money in investment terms.

That was until I read the Legal and General IGC report, which is the game-changer we needed. The breakthrough seems small, the publication of transaction costs for a handful of passive funds used within its Worksave Pension. But L&G have let a very important rabbit out of the hat and the implication for funds governance (let alone DC governance) cannot be underestimated.

Why L&G’s publication of fund transaction costs is so important

  1. Legal and General aren’t any old fund manager, they are Britain’s biggest and one of the largest managers (by assets under management) in the world.
  2. L&G’s funds aren’t just inside the L&G Worksave pension, they are in many rival propositions including Smart, Bluesky and even NEST.
  3. The costs are much higher than experts had anticipated and are material to the performance of the funds.]
  4. This means hidden costs must form part of a value for money assessment of investments.
  5. While L&G’s charging structure means that the impact of hidden costs keeps L&G compliant with the charge cap, those providers using similar funds and with an existing AMC of around 0.75% would become uncompliant if hidden costs were included in the cap.

L&G have just thrown a unpinned hand grenade into the fish-pond.

The reporting of the value for money benchmarking carried out by IGCs had – until this point – been feeble. The results of the NMG feedback was that all providers were seen as much of a muchness by members. Even so, the providers banned the IGCs from using the results to show that their provider was giving more or less value than a competitor.

Some work on transaction costs had been done by Scottish Widows, Phoenix (and no doubt others), but to date we had only had generalised assurances that the scale of transaction costs was insufficient to ring alarms. These hidden costs were well on the way to being absorbed into some general value for money score which could be published in April 2018.

This would have kept awkward questions from DC members of fund managers with high hidden costs at bay.

Since many of these funds are used by defined benefit schemes, it would have kept awkward questions from institutional trustees and consultants at bay too.

Most importantly of all, it would have made it very easy for the Regulator to ignore hidden costs in the DC default charge cap (which is under debate as part of the 2017 auto-enrolment review.

Had L&G not gone and published these hidden charges, everything might have been kept under the Investment Association’s hat and the fund managers, insurers and commercial master-trust’s margins would have been maintained.

Pandora’s box

When Pandora opened her box, winds flew out that caused chaos in the Mediterranean for years. No doubt the funds industry will turn on L&G and point this out!

For we now know, not just that hidden charges exist, but they can be quite high and that they are unpredictable. It will be impossible, going forward, to ignore hidden charges in any thorough performance report.

Those charges will need to be justified on a value for money basis and eventually we will want to report on those hidden charges as part of annual governance reports, manager selections and compliance reviews.

The lid is off, it cannot be replaced.

Since L&G have published, the onus is now on the rest of the IGCs to publish too.

For L&G DC investors paying 0.13% for the multi-asset fund (MAF) , the news that they are paying 0.06% additionally amounts to a 50% increase in yield-drag.  The numbers are quite different for equity funds prompting many of us to ask whether we want to use MAF as our default.

We are now in the fortunate position to have this debate. The same debate cannot be had where the information is not on the table.

We should remember that this is about our money, not about some fund that pays defined benefits which is paid for by an employer, the risk for a DC investor of over-paying in costs and charges falls firmly at his or her door.

Many of us have campaigned for years for the right to know what it is we are paying for the management of our money and now – at least with L&G- we know. The lid is off- it cannot be replaced.

I now want to see the table below re-created by every IGC so that we can compare what we are really paying for our workplace pensions not just at L&G but elsewhere. And if we cannot have this information, I would like to know why not!

L&G Costs

For its work on Value for money I give this report a green

For its effectiveness I give this report a green

For its tone I give this report an orange

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L&G’s IGC goes public on hidden costs


It’s unfair on a very good IGC report that I focus on its breakthrough feature, but the decision of the IGC to publish the full cost of the funds used within L&G’s defaults needs to be given the headline news.

Here is how the news is reported.

L&G CostsThe critical numbers (the ones that have never before been put in the public domain) are the transaction costs which range from as little as 0.01% for the L&G Cash Fund to as much as 0.08% for the multi-asset fund (MAF). The “best endeavours” of the L&G actuaries reduce the average cost of MAF to 0.6% as it is as likely to see costs of 0.4% as 0.8%.

There is a lot going on in this table and I have written to the IGC for clarification on numbers I don’t understand (the reducing Admin and fund charge in life styling). I am not sure if the costs of reinsurance and of the lifestyle transactions (which could be material) are included.

But the central number to take away is that the cost of MAF (which is the main default fund) is not 0.13% but on average 0.19% and the total cost of ownership for the typical Worksave Pension Plan member is 0.56% not 0.50%.

This 12% increase in published costs and charges is not unique to L&G. It will be a feature of all Workplace pensions and I suspect that L&G’s disclosed figure will turn out to be at the low-end of the range.

The publication of this number is likely to cause a great deal of anger at the Investment Association who have been lobbying for any cost disclosure to be conditional on it being at the discretion of the workplace pension provider, how it is displayed.

It of course buries once and for all the myth that hidden charges are (like the Loch Ness Monster) oft talked about but never seen.

And finally it buries the myth that passive investing is not a free lunch. If MAF is incurring costs at the top of the range, those costs are more than 50% again of the stated management charge we had previously assumed was “what the fund cost us”.

From my discussions with the MAF fund manager, I understand these extra costs are mainly incurred because the fund is growing so fast that it cannot lay-off its costs by crossing trades but needs to transact on its own behalf. MAF also incurs higher costs associated with the spreads on bond purchases;( 40%+ of MAF is invested in bonds) ; this explains why costs are higher in MAF than in the similarly successful UK Equity Fund (where costs at 0.2% are two thirds lower).

Why each basis point matters

If anyone thinks this is of academic interest, they should consider my position (I am not putting myself under an NDA!). Until recently I had £400k in MAF which I transferred to the equity tracker, not out of disappointment with MAF but because I couldn’t see the bond holding working in my favour and because I had taken a long-term decision (5 years +) not to drawdown from my fund.

I took the decision with imperfect information (I didn’t know of the cost differential mentioned above). But cost was not the driver, I saw value for me in equities. The information on costs would have made my decision easier.

In taking decisions with our money, surely we should be allowed to fully understand the cost of the funds we choose as well as the value they offer. At a personal level, I am pleased to know that my new fund is delivering me closer to a gross return.

But what can the IGC itself make of this information?

The big question that the IGC must ask in 2018 is whether MAF offers value for the extra money it costs. Not only is MAF more expensive to run, but it has a higher management charge than L&G’s major market passive equity funds. All in, the quantum of value that MAF must add can be quantified as around 0.07% pa relative to the equity alternative.

The L&G IGC did not ask this question this year, but I hope they do next year. The MAF team are earning L&G a minimum 0.13% of £4.5bn


and incurring half as much again in costs. Accountability is everything! Now at last we have the numbers against which a Vfm evaluation can be made!

I consider the decision of the IGC to publish these numbers as they have done as heroic. It could only happen where the provider is allowing the IGC to be genuinely independent and to be acting in the interests of the member not the insurer. By extension, I consider L&G to have behaved impeccably in providing the information and not preventing its publication.

Highlights from the rest of the report

The report itself is good. L&G’s IGC has spent much of the year without a Chair (Paul Trickett jumping ship to Aviva Investors in the Autumn). The new chair will be Dermot Courtier but this report’s the work of Steve Carrodus and his colleagues. The towering work of Tony Filbin in ensuring the IGC never lost its member focus needs to be acknowledged and fully recognised.

I’m pleased to see that the Chair reports on Environmental Social and Governance (ESG)issues (I had criticised it for not doing so last years). I appreciated the photograph of a hamburger shaped bicycle bell – ESG can be too po-faced! During the year, the IGC invited members (me included) to a talk on ESG and very good it was too.

And a few moans

There are less good areas of the Report. The money spent on NMG’s consumer research seems to have produced no special insights for the IGC, merely giving an undifferentiated overview of what people value from their pension. I have commented on this elsewhere, I hope that the IGC does not feel compelled to throw money at such vacuous projects in future.

I am not particularly impressed by the IGCs work with the insurer on at retirement options. The Worksave pension plan is not offering proper freedoms and the modelling tools available to those in the freedom zone are pretty rubbish. This is an area that L&G should be working harder on and I’d have liked to see that reflected in the report, which lacked some of last year’s passion!

I was not wholly convinced that the IGC had won much over the year for legacy pensioners (that had not been required by law). Today (April 1st) is the day when the exit penalties on legacy products are reduced to 1% for those over 55. Some concessions for those in ill-health and under 55 have been granted but L&G’s finance team seem to have successfully batted the IGC back on their more ambitious demand for an extension of the 1%  cap to all legacy pensions

As for the bespoke default investment options put in place by advisers, I am far from convinced that the IGCs have got the problem sorted. I’d like to see a “review or retire” demand on those who set these up so that members are not left stranded in inappropriate defaults.

Keep it up in 2017-18!

Despite these minor moans, I really enjoyed reading the IGC report and will give it a green for its tone, which was just about right. I am still not sure the IGC is on top of the life company on legacy but for dogged tenacity in the face of a big beast, I am giving them a green for effectiveness. When it comes to progress on defining whether members get Value for Money, this is a real breakthrough report and deserves every pixel of its green rating.

L&G have been at the forefront of workplace pension governance for the past five years and this report is its most remarkable achievement to date.



you can read the original of the 2017 IGC report here;

Posted in advice gap, governance, pensions | Tagged , , , , , , | Leave a comment

Why employers still need DC advisers – even with collective governance!

investment consultant 3

To my surprise and mortification, I have been contacted by a group of DC pension consultants complaining that a recent blog denigrates their work with smaller employers helping them get the most out of their workplace pensions.

A big fat sorry – we need pension committees and DC consultants!

It wasn’t my intention to poo-poo “DC governance in the workplace”, but if that was the impression I gave, I apologise! Blogs need to get it right first time!

The blog in question suggested that advisers would be better off using the IGC’s agenda and focussing on what eventually will become a Value for Money score as an estimate of the worth of the workplace pension.

What was contentious was my estimate that only the very largest employers have sufficient clout to make meaningful changes to the way a workplace pension provider operates. I went further and suggested that consultants who try to set up scheme specific defaults for clients without the covenant to maintain and nurture the default, are doing more harm than good.

What I did not mean to imply is that an employer has no business being involved in the management of its own DC plan- as it members of staff, nor that consultants cannot add considerable value working with an employer specific pension governance committee.

What I have noticed is that the terms of reference for many of these committees are overly ambitious and/or wrongly focussed. Instead of measuring service standards, trying to guess the yield drag of the scheme’s default fund and replicating work being done at the IGC/ Master-trustee level, employer’s should be gauging the level of engagement at staff/member level.

There are some obvious things to look at;-

  • opt-out levels
  • voluntary contribution rates
  • awareness of IHT/AA and LTA issues
  • use of Pension Wise
  • level of cash-out v drawdown v annuitisation
  • use of advice at retirement.

There may be some more obscure issues that can be explored where share-save schemes are available, or where salary/bonus sacrifice facilities are in place. Where employers use a financial education program, whether designed internally or run with the help of a consultant, the of that program becomes part of the terms of reference for a pensions committee.

The big dividend of the IGCs and the Master-trusts is the capacity smaller companies get (for free) in terms of scheme governance.  Recent conversations at everything from client meetings to conferences and Pension PlayPen lunches suggest that consultants are slow to rely on the IGCs and the trustees of the master-trust.

Instead of feeding back to the IGCs, they all too often ignore them. Such was the case with a group of employers I spoke with recently who were using consultants to help them monitor the performance of their GPPs but had no idea that this work was being done collectively by their provider’s  IGCs.

Too many employers and not enough advice = poor governance

investment consultant 2

The work of benchmarking and performance measurement needed to help 1.5m employers with workplace pensions have a clear idea of value for money, needs collective performance measurement , value-benchmarking and the kind of forensic accountancy of  costs and charges that can only be carried out once!

The majority of the employer based pension committees I have worked with, have not changed their terms of reference to take into account the collective governance of the IGCs and Master Trusts. As most of these committees are run by advisers, I guess I am criticising advisers for not letting go these functions (which may be where the DC consultants were getting cross).

But I am sure that when we sit down and discuss this (I hope to meet with them), we will find much common ground. For all the work that is done on the workplace pension product itself, the missing ingredient to making a workplace pension “work” is the voluntary contribution level.

To some extent, the contribution level will increase if the staff/members consider that the workplace pension is worth investing in and the pension committee reserves the right to press the nuclear option and change providers. But in the vast majority of cases, changing providers should only happen as a last resort, it should not be high on the pension committee’s agenda.

To a much greater extent, the contribution level will increase when people see that the syphoning off of net disposable income into long-term savings is a good thing to do. The pros and cons of spending on retirement/housing/debt/enjoyment need to be discussed and where better to discuss them than at work. Work is boring, money is boring – there is a synergy there.

In my view , the work of the Pension Committee should be focussed 80% on the adequacy of savings level and 20% on the Workplace Pension as the means of saving. The proportion may be higher or lower but it is in that order of things.

Currently I see DC consultancy too focussed on the product and not focussed enough on the risks of the product not getting properly used. The modern day pension governance committee should be talking with staff, not just once a year through a report, but regularly through polls, surveys and the kind of interaction you would expect from someone who is taking a big slug of your salary.

Apologies again

So I’m really sorry to have given the impression that DC consultants and employer established pension committees are of no value. That wasn’t the intention at all. Their value is 80% in getting the workforce to use the workplace pension and 20% in making sure the pension is meeting the needs of the staff.

Where I take issue with DC consultants is that they have yet to adapt to the new conditions of group personal pension – with IGCs and of occupational schemes – with master-trusts. The very largest employers may get value from running their own trust, but I think I’m right in saying that bar is probably set at 10,000 employees. Below that – it’s the IGCs and the master-trustees who should be doing the heavy-lifting on governance, and the pension committees and DC consultants, who should be focussing on getting the GPPs and master-trusts – properly used.

investment consultants 2




How small employers can get pension smart without really trying.

This article has a sister.

For many very small employers, it is not cost efficient for pension advisers to provide help directly. These employers will depend on accountants or their payroll function.  For them the IGC and master trust chair statements are of critical importance.

I am reviewing this year’s crop of reports, if you have come across IGC statements not covered on this blog, please send me the link or the PDF to

Making sure these statement are up to the mark is important!

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

Family matters; Rio and bereavement.


Rio Ferdinand


These past few days I have been on holiday with my son and brothers in Central Scotland. It’s been a time to play golf, walk the hills and get together in the evening – as adults.

Last night we turned on the goggle box at 9pm to watch Rio Ferdinand’s struggle to be both father and mother to his children. It was a delicate subject and it was managed with extreme sensitivity by the BBC. Rio and his family had lost a mother to breast cancer at a time when Rio was facing the end of his career as a professional footballer – but still the celebrity (7.8m twitter followers).

The program focussed on the problems a Dad has finding a language to talk about bereavement. In the end , memories were written or drawn on scraps of paper and dropped into a big Coca-Cola shaped bottle. The detail (like the colour of the mother’s dress) were saved this way.

These memories of our families aren’t usually so hard, death spares most of us. Rio’s anger was at the randomness with which he had been chosen. And yet, I suspect that by allowing this documentary to be made, and allowing us to see straight to his heart, he has won the admiration of a nation.

Family matters; it makes sense of the randomness. With my brothers and my son, I sat spell-bound as Rio worked through his anger, frustration and sorrow and came out the other side. He had the help of others, but no more help than you might expect. Death made no special rules for him.

Most families I know, think themselves dysfunctional; we tend to focus on where we lose it and not on what draws us together. Our family has a matriarch and patriarch who – though no longer in charge- are still the moral touchstones. There is certainty in the ties that bind families together and it’s at times of hardship (as Rio found) that those ties bind us closest.

As we soldier on, striving for self-sufficiency, embracing personal empowerment, we can lose touch with these deep and strong ties on which we can rely. For no matter how much we abuse them, the familial blessing remains.

There are a lot of people reading this blog who have fallen out with close family. Girls and guys, think about it. Is it really worth the angst? We only have one go at this and Rio’s beautiful documentary reminded me that family makes getting through it a lot easier.

If you are reading this and are losing family or have just lost a close one, take comfort in Rio’s excellent film which can be found here;

Posted in pensions | 1 Comment

Auto-protection from an autodidact (the joy of Johnson).

michael johnson

One of the joys of Michael Johnson’s 40 or so papers on pensions is that you never know what to expect next. Johnson deliberately sets himself apart from the industry to rail at it. He is at his best when dissenting and when he is buried, I hope he finds his way to Bunhill Fields burial ground to lie alongside other those other  non-conformists  Blake , Defoe and Bunyan!

But i come to praise Johnson, not to bury him; I wish him a long and happy life and I hope he will produce many more papers like the wonderful  “Auto-Protection, auto-drawdown at 55, auto-annuitisation at 80”.

There is of course nothing new in thisconcept, it was pioneered by David Hutchins in developing the Alliance Bernstein Retirement Bridge product that sits within many of the master-trusts we use for workplace pensions. It is the solution put forward by NEST to provide its pensioners with a way to spend their savings and it’s the idea that the Cooper report puts forward to save Australians from destitution once they’ve blown their “super”.

As Johnson points out, the idea tips its hat to the paternalists on the left and to the freedom-seekers on the right and it requires little intervention from Government, for we are already there! This might sound like me criticising Johnson for stating the bleeding obvious but the paper accords to Pope’s definition of wit

“true wit is nature to best advantage dressed, what oft was thought but ne’er so well expressed”

Weirdly Johnson is proving a “pension conformist”.

Try as he might, Johnson cannot break away from the pension conventions that have grown up in Britain since the canny Scots initiated provident schemes in the 18th century.

Johnson concludes that from 55, we are on our own, illustrating this with an amusing graphic (well I laughed).


Johnson quotes Warren Buffet’s self-help solution for cliff-jumpers, to invest savings 90% in the S&P500 and 10% in cash and drawdown from cash only in times of equity crisis. This seems utterly reasonable so long as you have a reasonable knowledge of financial markets (as Buffet’s followers seem to have).

But Johnson recognises that people will not choose Buffet’s solution, so he suggests that it is chosen for them (with the substitution of DGFs for the S&P500 and a new cliff-edge at 80 where real assets are swapped for gilts and investment returns swapped for a guaranteed annuity).

The Johnson solution is straight out of the insurance company handbook and is hopeless, but that is the charm of Johnson, he never lets detail get in the way of a good theory and a market solution is an easy short-cut.

How pensions are paid (is not like this)

A very great amount of money is paid out as pensions in the UK. Johnson has not yet made the leap to understanding what it is to be a pensioner, but in financial terms, it is the reliance on a regular stream of payments to meet outgoings. Evidence that Johnson isn’t quite there yet can be found in his paper. He argues that a percentage of the pension pot should be earmarked for drawdown each year and perhaps paid monthly from 55.

Although Johnson hopes that the auto-drawdown process would be moved back to 60 asap, he is still arguing for a tipping point at least 7 and currently 12 years below my SRA and I am 55. Were I to draw any income from my DC pot right now, I would reduce my money purchase annual allowance to well under half my current annual contribution to savings.

This may appear a trivial point in the overall scheme of things, but it reflects a failure on Johnson’s part to engage with the psychology of the thin. Once you start drawing on your retirement savings, you move from save to spend, and for most of us, that financial watershed needs to be at least a decade if not two decades later than our 55th birthday.

What’s more, when we start drawing on our savings, we want a replacement income to what we’ve received when at work- and we’re paid monthly or weekly. Annual withdrawals have no meaning to the average worker, the afterthought that these might be paid monthly is the thinking of a man who has been living from capital for some time.

Johnson is still struggling with collective pensions (but getting there)

One of the bizarre assertions in the body of the paper is the assumption that the individual guaranteed lifetime annuity is what people talk are describing when asked what they want from their DC pot.

Johnson quotes research from Aon and others which confirms that 70% of us when asked what we want at retirement say an “inflation-protected secure income till death”. But this does not describe an annuity, at least not one bought in the UK recently. Only a tiny proportion of annuities bought in the UK over the past 15 years have been inflation protected. What people are asking for is what they get from occupational defined benefit schemes and the state pension.

Johnson actually states that

“lifetime annuities , in particular, possess a unique advantage; as insurance against longevity, they have no competition”

this is of course bunkum, as every state or DB pensioner knows, Johnson doesn’t know what it is to be a pensioner, his thinking is solipsistic and born out of his auto didacticism.

Never the less, there are germs of understanding of how a collective solution to the problems of longevity, at least in the recognition that it might be cheaper to buy-out cohorts of 80 year olds using a bulk-annuity.

Johnson is getting there.

Nearly there Michael.

The auto-didact is the person who considers himself an expert through his own study. Johnson gets to his conclusions on his own, he will not be taught.

The joy of reading his papers is seeing him struggle to the bottom of the ladder and watching others willing him to step up and join them.

At the top of the ladder which Johnson is now climbing are eminent thinkers such as the 70% of the population who have already worked out what they want.

Now Johnson just has to join them!

Michael Johnson’s paper on auto-protection can be found here;

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Who’s kidding whom – on DC pension governance?

time bomb

I was “privileged” to spend a whole day with one of the many employer groups we have in Britain.  This meeting brought together Directors (especially FDs and Heads of HR) of  Research and Technology organisations. When I say privileged – I mean it!

This was a paternalistic group with a history of making high quality DB provision, and there had clearly been benchmarking of contribution rates so that most employees working for an RTO in the UK can expect a total DC contribution well above the national average. Partly this is the fall-out from  DB Schemes – where employers negotiated with staff a Defined Contribution Rate designed to be financially equivalent (to company cash flow) to what had gone before.

Good governance of the DC scheme was seen, by many in the room, as clearly a matter over which the employer should take an interest, contrasting the position with the amount of governance effort expended on the now closed DB Scheme.


Do employers have a fiduciary duty of care to staff?

The session looked at this big question from seven different angles.

  1. Does an employer have a duty of care to ensure the DC scheme is suitable for its staff?
  2. How much should an employer be contributing – what is the benchmark?
  3. What obligations are there on an employer to provide workplace pension governance?
  4. What feedback is the panel getting from members of their workplace pension
  5. Is auto-enrolment working? Are there snags?
  6. Does the panel feel confident their staff are getting value for money?
  7. What are Independent Governance Committees and are they any help?


One driver for wanting to do the right thing for the DC contributors was awkwardness engendered by there being “haves” and “have nots”.

time bomb 2

Another driver was peer pressure, there had clearly been benchmarking of contribution rates so that most employees working for an RTO in the UK can expect a total DC contribution in excess of 10%. (well above the national average). Part of this is the fall-out from DB – where employers negotiated with staff a Defined Contribution Rate designed to be financially equivalent (to company cash flow) to what had gone before.

Good governance of the DC scheme was seen, by many in the room, as one way of both assuaging guilt and managing the manifest inequality between those accruing DB benefits and those getting a DC scheme.

Concern about employer specific investment defaults

But when we turned to what could be done to make outcomes better, the room was split. The conventional view – derived from consultants- was that the employer could improve on the default designed by the pension provider. One employer had gone so far as to poll staff about their intentions when they retired (e.g. annuity v drawdown v cash). But, the results had been inconclusive. As the IGCs are finding out, ask people who don’t know , what they want to do, and you get no further.

Other employers admitted that while they had started out with employer specific defaults, these had not been reviewed since the introduction of pension freedoms and there was concern that these employers were driving staff down a road called annuity when the staff had other destinations in mind.

This is a problem picked up by both Standard Life and Prudential’s IGC reports this year (the two I’ve read so far this round). The cost of maintaining these defaults (principally in advisory fees) is not sustainable and these defaults are looking less and less fit for purpose. These bespoke defaults are becoming an embarrassment.

Employers are proud of their pension engagement programs.

Where employers were getting results was in the day to day feedback systems they were putting in place with staff. One employer said that the cost of running a social media program where the staff were able to talk about the workplace pension had been a good investment.  Clearly it could measure outcomes both in member satisfaction and in terms of usage of the workplace pension (enquiries and increased contributions).

But they struggle with their DC governance

But feedback cannot be properly called governance – at least not of the workplace pension. Infact, the feedback from the room was embarrassment

“what can we do?”

asked one finance director.

Value for money?

There was embarrassment when I asked whether employers felt they were getting value for money. These are scientists used to measuring things and I could see that a simple benchmark of the AMC was not considered all that Vfm is about.

The embarrassment was at many levels. Could employers get a good idea from their consultants? One doubted that a consultant – who owned the selection decision – could give an impartial answer. Another mentioned that they could not ask the consultants or the providers because they did not have the right questions.

But the biggest worry was that even if they had the right questions , they had no way of knowing they were getting the right answers.

What are IGCs?

The vast majority of the workplace savings schemes set up by employers were GPPs set up with insurers.  Amazingly, only a handful of the employers (and only half the panel) knew what an Independent Governance Committee was.

When I explained the function of an IGC, scales fell from eyes and their were looks of wild excitement (well that might be slightly overstating it) but the relief was palpable.

For these sizeable employers who do not have in-house pension expertise or a meaningful advisory budget for DC, IGCs are a godsend.

The IGC is (for them) a professional source of due diligence which is both cheaper (as in free!) and more effective than the work of the in-house pensions governance committee.

The FD’s immediately got it and since the meetings I have had a number of requests for links to the IGC Chair reports for their schemes (when they come available).

Access to IGC Chair reports

It is a shame that I have to send these links. The publicity that the IGC Chair Statements get from Insurers is simply not good enough.

I was with a member of the Prudential IGC last night and he told me that the statement is going to all their employers. This is not enough, many of the members of the Pru’s workplace pension are deferred and no longer work for the employer, the IGC statements should be going to all members of the workplace pension (regardless of whether they are currently contributing).

igc chair report 2

And if the IGC reports are going to employers, then the employers are clearly not noticing them!

Who’s kidding who?

Whether it be from the dilution of the advisory budget (which happens when things aren’t working).

Or because the commission to pay for governance has “run out”.

It seems that workplace pension advisors are largely absent from the workplace.

This group of employers said they felt that they didn’t have the right questions to ask providers, the right help to ask the right questions – from advisers  , and even if they did ask the right question, they felt they were powerless to change things.

The IGCs really want to help employers like these but they are not getting through to them.

One present asked their consultant whether  they should be paying attention to the IGC report and was told that there was no need (as they were already paying for due diligence ).

IGC chair report

Google image – result for IGC chair report!

We shouldn’t be kidding ourselves that DIY due diligence and ongoing governance can be effective. Unless done to a really high standard, it is unlikely to come close to the work that IGCs can do. If done to a really high standard, one has to question whether it can do more!

For large employers (with a minimum of say 10,000 staff) there really is an opportunity to put pressure on a provider.

But kidding smaller employers into thinking they can influence the behaviour of large master trusts or group personal pensions isn’t helping. These pension committees do a great job talking with members and making sure the scheme is working in their best interests

There are plenty of good things advisers can do to help such employers engage with their staff, I suggest that they focus on what is now called financial education.

Advisers – let  IGCs do their job – don’t second best them!

We have enough to do helping members, without trying to play God!

time bomb 3

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Cridland and the price of state dependency


John Cridland


John Cridland’s consultation report into the state pension age, commissioned by Ros Altmann and delivered today, does not say quite what the modernisers wanted it to.

Accelerated pension ages and the scrapping of the triple lock deliver a double whammy to all of us but especially to those under 45, who see their retirement age recede even faster than we expected.

Cridland is brutal, he has not drunk the Kool-aid. He speaks of a society with rapidly diminishing private pension expectations and an increasing distrust in the consequences of putting money by.

His report is not what we want to hear, but definitely what we should be hearing. It is a good report.

Limits to these freedoms

We are in the era of “flex” where we have power to vary our pay, our benefits and our retirement saving to meet our immediate needs.

The freedom to drawdown money from a capital reservoir is now an essential for the modern money saving expert (and advisor). “Time is an ocean, but it ends at the shore” likewise freedom’s circumscribed by the possible.

The possibility of freedom to draw our state pension as it suits crosses into the impossible. At least that’s the conclusion of John Cridland’s review into the state pension age beyond 2028. This comes as a blow to Ros Altmann, who wanted different life expectancies to be rewarded by variable access to state benefits.

The less liberal Liberal, Steve Webb is more pragmatic, announcing that

Having different pension ages for different groups or in different postcodes would create a nightmare of complexity and fresh injustices

It would also ride roughshod over the principles of social insurance that underpin the welfare state. We have winners and losers in state pensions, the winners are graduates who start work in their 20s and live into their 90s; the losers the blue collar workers who start work at 16 and die of exhaustion 50 years later.

State benefits are intrinsically unfair; they cannot be targeted to meet need nor properly reflect money-in, money-out. Even the State Earnings Related Pension could not win popular support. But the State Pension remains a loved institution for all that.

Despite the cock-up surrounding WASPI, the state pension has been integrated with the second state pension (SERPS re-named) without too much fuss. There are winners (the self-employed and the contracted-out) and there are losers, those with high S2P entitlements. But for the most part those viewing their triple-locked BR19 entitlements seem pretty satisfied.

We are drawing to the end of the great state pension deferral offer (effectively a 10% return on capital deferred) and those who’ve taken advantage can look forward to a lifetime reward. It’s all a far cry from the world of wealth management!

But for most people, the state pension is – for all its rigidity – the best pension they’ll ever had. Applying a conservative income multiplier of 30, It is currently worth around £260,000 – as Paul Lewis likes to point out, the price of an entry level Lamborghini.

Should the “flexinauts” tremble at reaching the outer membrane of freedom’s scope? I suspect not.

The Government has its own way of apportioning value to the vast constituency of those in later age. Demands on the public purse from long-term care, winter fuel subsidies, bus passes, TV licence rebate, age allowance and general strain on the NHS from decaying bodies, mark the elderly as a boundless opportunity for redistribution.

And of course, all these benefits are paid out of general taxation without a fund manager in sight.

It is salutary for financial advisors to remember that however subtle their strategies, their clients will continue to rely for the most part on the state for their later life welfare.

There is perhaps an alternative freedom available from the state. It is characterised by ease and distinct from our world of wealth management by needing no advice (other than perhaps Citizen’s Advice or the forums of This is a freedom from the need to worry- at least about the availability and delivery of the entitled benefit.

Perhaps this explains the peculiar affection that we still have for the state as provider – it is utterly trustworthy. I once got into trouble from my then employer (an insurer) for writing that all private pensions aspire to the efficiency of SERPS.

I was right, which explained how little freedom I had to express my views thereafter!


cridland 3

Cridland also recommends:

  • A new system of carer’s leave, allowing older people with caring responsibilities to have time off work
  • A mid-life “MOT” to help people take decisions about work, health and retirement
  • Some vulnerable people in their 60s should have access to a means-tested benefit, along the lines of pension credit
  • There should be no “early access” to the state pension, despite this being raised as a possibility in the interim report
  • People could defer drawing their pension, taking higher benefits later

Put your feet up- why don’t you!

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FAB index up despite fall in gilt yields!


FAB- better lolly


In contrast to the PPF 7800 index and other commentators’ indices, First Actuarial’s Best estimate (FAB) Index improved in February to a surplus of £288bn across the 6,000 UK defined benefit schemes.

This was despite a sharp fall in gilt yields over the month and demonstrates the FAB Index’s resilience to movements in gilt yields.

First Actuarial Partner, Rob Hammond says:

“The FAB Index continues to buck the trend and contradict the doom and gloom headlines that others persistently promulgate. Over February 2017, asset performance was very strong, long-term inflation fell slightly and long-term expected investment returns were relatively stable, resulting in a much healthier state of the UK’s defined benefit pension schemes than we would otherwise be led to believe.

Hammond added:

“Only around 50% of the UK’s 6,000 defined benefit schemes’ assets are held in bonds, so a fall in gilt yields is not the be-all and end-all when it comes to assessing the financial health of these schemes.”

The technical bit…

Over the month to 28 February 2017, the FAB Index improved with the UK’s 6,000 defined benefit (DB) pension schemes increasing their surplus from £275bn to £288bn.

In contrast, the PPF 7800 index deficit increased over February from £196.5bn to £242.0bn.

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

FAB Index over the last 3 months Assets Liabilities Surplus Funding Ratio ‘Breakeven’ (real) investment return
28 February 2017 £1,511bn £1,223bn £288bn 124% -0.8% pa
31 January 2017 £1,467bn £1,192bn £275bn 123% -0.6% pa
31 December 2016 £1,476bn £1,206bn £270bn 122% -0.7% pa

The overall investment return required for the UK’s 6,000 DB pension schemes to be 100% funded on a best-estimate basis – the so called ‘breakeven’ (real) investment return – has reduced to inflation minus 0.8% pa. That is, a nominal rate of just 2.9% pa.

The assumptions underlying the FAB Index are shown below:

Assumptions Expected future inflation (RPI) Expected future inflation (CPI) Weighted-average investment return
28 February 2017 3.7% pa 2.7% pa 4.1% pa
31 January 2017 3.8% pa 2.8% pa 4.3% pa
31 December 2016 3.7% pa 2.7% pa 4.1% pa


Notes to editors

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

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

fab index

Rob Hammond is available for interview. Please contact:

Rob Hammond on 0161 348 7440 or, or Jane Douglas on 0161 348 7463 or


About First Actuarial

First Actuarial is a consultancy providing pension scheme administration, actuarial and consultancy services to a wide range of clients across the UK.

We advise a mixture of open and closed defined benefit schemes with our clients concentrated in the small to medium end of the pension scheme market. Our clients range across a number of sectors including manufacturing, financial services, not for profit organisations and those providing services previously in the public sector.

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The ABI goes FABI on claims!


The Blue Line’s what the ABI want to use for claims, the purple line’s what they’re threatened with.



Readers of this blog listening to the ABI’s Huw Evans on Wake up to Money, may have been spluttering into their tea and biscuits!

The ABI are faced with a cut in the discount rate used to calculate compensation claims on serious injuries (typically from vehicle accidents). The discount rate will move from it’s current 2.5% to (0.75%).

To use less tecchie terms, the expected return on the investment of a claim shifts from 2% over inflation to 0.7% less than inflation. With inflation at below 2%, the ABI would hardly be able to take any investment credit when calculating claims and claims payments are going to shoot up.

Sound familiar?

I’m not sure that Huw Evans had thought this through when he described a negative discount rate as “absurd“. I wonder if those of his members making good money from the ultra high premiums received from occupational pension schemes want him using language like that!

Evans demonstrated that demanding more for long-term injuries and bereavement compensation was not a victimless crime. The impact would be passed on to other policy-holders in increased premiums.

This is a good point – well made. It is the same point that the CBI have been making when arguing that pension schemes should not have to value assets against gilts for the damage it is doing to cash-flow, dividends and the capacity of employers to invest for the future.


But once again we have to ask whether the buy-out and TV payments his members are receiving because of super-low discount rates in pensions come at “no expense”.

Of course they don’t!

The cost of transfer payments impacts the ongoing funding rate employers are asked to make to our closed DB schemes. It can add to the demands to close open schemes to future accrual, it can create such cash-flow problems for an employer that it puts the security of other members existing benefits at risk.

Whether it be through higher insurance premiums, or lower pensions, there is a price that consumer pay for gilt-based valuations and funding plans.

A change of heart or special pleading?

I have every sympathy with this particular argument. His solution is to establish an approach that takes into account “everything that impacts the discount rate“. Since the (0.7%) rate is based on returns on index-linked bonds, then he has a good point.

Nobody is going to invest a sum of money into index linked-bonds at current prices. Evans is actually arguing to adopt FABI, the First Actuarial approach to valuing liabilities which uses everything that impacts the discount rate.

I will be sending Huw Evans the FABI charts to show him how consistent liability valuations are when measured on a best estimate basis and how much easier it would be for insurers to use a best-estimate basis in claim.fabi-chart

Put graphically, the ABI’s claim experience could move from positive territory to negative territory as easily as pension scheme valuations could move from surplus to deficit.

If he wants our support for moving to a FABI style approach to claims discount rates, I want his support for moving pension scheme valuations to a best-estimate basis for funding purposes!

Other wise , it’s just another case of ABI special pleading!

huw evans abi



Further reading and listening

This is what the fuss is about, a recent court ruling that went against the ABI ;

The ABI’s arguments are set out here

The discount rate is a tool that adjusts personal injury damages awards to take into account the return expected when a compensation lump sum is invested and to ensure that claimants are not under or over-compensated.

It has been set at 2.5% since 2001 and governs all compensation awards in England and Wales. In Europe, it is typically between 1% and 4%.

In the past the rate has been based largely on the gross redemption yields of Index-Linked Government Securities (ILGS).  The principle of full compensation, which the ABI entirely accepts, is that injured claimants should neither be under-compensated nor over-compensated. This is no longer served by the linkage to ILGS because the long-term investment behaviour of those compensated is, in practice, very different. The Lord Chancellor needs to conclude the process of finding the right way of achieving the full compensation principle.

ABI blog on the matter;

The Podcast of the Wake up to Money show on which Huw Evans appears is here ; the discount rate discussion starts at 21.15

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FEAR+FRAUD. Does Geneva= Gibraltar? Are SIPPs the new QROPS?


This bog is about fear and how it can be used by the unscrupulous to frighten them into putting their retirement at risk. The unscrupulous fear-monger is the self-appointed UKPension Guru (Clive Skane-Davis) of Swiss Global Consulting; you can see his CV at

Any resemblance to the other Pension Guru (Steve Bee) is entirely intentional, Skane-Davis’ tactics are to mimic and pervert honest endeavour for self-serving intent.

Plausibility assured.

The targets of this intent are expatriate Brits moving to Switzerland with pension rights in the UK. Here is the pitch

UK PensionGuru is for anyone living outside the UK that still has pensions in UK schemes, especially those with ‘frozen’ Final Salary pensions.

If you question this, you can find out more

Pension funds in the UK are in major trouble as the promises made cannot be met and upheld. Out of 5,945 schemes 84% are in deficit and the average deficit is over 20%. That means that the scheme can only actually afford to pay you 80% of what it has promised. Unfortunately, in ‘buy-out’ terms (a straight forward assets verses liabilities calculation) funding of UK schemes is only 62% of liabilities!

Clicking the link gives us a “quote” from the PPF Chair Alan Rubebstein (sic)Slow speed car crash

Or should I say Alan Rubenstein, who made these two statements to the Daily Telegraph last year;—now-it-pays-just-17500/

A litany of half-truths

What follows is UK PensionGuru’s answers to the expat’s frequently asked questions, answers littered with half truths culminating in the triumphant unveiling of UK PensionGuru’s four UK Pension myths.

Myth 1. Final Salary/Defined Benefit pensions are guaranteed

“The only real guarantee with Final Salary Schemes is that they will go bust”

Myth 2. The Government PPF (Pension Protection Fund) will bail the scheme out if there is a problem

“There is no ‘Government Fund’, it doesn’t exist, and the worst part is that the PPF is itself in deficit. So now the Lifeboat is sinking as well”.

Myth 3. A QROPS is the best vehicle for everyone living abroad

“there are other cost effective options to consider”

Myth 4. My Final Salary/Defined Benefit pension MUST pay me the benefits I am due!

People are finding out the truth every day and suffering drastically reduced pensions when it is too late to correct matters

UK PensionGuru is making these outrageous statements from the comfort of his offices in Geneva. But the worrying thing is that he is  extending arguments being put forward by pension gurus in the UK.

If you promote (as tPR/PPF/JLT/PWC regularly do) funding deficits based on a buy-out or gilts plus discount rate, you give ammunition to UK PensionGuru. This crass perversion of this scare-mongering is  (in part) down to irresponsible reporting of deficits. Indeed UK PensionGuru delights in quoting such authorities as his source.

The reporting of the PPF7800 and other collective deficit numbers without proper context is feeding the fraudsters with the bad-news stories they delight in!

Careless talk costs pensions

The allegation that the lifeboat is itself sinking is ludicrous and unsupported. The Daily Telegraph article “My company pension paid £70,000 , now it pays £17,500” contains many quotes from Alan Rubenstein, which in the context of the article are fuel to UK PensionGuru’s fire.

I am surprised that the Telegraph continue to host the article as it is neither balanced nor helpful. Those few executives whose pensions are reduced when their schemes enter the PPF are to be balanced by the hundreds of thousands of pensioners being paid by the PPF with great security at or around the promise of their defined benefit. And weighed against the vast majority of UK pensioners, deferred pensioners and those actively accruing defined benefits who will be paid their benefits in full.

So what of the solution (s)?

Clearly QROPS is no longer a catch all. UK PensionsGuru has two weapons of pension destruction- QROPS and SIPPs. Many of his expatriates will no longer be able to access a QROPS so- as he rightly points out – they may need to get tot he QROPS through another route. The SIPP becomes an  escape tunnel from which the QROPS may be launched later.

This is a complication brought about by HMRC reducing the numbers of recognised QROPS and by the budget’s 25% exit tax on transfers to most QROPS from UK pension arrangements (you can get the details by contacting UK PensionGuru)

Myth 3 suggests that the expatriate financial adviser is already finding ways round the rules, though whether such loopholes will stand the test of time is doubtful. Beware tax-avoidance measures, tax evasion is never far away.

Is the SIPP, the new QROPS?

Thanks to Chris Lean fro bringing my attention to the drivers behind this check out this advert on QROPS adviser zone

Highlights are mine

QROPS have become a lifeline for many companies and they have provided many financial advisors with a substantial income stream by offering a much sought after service that clients actually want.

QROPS transfers are, however, labour intensive and can often take many months to complete.

There is an alternative product that can provide a solution for both the client and the adviser.

A UK SIPP will provide some of the features that a QROPS would have provided such as consolidation of pension schemes, flexibility of benefits and greater access to investment products.

The transfer into a SIPP is invariably processed via the UK ORIGO system and more often than not this reduces considerably the transfer time from the ceding scheme to the SIPP.

Our SIPP is available to non-UK advisers and can provide a similar commission based revenue model to that which advisers have been used to within QROPS.

As Christopher comments “what could possibly go wrong?”.

Pension freedoms await

If you want a flavour of the nirvana awaiting you if you get as far as liberating your UK pensions, take a look at this lnfographic which appears on UK PensionGuru’s website.

Swiss global 1

If it looks too good to be true – it almost certainly is.

And what of Swiss Global Consultants?

It is registered as an adviser by the Swiss Financial Markets Supervisory Authority.

The business is managed and owned by Jonathan Berrar, and  Paul Kavanagh and has 61 people associated with it on Linked In. Most appear to be expat Brits with little experience in UK regulated financial services

A quick search on SGC’s offices suggests that they are in a building advertised as .

The business was set up in 2016 and incorporates Swiss Global Trustees and Swiss Global Holdings. With only 20,000SF as nominal capital, make your own mind up.

Further reading





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Pensions Resurgent! The merit of the CWU’s proposals to the Royal Mail


For the third day I am returning to the CWU’s proposals to the Royal Mail which I now consider the most important break through in pension scheme design we have seen in Britain this century. I base this on three arguments

Argument one

This is a bottom-up proposal that arrives at the doorstep of one of our biggest employers (the Royal Mail employs 130,000 posties). It has been forged by a Union looking for a way out of a bind created by unfortunate (not malicious) decision-making by employer and trustee. It is delivered at a time of deadlock in negotiations over the future pension promise which could lead to industrial strife. The provenance of this proposal is unimpeachable.

Argument two

This proposal is made without need for any concession from Government to make the Royal Mail a special case. It does not rely on the establishment of some new pensions vehicle, an over-ride of existing scheme rules or the application of half-completed regulations. It makes sensible use of existing pension scheme rules and does not rely on special pleading.

Argument three

It returns pension funds to being a source of economic capital for an economy in need of growth. That the proposed SIP focusses on the growth of assets rather than the de-risking of liabilities is a strong statement from its authors of pensions resurgent. This proposal is the first (I hope of many) solutions to the problems of our occupational pension schemes that regards pensions as a source of national benefit, not of liability.

The Purpose of Pensions

I don’t know why he linked in , but link-in Eddy Truell did to me yesterday. I see he is Chairman of an organisation called Disruptive Capital.

I picked up his invitation while listening to a lecture from David Pitt-Watson  Pension Corporation on the Purpose of Finance. While Eddy is no longer involved in PIC (other than a small shareholder) it seemed a happy coincidence.  I hope this is a sign that the steady decline of what we call “private pensions” may be disrupted!

Whether you like him or not, Eddy Truell has been a disruptor in pensions for some time now. I hope that the partnership between Pitt-Watson and PIC indicates a consensus for the need for things to change. Truell and Pitt-Watson are unlikely partners but it is from such collision of opposites that productive reactions can spring forth!

For the CWU’s proposals to work, we need a sensible conversation between those who own the capital (Truell & Co) and those who organise the labour (CWU). And we need a lot of good common sense!

Pitt-Watson’s lecture included a booklet with a handy checklist of characteristics of “purposeful pensions”. The list’s in green, my thoughts on the CWU’s proposals in bold.

  1. It will have an effective return seeking saving system into which the saver can put their money; the CWU plan to invest contributions for the best interests of the members of the scheme.
  2. It will pool longevity risk effectively; the CWU’s proposals treat the current and future workforce of the Royal Mail as a self-insuring pool.
  3. It effectively moves capital through the economy investing in assets which give a real return long term. The proposal is for 100% of invested monies to be in equities,
  4. It has clear and appropriate actuarial information; unlike the with-profits approach of the past, the CWU proposals come with a proper actuarial plan based on prudent assumptions clearly set-out procedures for dealing with bad times and good
  5. It is and is felt to be-trustworthy; the proposal is from an employee representative, it is not dependent on any financial institution’s participation, it is from the people for the people.
  6. It is able to offer a degree of flexibility in the promise it makes and is able to accept a degree of flexibility in its investment returns to allow (benefits) to be higher. The benefits proposal is designed to flex non-core returns based on the investment conditions while guaranteeing a core of returns which form the basic pension.
  7. It has low costs and is likely to be exploring scale economies; this is achieved through the plan being available to all employees, whether currently accruing a defined benefit or receiving a Defined Contribution.
  8. It is adequately capitalised and/or flexible in its promises; the proposals do not require seed capital but depend on an ongoing commitment from employer and from the membership to fund the scheme at equivalent levels to the current DB funding (c 22% pa)
  9. It operates within an effective and appropriate regulatory regime; as already said, the CWU proposals do not require any testing or change to current occupational scheme regulations- the proposals play by the rules.
  10. It has fairly aligned the interests of members with those of shareholders and other stakeholders; the consensual approach adopted to putting forward these proposals gives hope that they will be adopted by the employer’s management and shareholders. The proposal is an alternative to the deep-rooted concerns among the Royal Mail workforce to the DC proposals put forward by the employer and the use of the existing DB arrangement (for future accrual).


At last night’s lecture, several of the questions from the floor were about leadership. I suspect that the leadership needed to solve the pensions crisis will come from without rather than within (despite Tracy Blackwell’s assertion to the contrary).

The CWU are showing leadership. They have determined to be very public in their approach and I am pleased to help give their proposals some oxygen. The FT has set the ball rolling and the pensions media is showing interest.

The idea of running a low-guarantee defined benefit scheme at a defined contribution is not a new one. But finding a way to execute such a scheme is new.

I commend the CWU for its leadership, my firm are pleased to have given the CWU help with the numbers and some of the technical pensions advice needed to ensure these proposals are legally robust.

I hope that as we progress the debate, we can look at these ideas in more detail. For the CWU’s proposals to the Royal Mail, if they are adopted , could be the basis of pensions resurgence.royalmail



You can find David Pitt-Watson’s and Hari Mann’s “The Purpose of Finance” report (sponsored by the Pension Insurance Corporation here

Posted in actuaries, advice gap, David Pitt-Watson, dc pensions, defined ambition, defined aspiration, pensions | Tagged , , , , , , , , , , , | Leave a comment

A with-profits pension for the posties.

Royal Mail 4

One of the most encouraging stories I have read in a time appears in the FT this morning.

The Communication Workers Union, who act for many of the Royal Mail Staff, currently facing a switch from a final salary DB pension to a defined contribution scheme, have come up with a compromise solution.

Jo Cumbo writes

 Instead of offering a long-term guarantee on the level of retirement income, the CWU’s plan envisages an annual assessment of investment performance to decide whether a “core promise” is increased in line with inflation.

Those of us with long-memories will remember that this is how with-profits pensions used to work. The insurance company (rather than the trustees) offered a core benefit which was locked in. The annual assessment of investment returns and the calculation of what bonus could be awarded was the job of an actuary.

The idea was simple enough, the actuary would exercise prudence in good years, so that there was money to fall back on in bad years. Sadly some actuaries got carried away and over-distributed – but that was because of commercial pressures from the marketing department. With-profits worked because policyholders participated in a much larger pool of money managed by the insurer, got economy of scale and got the benefits of a long-term investment strategy that invested in real assets (shares, property and the like).

The CWU idea seems equally simple. It would bring together the 40,000 members of staff who are currently in a DC scheme with the 90,000 in a DB arrangement and offer a single deal for all.

The key issue is with investment. Currently the Royal Mail’s DB scheme is 90% invested in bonds, it is hard to see how such a strategy could produce any kind of acceptable bonus beyond the core benefit plus whatever could be purchased at current annuity rates. Bonds are simply not the right investment if you are trying to accrue benefits for the longer-term.

So John Ralfe would be right if he was talking of a conventional DB arrangement (again a debt is due to the FT)

However, John Ralfe, an independent pensions expert, was sceptical about the plan: “The company would require all of the money to be invested in matching bonds, so there would be no risk of a deficit, but at the same time no potential inflation reward for members.”

But John has missed the key phrase in the CWU’s proposals – “risk-sharing”. For as with a with-profits approach, the fact that the inflation reward is not guaranteed from year to year means that the fund does not have to be invested in matching bonds but can invest in real assets.

This may not appeal to John’s pure asceticism, but it is precisely the kind of pragmatism that appeals to ordinary people. Faced with a choice of taking all the risk or sharing some of the risk with a large employer and its large pension fund, I bet the vast majority would prefer to risk-share.

I am not sure of the details of the arrangement, but this looks to me like the first positive attempt by a union to find a third-way solution between the extremes of DB and DC. I very much hope that the core-benefit includes all rights to date and that the proposals offer a decent degree of certainty going forward.

I await with a great deal of interest the results of the negotiations. If sponsor, trustees and members can move forward on this basis, I will be delighted. in principal the deal appears innovative , exciting and replicable. Dare I say it- it looks like the basis of future settlements elsewhere.

Jo Cumbo’s article can be read in full here ;

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Maybe Hammond did us all a favour with his QROPS tax


It wasn’t just the 4m self-employed who faced a tax-hike following the April budget. Expats resident outside Europe now face an uphill struggle to receive their retirement income tax-free via a QROPS.

I follow these offshore pension stories with the peculiar prurience I read Health and Effeciency as an 11 year old, I’m just waiting for the naughty bits to pop-out,

With QROPS, you don’t have to wait long. The offshore British dependencies are populated by online betting companies and financial  alchemists capable of turning Gold into Base Metal through the transformative UCIS structure.

Sadly, the prospect of an Exempt-Exempt-Exempt pension taxation structure blinds mature adults to the eventual destination of their money. I met an Egyptian once who tried to convince me to buy a melon farm near Aswam, when I discovered it was 90 metres under the Aswam dam, he countered I’d be harvesting water melons.

If you want to read this financial pornography, go to Angie Brooks brilliant Angie is in deadly earnest as she protects people from the double whammy of losing their savings and paying tax on their losses.

Hammonds QROPS tax, which means the allure of the QROPS transfer is tarnished by a 25% tax-hit before it leaves the UK, is a blow to the alchemists and a will hopefully be a wake-up call to a few lucky ex-pats whose money has yet to be shipped out to a Cape Verde parking lot.

It may also be a reminder to Brits thinking of retiring abroad that (financially at least) the tax-breaks earned in the UK need to be re-paid in Britain. For the QROPS EEE is not a victimless tax-avoidance scheme – it is precisely the kind of tax-fiddle that got 52% of Brits sufficiently wound up to vote BREXIT. Remember the first and strongest supporter of Remain to be announced that night – Gibralter!

I am sick and tired of the high-cost low value tax-scams which flop into my inbox on a regular basis. They largely replace taxation with an unofficial franking of investments by the QROP conmen (Stephen Ward and pals).

Where QROPS are legitimate, they tend to be organised through employers as an alternative to local workplace savings plans. Employers either exercise fiscal control and investment due diligence or they face the wrath of the employee and the taxman. You need a trusted intermediary and employers tend to be just that.

If you are in any doubt about the direction of travel for UK-expats , look at the American system operated by the IRS. The link with the American tax-authorities is permanent and uncompromising. BREXIT drives the train down those tracks.

I’m not shedding any tears over this tax-hike. Good old spreadsheet Phil has got it right with his 25% tax-shocker. Let’s hope there’s more in the locker next autumn


Thanks to Helen Burgraf for this fine cartoon from 2013


Posted in pensions | 2 Comments

Time to dig this Government out of its hole?


Tax, national insurance and pensions policy should be put in a vault marked “toxic” and should be handled with extreme caution.

This morning I have three toxic issues to prove my point.

  1. The fiasco of announcing an increase in national insurance to the self-employed in the context of a “read my lips- no new taxes” manifesto commitment
  2. The unearthing of a report buried by the DWP confirming that the net-pay/relief at source tax issue is bigger than anyone anticipated
  3. The realisation that NEST carries extreme death-risks for high net worth investors.

What have these random matters have in common? Well they are all issues created through the unintended consequences of well-meaning Government interventions;

and they are all issues can be mitigated through Government working with the private sector.

The National Insurance FiascoDWP

We now hear that the legislative changes for the new NI rates will be pushed back to September from April. This appears to be an intervention from No 10 and a mild slap to the Treasury.

In the meantime we have an auto-enrolment consultation which includes questions on the inclusion of the self-employed in the project. I wrote yesterday about ideas that have been floated to link national insurance increases to auto-enrolment. Here are the thoughts of a sage political commentator on the above.

As they’ve grasped the nettle of increased Class 4, we could suggest that the Treasury get off the hook politically by retaining the Class 4 increase but allowing the self-employed to divert (their own money) into a pension.   It still leaves them with a fiscal hole, but would be less of a u-turn than simply scrapping it!

Challenge one for the private sector, create a mechanism that allows the self-employed to choose their workplace pension and a mechanism by which their money can fund it (rather than the national insurance fund).


The net-pay nightmarenet pay

The very busy Sir Steve Webb has unearthed a report produced late last year from the DWP. This has been well reported in the FT but for those without a sub, let me quote pay

Of course this is absolutely ridiculous, most employers staging now have no chance of even understanding the issue, let alone researching the market to get the right pension. The DWP goes on in equally silly vein

net pay 2

I will not labour the point, the Pensions Regulator’s website is not a user-friendly place. It is a kind of Wikopedia of jumbled information, as useful in choosing a pension as a chocolate teapot is for making a brew.

The private sector can help employers choose a suitable pension, indeed specifically analyses employer payroll data and warns against net pay schemes where the net-pay nightmare will arise.

Unfortunately the Government will not acknowledge this and in a recent reading of amendments to the Pensions Bill knocked out a clause that would have required employers to choose a suitable pension , because it considered the Pensions Regulator’s site contained all the ingredients an employer needed.

Tesco contains all the ingredients to make a banquet, but it isn’t a restaurant. The private sector can get the Government off the hook , but the Government has to work with the private sector.


Don’t die rich with NEST!medieval

A helpful rival to NEST reminds me of this statement mad in 2013 by Graham Vidler, then NEST (now PLSA) spin-doctor.

net pay 3

If you’ve been reading the latest stuff on this blog, you’ll know that I’m pretty keen on NEST’s  “no penalty transfer and a 0.3% AMC” on the funds. I even called it the bargain of the century.

Unless of course you happen to be someone with a bit of property or a business or some shares – in which case you are putting the transfer into NEST in a big box marked (MR TAXMAN -please take 40% if I die).

Now I’m not qualified to give tax advice, but I’m going to make damn sure that employers choosing NEST using are properly appraised of both the good and the bad of the product.

I have not been flagging this issue so far as NEST pot balances have been so low. But if we are to have a system where NEST is going to be acting as a pot follows member aggregator, I think the private sector IFA community have a role to play to make sure that people have their DC pension pots in discretionary trusts and not managed the NEST way.

Or perhaps NEST see the way to pay back its £500m+ loan as through unnecessary Inheritance Tax payments from deceased members!

Politicians and Civil Servants  can be wrong – they need us as much as we need them!

So there you have it, three blogs for the price of one with issues linked by a common theme. Government make pensions, tax and national insurance complicated and difficult. The private sector helps them out by keeping people appraised of the implications of what they are doing.

Except the Government typically doesn’t listen to the private sector because it thinks it knows best and the private sector is out to rip off its fellow man.

To the Government, we are sharks, to us the Government are bumbling buffoons.

This is no way to carry on! To make Auto-Enrolment work, we need to acknowledge our cock ups and work together to right them. The private sector cocks up, so does the public sector.

But to turn down the hand that is trying to help, as this Government has been doing with regards the choice of workplace pension is unforgivable. It really is time that the Government started the implications of the employer’s duty of care in choosing a pension for its staff and started talking to private practitioners doing their best to help.

taps on pension playpen


Great blog from Will Robbins of Citywire on national insurance changes

Jo Cumbo article in FT on net pay issue;

tPR paper on net pay issues (and AE trigger levels)

NEST 2013 newsletter – source for the Graham Vidler quote,PDF.pdf




Posted in auto-enrolment, NEST, pensions | Tagged , , , , , , , , | 2 Comments

Now! – Can we expect the self-employed to join the pension party?

As press releases go, this speculative sound bite  from NOW Pensions’ Policy Director Adrian Boulding takes some beating!

The Chancellor’s announcement today has catapulted the self-employed in the spotlight and, with the increase in national insurance, we believe now is also the time to include self-employed in auto enrolment.  Auto enrolment has been a great success, but the 5 million self-employed in the UK are excluded. With the auto enrolment review taking place this year, the government has an opportunity here to ensure that the self-employed, as well as employees, are able to look forward to adequate income in retirement.”

Turned round at 1.45pm yesterday, only minutes after Philip Hammond sat down, this was opportunistic! But Adrian Boulding is not a cheap publicist, indeed he was (along with David Yeandle and Paul Johnson) one of the troika who (at Steve Webb’s request)  gave auto-enrolment the green light back in 2010.

Adrian is someone whose integrity, intelligence and insight I value.

The Auto-Enrolment review is upon us, we are asked to consider the scope of AE and how it might be extended to nudge our growing self-employed into the fold.

The problem is neatly demonstrated by this graph shared by Aviva’s Alistair McQueen.self-employed

The squiggly line shows the numbers of the self-employed increasing over the past 15 years. The purple columns show the numbers actively saving into personal pensions decreasing.

While the media comment has focussed on national insurance increases as tax-rises, Boulding is focussing on them as a portent of pensions to come (presumably in NOW’s direction!).

It has been some time since the DWP used the national insurance mechanism as a means of funding pensions. Of course state pension rights are based on a national insurance contribution history but the self-employed weren’t eligible for the state second pension (SERPS or S2P) and so have never had a link between the size of contributions and pension accrual.

Auto-enrolment is all about earnings related contributions which are defined by bands of earnings and set tiers of contribution. In a PAYE environment, this makes nudging pretty simple, AE to payroll is just another deduction – a quasi tax.

But the self-employed are not part of the PAYE network and – much as the Treasury would like them to be – they are not yet fully in the RTI reporting mechanism that is doing so much for tax-collection and revenue forecasting.

While the obvious reason to increase see off the messy class 2 and increase class 4 in line with employer NICs is to raise revenue. It gives a joined-up Treasury/DWP team, the opportunity to use the howls of indignation at this tax on entrepreneurship to introduce concessions.

What- for instance – if the self-employed could elect to sacrifice increased NICs into a workplace pension?

What if the 1% increase due for April 2018 could be averted on the production of a contribution certificate showing an equivalent amount had reached NOW, NEST or another qualifying workplace pension provider?

What if, the default position was set this way and the self-employed opted out into higher national insurance contributions?

And in case you are thinking that master-trusts can’t receive contributions from the self-employed, re-read Pensions Act 2008 which gives occupational schemes this provision. NEST already has the capacity to receive contributions from the self-employed.

This is of course highly speculative and I was only prompted into this line of thinking by   Professor Pat-Pending’s  runic utterance

we believe now is also the time to include self-employed in auto enrolment

But my memory had been jogged…..

Here’s Sir Steve Webb, a year ago,  having a similar idea in a report on Britain’s “Forgotten Army”.

The report recommends that the special category of National Insurance Contributions (NICs) paid by self-employed people on their profits – Class 4 NICs – should be charged at a rate of 12% rather than the current 9%. But, instead of the additional contribution being retained by the Government, self-employed people would be able to opt to have that money diverted to a pension or Lifetime ISA, provided that they made their own direct contribution of at least 5%. The combined contribution of 8%, would match the statutory minimum under automatic enrolment.

Whilst self-employed people would not be forced to take out a pension, this would be the only way they could benefit from the additional 3% of NICs that they had paid in. This is very similar to the way in which employed earners can only get a 3% employer contribution if they stay enrolled in a workplace pension – if they opt out, the employer contribution stops.

It is estimated that around three million self-employed people would be covered by the new scheme and it could increase the number of self-employed pension savers by well over two million if opt-out rates are similar for this scheme as they currently are for automatic enrolment.

Spooky huh!



For Steve Webb’s policy report press here.—and-what-to-do-about-it/

For recent discussions in the DWP Select Committee on self-employed AE pensions follow this link.

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Are defaults enough? Or do we need compulsion?


A little architectural vision needed!


Well I’m back from 10 days in India where I saw the very rich and the very poor but not much in the middle. I saw some very fine architecture which showed me what can be done when people pull together.

One of the first emails I opened was from a friend wanting thoughts on whether we need to compel good behaviours at retirement or direct through strong defaults.

It’s a question that interests me enough for me to sit in jet-lagged stupor and pour forth!


The Past

The context for the question  is “DC pensions” ( we have a default system of scheme pensions for DB- from which you can opt-out by taking a CETV – provided you aren’t receiving your pension and are in a funded scheme). Whether there are such things as DC pensions is open to question. Most people refer to DC pots and leave the matter open!

The Australian bias towards compulsion is well known, you are compelled to vote and compelled to participate in the Super System. You can screw up your pension in Australia but each new raft of rules makes it harder. The Australians are moving towards compulsory annuitisation as fast as we move away from it!

Should Britain return to a system of strong defaults (as we did with the system of compulsory annuitisation that prevailed before the announcement of Pension Freedoms in the 2014 spring budget)?

Well let’s not forget just how much damage those semi-compulsory annuities did to people’s perception of pensions. The decline in voluntary saving into personal pensions may have been in part to do with the value for money of the savings vehicle, but I suspect it was more to do with the perception that you were locked into buying “rip-off” pensions.

It was no use arguing that you’d have done better if you’d shopped around, if you still felt ripped-off once you had. People looked back on the pension file to the SMPI illustration they were given twenty five years ago, saw they had completed their side of the bargain and asked why the pension on offer was so much lower than that which had been illustrated.

So pension outcomes have been lower than people (including the Regulators who sanctioned SMPI assumptions) anticipated. The markets may have contributed but people don’t listen to that kind of talk. They invest with insurance companies to get an insurance against market failure, not its product.


The Present

If the Pension Freedoms were the political answer for a Chancellor in search of a Rabbit, they have not (so far) translated into a practical answer for those with DC pots.

At the top end of the market, those who have invested in drawdown products where their pots remain invested in equities have benefited by a strong bull run in equities which has protected them not just from the impact of sequential risk (aka pounds cost ravaging) but from the impact of high charges. After advisory, platform and fund management costs, many people in “wealth management” programs are paying over 2% pa of their savings in costs. Add in the hidden fees and the average is estimated by Nucleus to be nearer 3%.

In short , people are having to beat inflation on their investments to break even, clearly this is an unsustainable state of affairs. The cost of advised drawdown will have to come down a long way, and come down fast, if it is not to be the next financial scandal.

At the bottom end of the market, the DC pots are small enough to be considered inconsequential and are generally being cashed out. The perception of “inconsequential” is the financial services industry’s. To those with say £30,000 in a DC pot , that sum is a major windfall in terms of immediate cash-flow. The problem is a pension is for life and not just for Christmas.

In the middle of the market are those with DC pension pots of upwards of £30,000 but below the typical minima for advised drawdown. The minima differ but let’s say £200,000 is typical.

For such savers there are three options if you want your money now, Do It Yourself drawdown, annuity purchase or cash-out. The evidence is suggesting that more people are deferring these choices and waiting till something better comes along, or they can wait no longer!


The Future

Back to the question. Where other countries (notably Australia – though also Obama’s administration) have recently been moving towards compulsory annuitisation, there is no political appetite for this to happen in the UK.

We have no more taste for guarantees in our private than we do in occupational pensions.

It is a well known behavioural phenomenon that when asked what they want from their pension freedom, two thirds describe an annuity (source Aon and others).

People want an annuity but aren’t prepared to pay for the guarantees. What they appear to want is soft annuity, rather like a with-profits fund that promises but doesn’t guarantee.

As those who run pension schemes know, promising may not be the same as guaranteeing but consumers (well at least their lawyers) are good at conflating the two things into one and demanding payment on the expectation.

What is needed in the future is a less burdensome form of annuity with protection for the provider against the kind of class actions that cost them dear with endowment shortfalls, with pension transfer shortfalls and most recently with the gap between PPI expectations and PPI outcomes.

A general answer to the question

I see no appetite in Government to compel people to spend their retirement savings one way rather than another. We are still too close to the policy success of Pension Freedoms for that, the damage of current pot-spending patterns has yet to emerge.

A far-thinking Government would be planning for the future and sinking money into the Research and Development of products that might offer annuity-light structure, either through innovation (the smorgasbord of Defined Ambition approaches considered by the last Government, or by the proper protection of CDC schemes from either failing their pensioners or failing because of their pensioners.

The distinction being that a badly run CDC scheme can (as with-profits predecessors) simply over-distribute. A well run CDC scheme can distribute properly but be brought down by members wanting too much too soon.

A strong Government would recognise that pensions have always been paid by the State or by large institutions with the scale to ride out market calamities. Occupational pension schemes have underwritten calamity and so have insurers. There is absolutely no evidence anywhere to suggest that a default solution of a self-invested personal pension with a drawdown strategy has ever worked as a default strategy for a nation.

A specific answer to the question

Given the very high risk of market failure in individual drawdown, it is amazing that the Government has not promoted (as it started doing in the Pensions Act 2015) a more structured and collective approach to pension decumulation using the Defined Ambition regulations that were worked on from April to July 2015.

By establishing the structure by which a collective decumulation approach could work, the Government could then encourage CDC providers to operate within safe-harbour rules that protected them from over and under distribution. This type of approach would – to a degree- satisfy the thirst from the public for something like an annuity without the costs of the guarantees.

That it would remarkably like a defined benefit scheme prior to the introduction of guaranteed benefit structures, is very much the point.

In answer to the lady’s question, we do not want compulsion, we do not to pay for  annuities as we know them but we want some certainty beyond what can be provided by individual drawdown.

The only way this “product” will appear, is if the Government gives it the safe-haven status accorded to highly-regulated collective schemes. The answer to the problems of pension freedoms are strong collective decumulation arrangements into which DC pots can be defaulted


Henry cheers.PNG

Thanks to all who came to yesterday’s lunch- I was otherwise engaged and sadly missed it!

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NEST – membership has its privileges.


American Express coined the phrase and it’s unlikely that PADA  (the fore-runner) to NEST could ever have anticipated running a premium product. But that is what NEST is about to become.

The launch of a free transfer service which allows NEST members access to outstanding fund management and first rate administration for 0.3% pa, has introduced the outstanding financial bargain of 2017.

But like American Express, NEST is an exclusive product. You can only access this bargain if you are using a workplace pension where your employer has chosen NEST or if you are self employed.

From April this year, the restrictions on NEST will be lifted, allowing it to take individual contributions up to the annual allowance (between £4,000 and £40,000 pa depending on your circumstances). This will make NEST a product appropriate for the needs of the high earners as well as those on modest means.

Coupled with the amazing free transfer/ultralow transfer management charge and NEST suddenly looks like the aggregator of choice , not just for its intended audience, but for all those people who qualify for the American Express platinum service.

How ,you might ask, can this done? Well the full story on that’s in yesterday’s blog, but in summary, NEST has access to £600m of capital –  £500m+ of which has already been drawn down, these privileges are paid for at the expense of the repayment of the loan from Government.

The market impact

It will only take a perm from Mail on Sunday/Paul Lewis or the Money saving expert to  bring NEST to the attention of the savvy investor.

For one thing – it will make membership of NEST for the self-employed a very attractive option. As a mastertrust operating “relief at source”, even the self employed with modest (declared earnings) can establish NEST as an attractive retirement savings plan with full tax-relief claimable through self-assessment.

But now NEST is more than that, it is a turbocharged investment vehicle with a transfer-out facility if you feel the need to access your pension freedoms in ways beyond NEST.

The professional self-employed will be the first to cotton on. If I was running a SIPP, I would feel seriously threatened by an aggressively marketed NEST (marketed as the Pensions Minister appears to be doing himself).

Once the self-employed pros have got their teeth into NEST , look out for NEST being offered as an executive pension for those who have run out of headroom for substantive contributions but who want a safe home for their retirement savings.

Finally, we may see NEST actively competing for Zombie occupational DC schemes (including the master trusts that can’t make the new rules introduced in the forthcoming Pension Schemes Bill).

In short, NEST has now got the potential to be used against the established pension industry- powered by its enormous financial capability (see below).

Will NEST eat the market?

People are resistant to handing their savings to a quasi-Government body and (let’s face it ) NEST is not a vanity play that you can discuss over a glass of Sauternes on the terrace. NEST will not give you that warm glow that you get when your financial adviser talks you through the progress of your SIPP , or when you get that invite to the AJ Bell box at the cricket.

But there are a lot of very shrewd judges out there, who well know that the cost of managing a balanced portfolio with a clear investment objective and sound investment governance is high. Add to this the security of having a premium investment and benefits administrator, together with high-quality investment reporting and you can see NEST becoming a rival to the premium cost wealth management services.

NEST should be on the menu of benefits of any flex-platform as an executive perk. NEST could cannibalise existing workplace pensions offering what amounts to an individual buy-out service. I will be petitioning First Actuarial to offer a NEST alternative to my workplace pension!

But – and here there is a but, NEST is now competing with the wealth management industry, the pension consultants – most of whom run premium master trusts and of course with the financial advisers who are keen to keep skin in the game.

Here is the rub;

NEST does not pay commission

With no obvious way for intermediaries to collect their fees from member’s funds, NEST is likely to be ignored as an investment option by most advisers.

This will bring up an awkward conversation when an adviser is asked whether funds can be removed from an existing platform, which may be paying the adviser 1%pa of funds under advice to NEST (where no such payment is possible).

Similarly, the Mercer, Aon , WTW, Xafinity, Goddard Perry, CBS, Hargreaves Lansdowne, True Potential and Intelligent Money workplace pensions, pay those consultancies fund-based management fees. These fees will come under pressure from NEST’s ultra low fee structure and from NEST’s stellar investment performance since it launched.

How will this play out?

Potentially, the NEST transfer offer could create a feeding frenzy amongst those with DC pots of whatever size.

Whether this feeding frenzy happens is dependent on the advice put into the market and the capacity of financial advisers to convince their customers to stick with what they’ve got.

As a consultant, I see NEST as an employee benefit – a premium product at a ridiculously low price.

As an investor, I see the chance of giving my money to the NEST investment team in return for such a low-charge as the first serious challenge to my L&G workplace savings plan.

As an employer, I am going to seriously think of NEST , at least for my staff who qualify for the American Express Platinum Service.

That’s what a £600m loan can buy you!


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Are pensions in crisis?


There has been talk of late of pensions in crisis. Infact the opposite may be true. Pensions may finally be getting back on their feet.

News that the retired tycoon – Philip Green has made a voluntary contribution of £363m into the BHS Pension Scheme comes as a relief to the BHS pensioners but also to the pensions system that has been tried and found to have a mechanism in place to deal with egregious behaviour.

Sadly, my colleagues in pensions continue to argue that there are 1000 BHS’s waiting to happen and that our system of occupational defined benefit pensions is an accident waiting to happen. But the actual state of these schemes, measured on what actuaries call a “best estimate basis”, shows that on average most schemes are not in danger of going bust unless the sponsoring employer goes bust.

My company has been publishing an alternative index to the rather gloomy figures put out by the Pension Protection Fund (PPF). The £400bn black hole that the PPF quote is based on schemes being wound up. Our alternative index is based on schemes continuing to operate with their current investment strategies.

FAB Index over the last 3 months Assets Liabilities Surplus Funding Ratio ‘Breakeven’ investment return-real
31 January 2017 £1,467bn £1,192bn £275bn 123% -0.6% pa
31 December 2016 £1,476bn £1,206bn £270bn 122% -0.7% pa
30 November 2016 £1,443bn £1,147bn £296bn 126% -0.6% pa

Our figures suggest that funds on average don’t even need an investment term that matches inflation (a “real” return) to pay every pensioner in full. It is tempting to misquote Oscar Wilde and comment that rumours of DB’s death may have been overstated.

There appears to be some support for this more optimistic view of pensions within the policy units of the DWP. Earlier this month, the Government published a Green Paper which referred to the FAB Index, it questioned whether we were in a pensions crisis and though it discussed the possible dilution of pension benefits where employers were particularly distressed, it didn’t conclude that this was necessary.

The Paper also questioned whether the Pensions Regulator needed to be given extra powers. The BHS settlement will give further credence to this view. There is unanimity that the two major Pension initiatives of the past fifteen years, the establishment of the PPF and the installation of auto-enrolment have been successes in terms of conception and execution. If we add to this the largely successful integration of the State Second Pension and the Basic State Pension into a single state pension then it could be argued that the state of UK pensions has improved markedly in the opening years of the century. Certainly we have moved on and Philip Green has not been a Robert Maxwell.

However there remains a deep issue which troubles politicians, actuaries and pension scheme fiduciaries alike. There is not the confidence among the general public in the pension system to encourage voluntary savings to anywhere like the levels needed to see replacement incomes above the current projected average of 38% predicted by the OECD for 2050.

If we as a country feel comfortable taking a 62% pay cut when we quit working, then the low replacement ration is not a problem. But ask any working person today if they were happy to sustain such a cut and I doubt all but a tiny minority would be prepared to accept it.

In truth, most of us will need to supplement our pension income (the 38%) with part time work or have a successful plan B such as a proper buy-to-let portfolio. The issues of adequacy are not going to go away until people choose to use the generous tax reliefs on offer to those saving using pensions. Working longer may be a solution for those who can works but there are limits to our health and to the labour market for older people. The Institute of Fiscal Studies has pointed out that if older people do not retire, younger people may not be able to get the jobs (let alone the houses) to save for their retirement.

Some point to compulsory pension contributions as the answer, others to an increase in the default contribution rates for auto-enrolment. I suspect that there is no appetite for compulsion in big Government, flies in the face of pension policy over the past 60 years.

Instead I expect to see a focus on the supply side of pension. Increased Government pressure on pension governance, transparency of costs and charges and a drive for greater innovation through the use of the block chain in the settlement of pension investments and payments. Coupled with this I expect to see demand from consumers for better ways to manage their pension savings and in particular demand for non-advised products that convert the capital in pension pots into the income needed to allow us to stop work.

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Nudge nudge , think think!

nudge nudge.png

say no more

I went to an excellent panel debate last night which was asking whether behavioural finance could improve pension outcomes – well DC outcomes – which as one panellist pointed out hadn’t got much to do with pensions!

A lot of the panellists talked about how they’d exploited/used/finessed behavioural techniques to achieve desired outcomes and the evidence of the power of inertia was clear.

It was clear too that “poor” behaviours could be changed to good behaviours through either using smart technology, smart communications or smart salesmanship.

Being smart at understanding how people react to things is of course nothing new. Call it emotional intelligence if you like, but the kind of genius that puts the blue into Persil powder or gets “marmite” as an everyday descriptor is a very rare and special intelligence (and it’s not artificial).

Paternalistic Coercion

Behavioural economics are taught to salesman in their inductions. The various closes I learned when I was taught to sell on the doorstep are now hard coded into me. They are how I get my way.

Interestingly, when I use these closes I am often described as bullying. That is the clumsiness of allowing others to see they are being sold to. The best techniques we saw last night were not obvious , they were so subtle that one of the panellists labelled them “Paternalistic Coercion!!

Behavioural economics informs the salesman and is at the heart of the marketing process. But it is only a tool for implementing strategies. The strategies themselves are all the more in need of proper governance where “nudge” strategies are employed, since their is commensurably less friction in the decision making process.

So for this paternalism to be benevolent, there must be a higher level of governance that ensures people don’t end up with bad products.

I made the point last night

PPI relied on desperate borrowers and was (generally) a bad product sold through inertia

Grooming relies on insecure young people and is a criminal activity that works through minimal disturbance.

Many Workplace Pensions are set up by employers for staff based on ease of use.

What nudge and inertia selling do

Nudge gives the impression that a choice has been made, (7m people have joined workplace pensions). But the choice is not made and the impact of the choice is deferred. You have to nudge a long way for people to notice what being in a workplace pension means.

Nudge and inertia selling assume good outcomes but they do not create good outcomes, they just change behaviours.

The moment that the Government allowed choice into the equation, and employers had to choose a workplace pension for their staff, a new element emerged. There was no qualification on what should be chosen , the employer did not need to chose a “good” or “suitable” pension, they just had to choose a “qualifying workplace pension”.

But the rules of “qualification” could hardly be described as onerous, there was no question about suitability or quality, all that was needed was a vehicle that took money and invested it in a compliant way.

Nudge and inertia cannot define what makes for good

The critical mistake in auto-enrolment was that when choice was introduced, there was no mechanism established to measure suitability, quality, security or sustainability. There was no measure of value for money, there wasn’t initially rules about charges or how workplace pensions rewarded the sales guys. We had drunk at the fountain of behaviourism and got drunk on the cool aid.

I asked a prominent workplace pension provider if he was worried that so many of his participating employers had no idea whether his product was good or bad. He answered “no”, he had great conviction in his product and his fiduciary process.

But I know he does not know his customers – other than through market research. He does not know the employers and he certainly doesn’t know his members.

He is relying on a decision making infrastructure built entirely on trust. But that superstructure is not necessarily to be trusted. PPI was bought on trust, child molesters are let through the door on trust, it is possible for workplace pensions to auto-enrol ordinary people with the same wicked consequences.

There has to be a fiduciary purchaser if Nudge is to work.

In last week’s debate on whether an employer has a duty of care to choose a suitable pension, Richard Harrington (the Pensions Minister) claimed that the information made available on tPR’s website was sufficient for small employers to make smart decisions.

It is not.

The employer is given no practical assistance by Government in choosing a workplace pension suitable for staff beyond some basic compliance checks (MAF, IGC, Charge Cap, contribution process)

This is not enough to prevent a bad decision being taken (let alone to help a good one).

There will come a time when employees will ask why his or her employer chose the pension it did, and there will usually be no answer. There will be

  • no reason why letter
  • no professional sign off
  • no evidence that due diligence has been done
  • no memory of what went on (assuming decision makers move on)

I came away from the meeting , impressed as ever by the power of behaviourism but depressed by the lack of thinking around the fiduciary structures that employ these behaviourists to change the way we do things.

Whether at Government level, at provider level or at employer level, we seem to be measuring success in terms of compliance with the rules and ignoring whether the outcomes are good and bad.

People have choices to opt-out and have every right to ask what they are opting into. They generally don’t because they trust employers to choose carefully.

We must address the question of how our workplace pension are being chosen. We must think while we nudge, we cannot allow auto-enrolment to be unbenevolent coercion. We must introduce friction at some point – some due diligence.

Otherwise AE is simply a marketing trick, a sleight of hand and a recipe for recriminations at a later stage.court

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Unmortgage your kids into home ownership!




I guess most people who read this blog are old enough to own their own house. But what if you were one of those twenty or thirty somethings who have done everything right- and still could not buy your property.

The recent white paper on housing was long on intent, but short on good ideas.

So here’s a good idea courtesy of my friends Ray and Nigel of Unmortgage.

What if, instead of renting a house you could never buy, you lived in a house were busy buying.

What if, instead of worrying whether the blu-tak you put on the wall would lose you your deposit, you were free to decorate the place how you liked.

What if, instead of downsizing to somewhere you didn’t want to live, you started buying the house you and your partner and the sprogs could be really proud of?

Here’s how Ray and Nigel are dreaming of making this happen.

They’re out there talking to pension funds and insurance companies and asset managers who want to invest in residential properties with young striving tenants.

And they’re finding that pension funds and insurance companies like the idea of helping young strivers to a point where those strivers can get a mortgage and the properties they’re renting. And in the meantime, they like the 5% rental yield that the strivers are paying them as they build an equity stake in the property.

They’re finding that the young strivers are dreaming of increasing their equity stake in the property. not by borrowing but by saving money directly into bricks and mortar. Buying into the property brick by brick, month by month till they have got to an equity holding sufficient to buy the pension fund or insurance company out.

A bit of a dream, a bit of reality

The dream is becoming reality, Unmortgage are currently squatting in the offices of Cushman and Wakefield, making plans. They’re collecting data on all the postcodes that these young strivers want to live in and understanding what the profiles of the strivers who most need their help.

Last September, the Times ran a story on Unmortgage. Within days they’d had 4500 hits on their website and 450 strivers applied to do a consumer trial. The average strivers were couples earning £80,000 between them with £40,000 saved. Not having access to the bank of Mum and Dad, they were locked out of the housing market and deeply unhappy with their residential status.

They started sending Ray, Nigel and their friends details of the properties they wanted to buy. They didn’t want to buy studio flats, they wanted to buy properties that suited their lifestyles and those properties cost a lot of money, often £400,000 or more.

The dream of buying these properties remains unrealised. Ray and Nigel and their friends struggle to get the institutional investors to do more than applaud their efforts. This is not enough, they need a Legal & General or a Hermes or an Aviva to press the red button and swing the chair round!

How it works

Go to and find out how it works. It’s pretty simple, you find a property, Unmortgage find the investor and you love your home.

Valuations are arrived at, through the databases of properties Unmortgage are building. These guys are data specialists. Transactional costs can be managed to best advantage, initial investment from each striver can be from as low as 5% of the property value.

Increasing your stake in the property is as simple as overpaying your rent!

So push the red button and swing that chair!


Ray and Nigel need a few consultants to do more than smile, consultants to get Pension Trustees to organise money their way! They need fund managers to invest in the limited partnerships and they need insurers to seed the funds with their own capital.


We need the Government to do more than ask where the innovation is. We need them to recognise this is the innovation! We need them to look carefully at how they can help make these partnerships between investors and strivers work. That means looking at Stamp Duty and taking a view.

Then Ray and Nigel and their friends can start turning dreams into reality.

I know that some readers will be thinking that I really should be writing about the homeless, or those just getting by. These people do need help but it’s not this help.

If you’re of my kind of age, you probably own the bank of Mum and Dad and you may well have kids who are striving and failing. You may well be the kind of person who is either advising, or a fiduciary or even an executive of an asset manager or an insurer.


In short, you may be in a position to help. If so, contact

Ray at


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5 Things I want from today’s DB Green Paper


Why Pension  Schemes matter (Source ONS)

The DWP is due to publish its Green Paper this morning. It’s an important initiative; -our defined benefit schemes are under threat but they have the potential to do much good not just to those in them, but to those who benefit from their investment.

With private annuities in the doghouse, many people have no private pension plan, they simply have a retirement savings plan. We need to get people back thinking about insuring against extreme old age, which is why I’m kicking this blog off with a graph showing how much more likely it is we’ll live too long than die early.

We still have pensions in this country, they are paid from collective arrangements organised to pay a defined benefit.

Of course not all DB schemes are funded, the biggest ones, including the state pension are Pay as You Go and funded from general taxation. My 5 item wish-list relates to the funded schemes and excludes the NHS, Civil Service, Teachers, Firemen and Police Schemes.

I hope that the Government will talk about these taxpayer funded schemes but not make them the focus of the paper; it’s the funded schemes that need immediate help.

My five item wish list

  1. NO DUMBING DOWN on existing promises. It is easy for Government to give away other people’s money. But the promises that have been made to those in final salary schemes can’t be rescinded or diluted. They are what they are, what the trust deeds say they are – even discretionary grants, once made , are promises. So long as there is a company to back these promises, they stay. Judging by the smoke signals (an article in this morning’s FT by DWP Secretary of State- Damian Green), benefit promises on accrued rights are being questioned.
  2. NO ENFORCED CONSOLIDATION of small schemes. The PLSA are still to publish its consolidation report, but the vultures are circling. Yesterday Willis Towers Watson announced that they would be providing a one-stop- shop for large schemes and implied this was the end for small schemes. I say b*ll*cks to that! The beauty of the tapestry is in the weave, of those 6000 Dhope B schemes, perhaps 80% are deemed small, heterogonise them and you’re left with a dull cloth without beauty or ownership. These schemes form part of our corporate culture. Small is Beautiful, read Hilary Salt’s epic blog on this.
  3. YES TO  MORE PRODUCTIVE ASSETS. That so much of our DB funding has been diverted from growth assets into debt financing is a national shame. How can we expect to meet the challenge of BREXIT if we put ourselves on the back foot. Richard Harrington is right to be ashamed that the best assets in his constituency are owned by a Canadian not a British pension fund. Let’s put our pension funds back to work,
  4. YES TO A GREATER PROPORTION OF GROWTH ASSETS. Let’s use this DB paper to nail the idea that Trustees have a choice in how they invest and that buy-out is not the only option. TPR has been guilty in the past on over-enforcement of de-risking and promotion of self-sufficiency. The PPF is a safety net and should release Trustees to invest with confidence , employers to accept risk on the balance sheet and Government to give clear signals to encourage those schemes that wish to persevere – to invest for the long-term,
  5. YES to CDC!    CDC is not a dirty acronym. It’s a way of accruing future benefits with a defined contribution from the employer and with conditional benefits for the employee. It is DC+++ , not DB(minus). If we are to have a long-term contract based on collective endeavour, then CDC is the way forward. If the Government is serious about providing people with an alternative to individual drawdown and annuities as a way to spend the DC pot, CDC is the answer.

So there’s me throwing down the gauntlet and asking Government how it’s going to respond. Of course my agenda won’t be the Government’s and I’ve no idea what the DWP have inside its Green Paper.

Hopefully by the end of the day i will be able to conclude this blog with an assessment of how the Green Paper fares against my wishes, whether I see it as an opportunity secured or lost and whether it shows a Government and Minister with a positive post Brexit strategy or with a strategy that’s a wimpy capitulation towards the lowest common denominator!

Life’s too short for many more consultations, let’s hope that what comes out of this Green Paper is positive and that we use it to restore nor undermine- confidence in pensions.

Or to use Damian Green’s sign off paragraph in the FT

The UK also has a proud history of consumer protection, and this green paper will be another step in making sure that we are delivering a pension system that works for everyone.



Here’s the link to the Damian Green article


Here’s the  opportunity

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Choosing a workplace pension

how to choose

help of a proper firm of actuaries!



Last week, Parliament debated an amendment to the Pension Schemes Bill, suggested by the Shadow Pension Minister and quoting this blog. I am happy to have put words in Alex Cunningham’s mouth, the Government have been cavalier in its policy and is leaving employers exposed to the kind of class actions common in the USA and well known to our banks and insurers in the UK.

Employers are choosing workplace pensions like NEST without being able to give any reason why. If an IFA chose that workplace pension as a regulated activity, the IFA would have to justify the choice in a formal “reason why” letter. But if an accountant or its payroll tells an employer to use NEST or similar, because it is compliant and suits its payroll, the instruction isn’t even recorded.

What is left is a black hole of ambiguity into which employers, business advisors and even the DWP could find itself sucked. If I am sounding alarmist, it is because of the complacency of the DWP downwards

Here is the Pensions Minister, speaking from the position adopted by his department, one that he has inherited. I have written to Richard Harrison and asked him to discuss this. Whether I get the meeting or not, I want to publicly challenge what he is saying;

here is the Pension Minister’s opening gambit

I thank the hon. Gentleman for his contribution with the new clause, but I respectfully give him my opinion that he seems to be fundamentally misunderstanding the whole regulatory system of automatic enrolment.

So what is the regulatory system?

So long as an employer chooses a scheme that meets the criteria—we have been through all the criteria and the whole regulatory and legislative system is behind that—the scheme qualifies for AE. The employer —which may be a he, she or it, if it is incorporated—cannot just decide on any old scheme. There is a significant regulatory hurdle in the Bill.

The hurdle may be regulatory but jumping (or complying with) the hurdle does not mean the employer has completed its duty of care to its staff. The common law concept of duty of care is decided in a court beyond the influence of the DWP or tPR. Common law is common sense and judges are the judge of that

The employers’ duty is met by scheme choice, because that is what auto-enrolment is.

I quite agree, the choice of workplace pension scheme is at the heart of the employer’s duties. It is the decision which will have most impact on its staff’s future and getting that choice wrong has long-term consequences, much greater than the short-term aim of keeping payroll happy.

It is not like a defined-benefit type of scheme, where the employer has to ensure that the contributions are enough to be able to pay out what they are contracted to pay out in the scheme documentation. They have to make a reasonable decision based on the whole authorisation regime. I argue that asking for more would be inappropriate and burdensome for employers.

Here is where I part company with the Minister. The duty of care falling on an employer choosing a workplace pension is exactly the duty of care in meeting its defined benefit promise, it is variously called the exercise of its “best endeavours” or to use an easier phrase “to do its best”.

It may help the hon. Gentleman to see my point if he looked at the regulator’s website—he might have done so already—which has comprehensive guidance for employers.

Here the Minister loses the plot. The page an employer lands upon

choose a pension.PNG

Note that unlike the Pensions Minister, tPR does not place choosing a pension at the heart of what auto-enrolment is. Infact, employers have to navigate a complicated process to get to the screen the Pension Minister refers to.

The same goes for business advisers; choosing a pension scheme does not spring out at you on this list


Under the new clause, a typical employer would be doing exactly what the hon. Gentleman says is inappropriate: they would basically be doing what their accountant or adviser tells them, because most employers, particularly the small ones, by definition do not have this kind of knowledge. They are not professionals in this area; there are there to run their own business.

Here I need to talk with the Pensions Minister. This is what accountants are being told by his Pensions Regulator.


Navigate your way through these links and you come to a two page document which basically says you should make your choice based on what works for payroll. If you don’t believe me , press here

The guidance given by tPR to advisers is totally inadequate and the advice given to employers no better. Employers are being asked to choose a workplace pension based not on what is right for staff, but on what is right for payroll. Here are tPR’s key points on choosing a pension plan for your staff


There is simply no help for employers and business advisers about the “additional help them may need”. The whole navigation is a cul-de-sac which is jammed with confused advisers and employers.

Small wonder then that Richard Harrington concludes

I do not understand, whether from a personal or a Government perspective, how asking them to do meaningful checks after they have gone with an approved and regulated scheme would add anything to the process.

If there was no help to employers beyond the Pensions Regulators website, the Pensions Minister would be right, but there is help of this kind and its available to every employer in the land for (at most) £199.

So far, has helped over 12,000 employers to choose a workplace pension. The only time that this organisation has been mentioned in this debate has been from Alex Cunningham’s intervention.

I will challenge Richard Harrington’s question. Small employers can do meaningful checks through us and we’re backed by £8m of professional liability insurance. We’re inside Sage’s pension module and used by all the large payroll software providers.

Every week hundreds of employers choose their pensions wisely using our software. Perhaps Richard should choose a workplace pension our way – for his staff!


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John Ralfe, Ros Altmann and the cost of central heating.

John Ralfe kindly promoted my article on the lack of diversity in the AE review.


Responsible John

By happy coincidence, I can promote an article of John’s in the FT. You may not have access to the FT online so let me quote John’s conclusion to an article “Don’t cash in your final salary pension scheme (link below)

But most people are not so wealthy and their pension is a large part of their overall retirement wealth, so those guarantees are very valuable. Despite eye-watering multiples for cashing in, do not think now is a clever time to take the money and invest in equities.

The higher expected return of equities versus bonds is just the reward for the risk of holding equities. It is not a guaranteed “free lunch” or a “loyalty bonus” for long-term investors.

John and I agree on how he got to his conclusion, he asks  the $64m question

So how can I decide if the higher expected return of shares versus bonds is worth the higher risk I am taking?

and concludes that most people cannot manage the risks inherent in equity investing – at least not when they’re in need of regular long-term income.

John is writing on behalf of ordinary people, the ones who are beguiled by pension freedoms, freedoms that are already proving illusory. The people who may struggle with their heating bills in years to come.

Irresponsible Ros

Ros Altmann is also writing about transfers this week; she too is writing for ordinary people but her conclusion is radically different. Writing for FT Adviser she concludes

More DB transfers could prevent care ‘disaster’

Ros seems to have adopted the position that the pensions we have been promised from funded DB pension schemes are an unnecessary luxury that had better be dismantled and used for social care. I do not agree with Ros and I’ll focus on just one of her statements to explain why

She argued that a £50 a week final salary pension could be worth around £100,000 as a transfer value.

As an income, she said this might not be worth a great deal, but as a lump sum, it could be “hugely” beneficial in helping to pay for care

But that £100,000 transfer value isn’t exchanged for nothing. That £50 per week will be around for ever, the £100,000 is only around before the pension is in payment.

The direction of travel is obvious, granting property rights on DB pension in payment – a freedom that is as illusory as the prospect of a secondary annuity market.

Ros has, I fear, lost touch with the importance of £50 pw to pensioner households. I travelled on a bus yesterday talking to a pensioner who was about to walk home in the middle of the night for 40 minutes.

You’ll be cold- I said.

Not as cold as when I get home – he said

Haven’t you got central heating – I said

I have but I can’t afford to keep it on – he said

I am not belittling the problem of funding our long-term care bills, I am preparing to help fund those of my parents (which is precisely why I didn’t take a lump sum but chose to draw my pension as pension).

I don’t want to see homelessness , or see those who have homes unable to heat them, I don’t want people giving up their heating money in their fifties and sixties to fund for potential social care.

Meeting the costs of central heating

What we need, is a way to help those who have cash (in a DC pot) convert cash to income. Taken as a workforce, most of us in Britain have only one source of guaranteed income in retirement – out State Pension. Most of us will have a pension pot which is unlikely to afford us the luxury of £50 pw.

We should be focussing our energy on finding ways to give people that £50 pw from an average DC pot. Currently the average DC pot is around £35,000.

There are two ways to do this

  1. Encourage people (and their employers) to put more in so that the pots are bigger
  2. Find ways for people to take more out of the pot, than they can get from bonds (annuities)

The AE review is rightly looking at question one (despite its failings in composition and TOR).

The Pensions Act 2015 put in play the collective mechanisms we could use to create better collective pensions.

We are addressing how to increase the pot, now we must address how to make the pots pay. When we have addressed the primary need, income in retirement, then we can address the secondary need, insuring against rising healthcare costs.

John is right, we must keep our current DB pensions infrastructure in place, both at a personal and societal level, we need pensions

Ros is wrong, we should not swap pensions for cash. We need to find a better way to solve our care funding problems , than by turning off the heating in our houses.

John Ralfe – Don’t cash in your final salary pension scheme –

Ros Atlmann – More DB transfers could prevent care disaster –

Posted in annuity, auto-enrolment, pensions | Tagged , , , , , , | 3 Comments

Small employers need a voice in the AE review


Yesterday I reported on the male hegemony of the three chairs of the advisory groups for the Automatic Review. There is a little diversity in the composition of the rest of the group.


It’s comforting to see familiar names who have been involved in auto-enrolment from the early days, but this is still an exclusive group with a bias towards policy and inexperience with practice.

The organisations making or breaking auto-enrolment in the next five years are not represented. Payroll has no rep, nor the small accountants who will take liability for much of their payroll bureau’s work. Nor is their anyone with an advisory hat on (at least with regards the employer’s duties with regards pensions.

It is good to see the Terms of Reference talking about balancing the needs of employees with the costs to employers (and minimising costs to employers. But it is not obvious that any of the Chairs or panels have any idea what small employer costs really are.

Enough on composition – what of proposition?

Closer reading of the question the review is to answer has not resulted in any greater excitement for it. I spoke with one payroll guru yesterday who has responded to all AE consultations from the outset. He told me he was inclined to ignore this (major) review altogether.

The central theme is of engagement. The review is asking how we can get people to fall in love with workplace pensions. But it doesn’t use those words, instead it uses the periphrastic phrasing of the civil service.


The appropriate response is to be found on our heard on our football terraces

“you what, you what , you what you fuckin what!”

If the review is going to be conducted in these terms it will be completely irrelevant to the needs of ordinary employers and their ordinary people. It is a simple business saving  money; you start with nothing and get to a point when you have a meaningful amount. We often think that amount is when you can buy a reasonably priced family car with the proceeds.

This is well known and has been discussed ad nauseam in conferences decades in decades out. We have a market based auto-enrolment system, the market is intent on increasing member engagement so it can have economically viable auto-enrolment products.

What is needed is clear products which do what they say on the tin. Cleaning up the mess of cheating practices that has marred Dc pensions since the 70s should be the top priority of this review. Instead product (as in a chat about the level of the cap and what it should include) is kicked into the long-grass.

Similarly, the role of the fiduciaries – the people we trust – to make sure member’s interested are represented, is not on the agenda. I trust people like Nigel Stanley and Jocelyn Blackwell to act for the consumers and it’s good to see Jane Vass speaking up for the older worker (and those beyond work). But there is no talk in the TOR or the questions, about how trustees and IGCs can be promoted as savings champions. There is instead a very dangerous couple of  paragraphs.

savings.PNGIn amongst this gobbledegook is a ministerial project waiting to get out. Jo Cumbo is not prone to speculation


This is the kind of nonsense that happens when effective lobbyists get in minister’s ears. The idea that the SIPP providers (who are undoubtedly behind this) can disrupt the orderly progress of people into employer chosen workplace pensions is very attractive and very dangerous.

It is attractive, because it plays to the libertarian right (who brought us personal pensions, freedom of choice and now “other savings” such as the ISA family. It is hugely attractive for the SIPP providers (Hargreaves Lansdowne especially) as it makes them inheritors of the wealth of auto-enrolment (without having to do the nurturing).

It is of course not helpful to ordinary savers at all. They do not want SIPP functionality, they do not want to be choosing their providers – they never have and never will.

A thoroughly bad idea

And of course this dangerous and silly idea would make payroll’s into provider hubs. Payroll are not designed to be carousels for the delivery of profits to financial services providers. Member choice of provider should not be on the agenda.

The hijacking of auto-enrolment by those with an “engagement agenda” is a very real danger arising from the lop-sided composition of this review.

Instead of providing greater freedom, this review should be providing greater member protection. I fear this review is designed to open the door to many of the bad practices that we have been banishing from workplace pensions, over the past five years.

hi res playpen

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The AE review and the pension stitch up.

7 years on from our last review, auto-enrolment is back under the microscope and the Government has published some questions they’d like answering**.

They’d have more chance in getting them properly answered if they put the matter in the hands of people responsible for doing the work.

Instead of reaching out to the small business , their payroll reps and business advisers, Richard Harrington is doing what big Government tends to do, and going to the usual suspects.

  • Ruston Smith, Trustee Director at Peoples’ Pension
  • Jamie Jenkins, Head of Pensions Strategy at Standard Life
  • Chris Curry, Director of the Pensions Policy Institute

Anyone who currently works helping employers stage, will be asking “who”? Here are my alternative bios.

Ruston Smith – serial committee sitter!

Well much as Ruston might like his work at People’s Pension to qualify him, it doesn’t. Ruston has spent most of the past few years knocking around at the PLSA, his day job is head of People and Pensions at Tesco and he also sits on the Standard Life Master Trust. Ruston is a  totemic figure of the pension hierarchy but he is not the people’s champion!

Chris Currylifelong policy wonk!

Chris is ex DWP, ex ABI and now Director of Pension Policy Institute, which is a noble institutions that mines data and is an independent source of research for the pension industry. Chris is a great bloke but he is an observer.

Jamie Jenkins – lobbyist!

Jamie is one of the worlds greatest billiards players and Strategy Director at Standard Life. He is a diplomat, a lobbyist and a Standard Lifer! He is a champion for the insurance industry but not for you or I.

Individually they are great – but collectively they are no good.


Cover -engage- contribute (what the AE will look at)

What is happening today, and will continue to happen in the next few years, is that small employers are complying with a set of rules that cover them , but don’t engage them. The contribution levels that employers are currently making to auto-enrolment are low but they are about to rise.

The DWP has correctly identified the key issues for the review as

  • coverage
  • engagement
  • contribution levels

the second term of auto-enrolment – following the 2010 and 2017 reviews will be measured by how many of the 12m not currently auto-enrolled are covered, to what extent employers and staff are engaged and to what extent we are able to keep people in at 8% rather than 2% of the AE band of earnings.


Great but no good

Three men following the three men of the 2010 review *. Nobody young, nobody female and nobody from outside the pension magic circle!

Nobody from the Federation of Small Businesses, the accountancy or personnel bodies, no one from the CIPP, no Kate Upcraft, Karen Thompson or Ian Holloway. None of the people who have invested their time preparing payroll bureaux, accountancy firms and the small employers to do their duties!

Today I am at the Cintra Payroll Conference in Newcastle, last night I was with payroll people (discussing auto-enrolment over a few ales), tomorrow I will be at the mighty Sage. It is these payroll software companies , their trainers, their clients, that have kept auto-enrolment afloat. The Pensions Minister and the Pensions Magic Circle are pleased to take the credit, but the work is being done by these people.

I am really affronted that they have no representation on this panel. I fear that those who are asked to contribute to this review will consider it for what it looks like – a pensions stitch up.

I know that the people I was talking to last night were mightily pissed off too. If Government is serious about listening to the nation (rather than sitting in a pensions echo chamber) it would have had at least one person representing the interests of payroll.

But it isn’t interested in the views of payroll or of the business advisers, or even of the small employers. It will continue to impose policy on these groups who will have no say in it , no engagement – they will simply be asked to contribute to other people’s CVs.

On behalf of all the people who I know, who will never be heard , but who work ever so hard, I would call on the Pensions Minister to ensure that advisory boards on auto-enrolment in future , comprise of and are focussed on , people who manage auto-enrolment.

A postscript for the consumer

You may remember that this review will also be dealing with the AE charge cap (which is tagged onto the questions as an afterthought). I see none of these three as representing the interests of the consumer. I hold out little hope for a fully inclusive charge cap as intended in 2013.

We will have to wait for the FCA to pronounce and the IGCs to deliver, the DWP are clearly not engaged.

* the 2010 review (excellent) is here.

** questions and TOR here

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We need a home ownership detox!


A home ownership addiction

An important day for British Housing Policy

Today, the Government will publish its white paper setting out its long-term housing strategy. This has implications for everyone living in the UK, including the homeless, those who rent, those who own and those who rent to others. It is a white-paper day for house-builders , those who manage our rental stock and it may even redefine our long-term attitude to saving.

Ever since I left college in 1983, the aspiration and expectation of working adults in the UK was to own their own home. This came before any form of financial security. Home ownership has become a substitute for life assurance, income protection and a retirement income. Household equity is – when all else isn’t – a source of national security.

For my generation, the chance to own a home grew over the 25 years to 2008. Cheap credit, available with minimum borrowing criteria and no deposit down , enable us to get on the housing ladder. Once one house had been purchased, more could follow. There was no need to have a business or even be in business, buy=to-let has become a lucrative hobby for many people.

But as council housing stock diminished and first generation right-to -buy properties became buy to let properties, the numbers of starter homes for future generations slumped. First time buyer prices soared which was ok till 2008; but then cheap and easily accessible credit ran out.

It has been since then that the phrase “the broken property market” has been on people’s lips. The fact is that most of us my generation remain over=dependent on property for our financial security and we have insufficient liquid assets to meet our cash flow needs in later life.

Meanwhile, our children and grandchildren struggle to get out of the family home and are becoming increasingly frustrated with the generational inequalities that have given so much to the baby boomers and so much less to them.

Universal Home Ownership – a broken dream

This is why this White Paper is important. This Government cannot pull the comfort blanket from those who have, nor can they pretend that Margaret Thatcher’s promise of homes for all is still realistic.

But if they are going to inspire another generation to aspire to financial security without home ownership, it will mean a massive detox from the expectation of risk-free equity accumulation created by a highly-geared mortgage.

It will also mean a radical reform of the private and public rental sector. By “public”, I mean “social housing” which must become just that, a type of housing as universally popular as social media. Social housing has yet to achieve this status. As well as this quasi public (not for profit) social housing, we need a properly organised build to rent sector.

I get encouraged when I visit Legal & General and see their commitment to building new homes for rent. Visit the strategy pages of their website and you can read about how they are helping Britain to build more homes which people can afford to rent. But the 131,000 homes we built in Britain last year was nowhere near the numbers needed (est. 250,000).

A high number of those houses were specifically built for the top-end London and home counties market, but I was encouraged to hear this morning of a new development of 4.500 properties in Wembley Park which will be rented by the developer and not put on the market.

The great British ownership detox!

I have never been a great property owner, I have a minority interest in a flat in Central London , most of which is mortgaged, I am a lucky one benefiting from un-naturally low borrowing costs and the prudence of a more financially gifted partner!

I am a great saver and a profligate spender – I have my money saved for retirement and a boat on which I wish to spend much of my later life!  Houses do not feature at the heart of my financial well-being!

So it is relatively easy for me to call on the Government to instigate a property de-tox on Britain as a whole. I mean by “property de-tox” a revaluation of the centuries old exaggeration of rights to the owners of property and an enfranchisement of those renting as fully paid up members of our society.

That means a step down from the top of the ladder (from where our leaders have given us that “hand up”). It means recognising that it is not so bad at the bottom of the housing ladder (where politicians should be spending more or their time) and it means that our businesses, bank, insurers, pension funds and asset managers should be clamouring to get a part of a new kind of action.

If we are to build a million new homes in the next four years (or whatever the target it), then I want my pension fund, my ISA and my direct investments to be directed there. That seems a proper place for me to get long-term yield to match my income needs in retirement.

So I look forward to this housing paper, due to be published at noon today, with a lot of excitement. I now know some of the people who have done the thinking behind this paper and I trust them and their intentions.

We need a home ownership detox, we need to ensure that homelessness is reduced and that not only those who are living on the streets but those who cannot but live with parents, have a place of their own. We need to empty the hostels and find a place in society for those who feel marginalised because they are in social housing. We need private companies and financial institutions to work together “building to rent”.

Above all, we need to wean people from the addiction of believing home ownership , the be all and end all of financial planning. You cannot buy a sausage with a brick, in later life – which we will have a lot of – we need those sausages!


you can’t buy a sausage with a brck

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Forget history, here’s “my story” – SNAPCHAT!


Nobody over 30 gets Snapchat!

Like nobody over 30 got Woodstock, or punk rock or any other self-defining trend of the past 1000 years. I am quite sure that back in the 1730s or the 1510s, there were “snapchats” that made sense to those using them, as their way of stating who they were and how they talked to each other.

The question that people should be asking as they stop to consider Snapchat’s current multi-billion pound valuation – is whether the IPO can buy them more than a disappearing ten seconds of value. I’m not being a boring old fart and poo-pooing a pop trend as the folly of youth.

Punk was for me a way for me to get an identity distinct not just from those older than me, but from those around me. I was my image as a 16 year old, I had the haircut, the clothes, the music and the attitude, I defined myself by these things, most of which I borrowed from the New Musical Express, Sniffing Glue and a couple of friends who went regularly to London (the Kings Road).

The way snap chat works is simple, you start by taking a snap on your phone, you add some chat (if you like) and you share your identity statement with a friend or friends. The most durable aspect of this is that you are building up a story of your day, which you can look at when its finished so that you can make sense of it.

Then it all goes away and you start again, because you want to live in the present, not your past.

Put the snaps together and you have your story, your identity is your snapchat story. That’s who you are, and if you are 16 and trying to find that out, snapchat matters to you.

Hands off it’s my story

The great value of your Snapchat story is that it is “yours”, your pictures, your narrative and it’s entirely free of intervention by those trying to educate you to be something else.

Thankfully, those who are constantly trying to shape our children into being financial automatons, assiduously saving for the future, managing their credit scores and avoiding reckless expenditure have not got snapchat.

It is however , only a matter of time , till they do. I predict that the moment that the financial education/empowerment/well-being brigade arrive on snapchat, will be the moment for the youth of tomorrow to reinvent their ways of defining themselves.

In the meantime, the only decent thing for people over the age of thirty to do with Snapchat, is to let it be. It’s full of crappy stories from people who want kids to redefine themselves their way. You might think you’re reaching out , but this is what your kid’s hearing

When I’m drivin’ in my car
And a man comes on the radio
He’s tellin’ me more and more
About some useless information
Supposed to fire my imagination

You might think you’re doing your kid a favour but this is what he’s saying

When I’m watchin’ my TV
And a man comes on to tell me
How white my shirts can be
Well he can’t be a man ’cause he doesn’t smoke
The same cigarettes as me

And you want to know what’s going on in that kid’s head?

When I’m ridin’ round the world
And I’m doin’ this and I’m signing that
And I’m tryin’ to make some girl
Who tells me baby better come back later next week
’cause you see I’m on losing streak

What Snapchat is , is a place where kids can find out what they’re like with other kids. It’s a place where sex and money and information and all the stuff Jagger was trying to get his head round, are there in front of you. There but not there, available but only on someone else’s terms.

Sorting all this stuff, prioritising it around, is the way kids define themselves and it isn’t helped by people selling satisfaction (or holding it back). Snapchat, helps make sense of things to kids, that is why it is so valuable. It is valuable right now , today, it does it better than just about anything else which is why it is the hottest social media out there.

I predict it will be destroyed, as all the other trends of the past thousand years have been destroyed by kids reinventing the way they choose to define themselves, shaking off the outside interference of those selling them crap – and that includes people like us selling financial literacy.

Snapchat will be history when it becomes somebody else’s story, right now – for millions of youngsters it is “my story”. Let it stay that way.

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Procrustination; Con Keating on JLT’s black hole.


  • Procrustination

If that word does not exist, it should; it is far more appropriate than the current euphemism “consolidation”. This past week we saw the publication of JLT’s paper: How do we get out of this pensions ‘black hole’, and we expect, from its many previews, the final report of the PLSA’s DB taskforce to have as its central theme: “consolidation”.

This week, at the TUC conference, I heard lines describing trustees’ duties such as:

“to ensure that all of their members’ benefits are paid out in years to come”

and to ask the question:

“does an action reduce the level of risk to members’ benefits.”

It even extended to a particular and popular narrative:

“Companies are trying to reduce their covenant obligations”

A more accurate narrative would be that companies are trying to counter the arbitrary and capricious additional costs of the procrustean bed of regulation, embodied in current actuarial and accounting practice.

None of these descriptions is true or fair. The obligation of a trustee is to secure member benefits.

The amount of these benefits at a point in time is a matter of fact; it is derived from the contract with the employer sponsor and the time that has passed since the award. It emphatically does not involve consideration of any future events, other than benefit projections.

The idea that trustees should be concerned with the sponsor covenant, with respect to future developments which may or may not occur, is nonsensical. It is an article of faith handed down by the Pensions Regulator, presumably in pursuit of their objective:

“to reduce the risk of situations arising which may lead to compensation being payable from the Pension Protection Fund (PPF)”.

This objective conflicts with sound scheme oversight and management.

One of the most perverse consequences is that this penalises disproportionately precisely those employers who offer their employees the most generous pension terms.

The true objective – securing member benefits – is achieved by holding an amount of assets sufficient to discharge the accumulated value of awards made to date. This is not some present value of projected benefits, however derived.

Depending upon the terms of award, and developments in financial markets, on sponsor solvency or other liquidation, it may or may not be sufficient for a member to buy equivalent benefits in some market.

Given the efficiencies of the collective risk sharing and pooling mechanisms of DB schemes, it is to be expected that, on average, it would prove insufficient. In this, the DB scheme member is in the same position as would be a DC scheme member who owns the (secured) public debt of the sponsor company. This does not present a problem for the PPF, though it would require revision of the manner in which they set levies. In any event, they have been setting levies far above those economically or financially justified since inception.

Many courts have opined that DB benefits are deferred pay; they are occupational arrangements. From this it is immediately apparent that the full value of benefits may only be expected to be achieved after the complete passage of time. One of the principal problems with the regulatory, actuarial and accounting standards is that, by viewing the pension scheme and fund as a stand-alone entity which must be funded to provide all benefits, it weakens this linkage.

“Consolidation”, better procrustination, takes this to its ultimate limit.

The specific conclusions and recommendations contained in the JLT report warrant some discussion. The British Steel case is cited as evidence of a deficit-based need for change, when in fact the scheme is now in surplus on a technical provisions basis and if the alteration of the basis of indexation (from RPI to CPI) is agreed by members, will be able to continue as a stand-alone entity.

This has not required any change in regulation. The Brexit decision is also cited, though I worry when I see the specific ‘advantages’: no application of European Directives, or appeal to the European Court of Justice.

The paper notes the disparity in costs between DB and DC; a correct concern.

This week I listened to a very, very long litany of problems with DC arrangements – as savings, they really cannot properly be called pensions. Elsewhere than pensions, such a profusion would usually be taken as strong evidence of a wrong and inappropriate model. It has of course severed the link to the sponsor employer; these are no longer either deferred pay or properly, occupational pension schemes.

Given the relative efficiency of DB versus DC, one of the most remarkable features of recent times has been that the valuations of DB are so overblown that DC may be more attractive for many members, and a transfer flood ensues.

The Regulator is complicit here. Their reported stance, which might be summarised as:

if you believe the employer covenant is strong, then you think stayers will have all benefits paid in full, so you shouldn’t be reducing the benefits of leavers,

is more than a Catch 22; it calls upon trustees go beyond their duty and to consider future events, with the implicit threat that if trustees argue for reductions, they risk requiring the sponsor to contribute more to the scheme.

The proper course of action for a trustee is to consider only the current level of scheme funding and pay no more, proportionately, than that, and even this may exceed the member’s properly calculated entitlement.

The JLT paper recommends relaxing transfer rules and allowing early access to the tax-free lump sum, which flies in the face of pensions as deferred pay. Why not give them access immediately on award?

The paper also suggests that funding should be to the level of PPF benefits and that this would generate a huge immediate gain. It certainly would not have this effect if the basis of calculation was that specified by the PPF for the s179 valuation, which is now calculated on a buy-out basis. The most recent scheme funding statistics report that the median Technical Provision/s179 valuation ratio is 101.6%.

The paper does suggest the use of higher discount rates, such as those based upon the expected return on portfolio assets, but it does so from a bizarre standpoint:

“… imagine pension funds no longer needed to invest in gilts…”.

We do not need to imagine this; it is the status quo. The use of gilts as investments by pension funds stems from their use in determining the discount rates used for the valuation of liabilities; it then becomes a tautological, misconstrued but central part of the so-called de-risking of schemes.

Although the use of unfunded and insured schemes is touched upon in this paper, it lacks the insight and vision to recognise the full potential of these approaches, which incidentally could include massive savings in tax concession costs.

Funding is at best an incomplete solution to DB pension provision; it is certainly extremely and wastefully expensive. The problem of sponsor insolvency is best addressed by insurance, individually and collectively.

An appendix proposes new tests around “going-concern” status. It does not seem to understand that if the Directors believe the company is no longer a going concern, they must liquidate it. It is appalling to find leveraged driven investment being supported; this can only undermine the security of scheme members. It is pure speculation.

There is a case study; (no practitioner report is complete without such a study).

Case studies are a very powerful device for the development of a particular narrative. Academics, of course, would dismiss them as mere anecdotes. This particular study traces the movement of a scheme over time to full buy-out and scheme wind-up.

I cannot help but wonder if legal scholars might not consider this case study to be a confession of complicity in the assisted suicide, or murder, of a scheme.

While we might criticise the report for its highly selective use of evidence in support of its case, the far greater problem is that the authors appear to believe that the situation has the moment of a law of nature, that there is an inevitable “gravitational pull”. This is not the case; this is an entirely man-made mess.

The report may also be criticised for confusing fact and opinion; a fine case in point is the use of opinions from the Intergenerational Foundation and Institute for Fiscal Studies in support of their view of intergenerational unfairness.

I will accept that the nonsense reported as pension ‘deficits’ does influence investor behaviour and the prices of quoted company shares, but this is not an effect of the ‘deficit’; it is a rational response to the diversion of corporate time and resources into entirely non-productive uses, that arise from these ‘deficit’ figures.

We should be thankful that the report does not subject us to any arguments for the commingling of scheme administration, assets and benefits, but that is surely coming in the PLSA report and the DWP’s Green Paper on DB.









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Avoid the ambulance chasers and choose your workplace pension wisely


In America the business of providing staff with a retirement benefits plan (known as 401k) is taken very seriously. Employers have fiduciary responsibility to the participants and to the plan. That means that if employers do not take due care in the choice and governance of the plan they set up for their staff, they are liable to civil prosecution.

If you press this link you can read about the “excessive” law suits taken out against employers and their advisers resulting from their alleged poor behavior

The employer’s duty in choosing a pension plan under the Pension Regulator’s rules is a lot less clear, employers have a duty to choose a workplace pension for their staff but (unlike in America) there is no obligation on employers to choose carefully.

This is causing providers, business advisers and most importantly employers some concern. The past twenty years has seen us lurch from one mis-selling scandal to another. Pension Transfers -Endowments – PPI and Interest rate swaps have all been subject to class actions and massive retrospective penalties on those found wanting in due diligence.

I have been in financial services for 33 years and seen a large amount of bad practice. Even where good advice was given, I have seen action taken against the adviser for not properly documenting what was advised and why. We all remember from our maths exams, it’s not just the answer but your working that gets you full marks.

So when my firm, First Actuarial, were thinking how we could help small businesses through auto-enrolment, providing help on how to choose a pension and an audit trail that showed the due diligence taken, was our number one priority.

Unfortunately, the way we do this for our large employers involves many thousands of pounds worth of our time and considerable investment from our client, we knew we could not demand this from small employers. So we decided to build everything we knew about choosing a pension into a computer program, powered by an algorithm and supported by actuarial certification which we could give to employers who followed the steps to choosing a pension properly.

We called this service Pension PlayPen because we liked the child-like simplicity of the name. has gone on to help many thousands of employers choose a pension.

Recently, we were approached by the office of the Shadow Pension Minister, Alex Cunningham. He had heard of the work we do with small employers through bureaux, accountants and advisers. He has asked us to lay before parliament an amendment to the Pensions Schemes Bill, due to be enacted this April.

Here is the amendment we have submitted to the Committee ratifying the bill.

Employers have a fiduciary duty and a duty of care to members t0 ensure the master trust of their choice meets the needs of their staff

There is of course one easy way to avoid the risk of retrospective litigation and that’s to insure. A minimal investment in due diligence using our site ensures not just peace of mind, but the satisfaction that your choice meets the needs of your staff.

You may feel that this is overly onerous on employers and could give rise to just the kind of litigation happening in the USA. But laying down the law on what should be done is better than letting bad things happen and punishing them retrospectively. If it had been clear to the banks before they sold PPI what the rules were, we would never have had the scandal we did.

ambulance 2

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Steve Webb and the triple lock – muddy waters!

Here’s that Royal London press release, calling for State Pensions to be reduced and contributions to private pensions to increase.

Royal London has set out a three point plan for the key pension priorities of an incoming government, including a ‘middle way’ on the triple lock.

In response to suggestions that the policy be abolished outright because of cost pressures, Royal London proposes a way which would control costs and focus more generous annual increases on the pensioners who need it most.

Royal London proposes that the government retains the triple lock for all pensioners on the old ‘basic state pension’ (those who retired before 6th April 2016) but reverts to earnings indexation for those on the new state pensions.

The change would save around £500m per year by 2021/22, rising to nearly £3 bn per year by 2027/28, and because newly retired pensioners are on average £100 per week better off than those aged over 75, this policy increasingly focuses money on the older, poorer group. It would also deal with an anomaly whereby the triple lock is of more value to newly-retired pensioners than to older pensioners.

This anomaly arises because the triple lock applies only to the old basic state pension (currently £122.30 per week) for those who retired before April 2016 but to the full new state pension (currently £159.55) for those on the new system.

The other two points in the plan include getting the self-employed into pensions by extending automatic enrolment, as well as getting employees to save realistic amounts through annual step-ups in contributions.

Royal London Director of Policy, Steve Webb, said: “The triple lock has delivered big improvements to pensioner incomes since 2010 but political parties will be concerned about the long-term cost implications of this policy on top of increased spending on health and social care associated with an ageing population. On the other hand, abolishing the triple lock outright would leave many existing pensioners on relatively modest incomes, with older pensioners facing much lower living standards than the newly-retired. A ‘middle way’ approach would preserve the triple lock for those who reached pension age under the old state pension system, whilst reverting to an earnings-link for the newly retired. This would cap the cost of the triple lock whilst focusing spending increasingly on the older and poorer section of the pensioner population.

“To complement the state pension, we need to see high levels of saving into workplace pensions and more people saving into a pension. We therefore advocate an annual step up of contributions by the employed population, with contribution increases timed to coincide with pay rises. This is likely to be the least painful way of getting people to save more. We also want to see a form of automatic enrolment applied to the self-employed, given the dramatic increase in pension membership when a similar approach was taken for employed earners.”

Steve is of course authoritative on this, he helped design the new state pension and is responsible for the anomaly! Those retiring before its integration are getting the triple-lock upgrade on only part of the pension because the remainder is still paid as the state second pension (or not paid at all if the person is contracted-out). Contracted-out pensions and S2P don’t get the triple lock.

But the reason you  kept it this way was in the interests of simplicity and fairness, those of us still to retire give up part of our pension entitlement under a contracting-out deduction (COD) which obviously doesn’t get the triple lock either!

Come off it Steve, either bugger back to Thornbury and Yate and get re-elected or stop interfering as a “former pension minister”.

The press release calls for stepping up increases into workplace pensions. Royal London is a workplace pension provider, the increased contributions would increase tax -relief to private pensions at the time the former pensions minister is advocating reducing the public pension promise to those currently enjoying the triple lock or the promise of getting its benefit.

Put more simply, Steve is advocating more private pension provision and less state pension provision. He’s doing so with the authority of being a former Minister of State and with the salary of being a Royal London executive!

If you aren’t going back to Yate, you aren’t in parliament. If you continue to work for Royal London, you are lobbying for Royal London. It’s not just the policy proposal that is muddled, it’s the motivation!

Further coverage of Steve’s proposals are carried by the BBC;

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I have seen the future of Horse Racing


A star is born! This beast galloping over the fields of South Gloucestershire is  a beast of beauty and the likely winner of the Gold Cup. Balanced with a super stride, this 3 year old gelding is owned by as fine a syndicate of women and men as will ever grace a racecourse.

Watch him float over the ground with an ease that belies his tender years (for he is only three).

And mark his intelligence in conversation with one of his happy owners


Extremely interesting!

For this is not just a fast horse, but a witty horse , quick to learn and long on patience.

moonlight 1

Mark his noble eye!

moonlight 2

His happy disposition

moonlight 3

and his good humour!

Who is this wondrous beast? You will have to continue to read this blog to follow his progress. Tomorrow he returns to the paddocks after spring training for some well-earned rest and recuperation. Then will follow further training that should lead to his appearance on a racecourse towards the end of the year.

Trainer Neil Mulholland, who on this day won at Sandown with Shantou Village (pictured earlier in the morning with racing demon Eamonn O’Connor), has this as a “good horse”.

Those who followed Tapper’s top tip on Shantou Village,


will be pleased to know that our horse’s trainer holds our beast in no less regard.

A star is born, the Gold Cup beckons! Yeovil Town are staying up and these are the Green and White colours of the Pension PlayPen – in celebration, they will soon be gracing the winners enclosure of many a fine track!

playpen colours 2

Yeovil True



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Aon, Mercer and Towers have lost the PR war on DC master trusts (terrific blog by David Rowley)

David Rowley is a great journalist, I’ve just found this on wordpress. It is spot on and it asks a good question at its end. We need an authoritative source of performance data and a league table showing who is offering value for money.- Pension Plowman


In 2022 it may transpire that the DC master trusts offered by Aon, Mercer or Willis Towers Watson were the smartest purchase of employers in 2017. That they had the optimal asset allocation, governance, comms and were great value for money.

But until the market has that proof, these trusts will suffer accusations of conflicts of interest with these firms’ main consulting business. The FCA is already predicted to force the big three to separate their fiduciary management and DB advisory businesses, might the same happen here?

It need not be this way, but the marketing language that I have seen from WTW and Aon only confirms suspicions their master trusts are more about driving sales than offering great value.

Towers’ Lifesight website uses phrases such as ‘market leading administration services’, ‘cutting edge member engagement concepts’, ‘low cost, high performing investment options’ and ‘the latest innovative thinking from our specialist teams’. Aon’s literature is largely sizzle too.

The best international pension funds do not operate like this.

They talk about their performance, their investments, their scale and how they have used it to benefit members. They do not rely on marketing promises alone.

Would a fund manager be able to get away with this?

How did it get to this? Both firms are magnets for the brightest graduates and otherwise have the highest standards. They should be leading the way. My own theory is that the secrecy with which each firm guards its IP from its competitors means they do not want to give hard facts and figures out in public.

Talking of figures, the FinTech pensions aggregator PensionBee recently showed me the DC providers slowest at transferring out their customers’ pensions based over a recent time period. Willis Towers Watson was close to bottom of the class, not least as it apparently does not use Origo the industry-wide initiative to enable quick electronic transfers.

We are, it should be said, at the phoney war stage of DC in the UK. Employers have done their due diligence, balanced it with hunches, emotional reactions, fee considerations, all the usual reasons why people buy stuff, but there is no easy way for them to get comparisons of performance unless they go to their own, possibly conflicted, consultant.

In Australia, distribution of 1, 3, 5 and 10 year performance figures for super funds is public knowledge and fairly easily accessible. Funds live or die by such figures. Specialist performance ratings agencies unconnected to DC providers such as ChantWest and Superratings provide this service.

Who is going to provide this service in the UK?


Source: Aon, Mercer and Towers have lost the PR war on DC master trusts

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500,000 stakeholders treated fairly – The B&CE IGC report.


It’s good to be able to report on the B&CE IGC. It didn’t get reviewed by me last year as I had forgotten that the Building and Civil Engineering Insurance Company insured workplace pensions in their own right and weren’t just the vehicle behind the People’s Pension – silly me.

Actually B&CE insure stakeholder pensions for nearly 500,000 people who worked or work in the construction industry. The average size of the pots is small (£1,800) and most of the Stakeholder Pensions are closed , but together, this group of workers has over £1bn of assets invested with B&CE’s State Street investment funds.

The good news is that B&CE – as usual, is investing in getting this group of people from the old stakeholder plan (Easybuild) into the new master trust (People’s Pension). The bulk of the IGC report concerns how and when this can happen and why it is in the member’s best interests. It is not just in the member’s best interests, it is in B&CE’s best interests, it makes sense to treat all customers in the best possible way and it’s clear that that is the People’s Pension way.

Having followed through the report a couple of times, I can see no jeopardy in this. B&CE have taken professional opinion (not ours!) to shift the money and it will move across to a new type of governance, a new charging structure and a new level of service from October this year. This is a major undertaking and one that B&CE are taking seriously. I am encouraged that it comprises Alan Pickering, a veteran of multi-employer schemes and a champion of pension rights. I’m also please that Steve Delo and Andrew Cheeseman are on the board, can I remind the IGC that females can also serve and that it would be good to have a couple on the IGC at the first opportunity.

I’m giving the IGC a green for the effective management of the legacy, if only because everything within the report suggests that they have been ensuring customers are treated fairly.

band 3

B&CE are known for TCF


A bit of a slog

That said, the report is a slog. It says in fifty words what can often be said in five


Which could be better said

“So long as B&CE stick to the timeline, we won’t pressure them on Easybuilder charges, but if things slip – we’ll be on their case!”

If this report is written for the member and the member works on a construction site, which version is more suitable?

If Delo & Co want to take lessons in writing for their members, I suggest they spend more time on their sites!

I’m giving the report an orange for tone, which is suitable for a formal trustee report but is not targeted at the members of the scheme.  The report begins

“We are here solely for you”

Put your mouth where the money is!  I give the report an orange for engagement and tone – it could do better.

Value for money

All this talk about transition, has rather let the IGC off the hook about costs and charges, let alone about value for money. This was the year that B&CE moved from L&G to State Street as investment manger, a move I am still totally mystified by.

B&CE reinsure State Street (SSga) Pooled Funds and create unique funds with distinct charging structures. We get no idea of how the transition from L&G to SSga went nor how the move improved the value for money for members (if it did). The £2bn fund transfer is simply ignored.

So is the performance of the various funds offered by B&CE both relative to the market and relative to the underlying performance of the SSga funds and to the market benchmarks. The members are presumably not interested in this sort of thing though it’s hard to work out what the members are interested in as only 7% of members questioned out of 2000 responded and many of those responses were spoiled.

The IGC need to be strong on investments as neither the B&CE management or People’s Pension are showing any sign of disclosing what is going on within the funds or indeed in the fund transition structures.

I am going to give the IGC a red for its work on Value for Money, it simply isn’t good enough to ignore the issue and members of EasyBuild (as well as those who are trying to work out what is happening in People’s Pension (like me) deserve better.

Summing up – investment governance is a blind spot.

Although they get an orange and a red for tone and Vfm reporting, I don’t consider this report a train-crash. The work that has gone and will go on the rest of the year to wind up EasyBuild is good and – in as much as the IGC are involved – they must be commended.

I continue to have real concerns about the lack of disclosure on investment matters at B&CE and at Peoples Pension . Darren Philp got an earful from me yesterday and I am not going away. There needs to be a properly constituted investment monitoring team working for both B&CE and People’s and communicating what is going on to the same standard as we are used to from L&G, NEST, Aviva and NOW.

This should be a  priority for an organisation that treats its customers fairly in every other way. Investment is your blind spot, B&CE – get some proper governance in place!

That’s part of TCF too!


B&CE was started in the second world war! It’s never had it easy!


You can read the report here

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Equal rights to govern pensions


Here’s Theresa May talking at PMQ of the triple lock in the past tense. It wasn’t just a female prime minister in that photo, four out of five ministers on the front bench were female.

Parliament is making the transition from a male oligarchy. It has taken a biblical generation; I look at that photo with pride. In the early 80s at College, I was an “anti-sexist” but in the intervening 35 years , my workplace – which has been transformed by technology –  is still male dominated. Financial services has a lot of catching up to do,

On Monday May 8th , the Pension Play Pen lunch will discuss the contention “men do the talking, women do the working”. The debate could be won – as several female correspondents have pointed out- by no women turning up.

I appreciate that many woman do not have the opportunity to relax outside of work, as men do, as they take responsibility for family matters even when at work. This could explain the low ratio of women to men at recent lunches.

But it doesn’t explain the predominance of male dominated pension groups. Conferences are a manifestation of the gender imbalance that we see on trustee, IGC and provider management boards.

At a recent Sage Summit event ,I chaired two all male panels and publicly vowed I not do that again. On June 19th I will be hosting a conference for IFAs on the issues surrounding transferring defined benefit pensions to “pension freedom”. Al Rush, who is doing a sterling job organising, is aware of my threat – “no all male panels and a proper diversity of speakers” or no me!

I hope that my generation of men will pick this up and carry the same attitude into boardrooms. We cannot allow us to be the hegemony, we need to stand down, sit down and listen,


“Sexism” is illegal, we must not break the law.

Women are  sponsors , providers and beneficiaries of pensions. The argument about the triple lock is particularly relevant to women who live longer and are the ultimate recipients of the single state pension.

It is an article of faith in the DNA of families, that pensions are earned by men and that the spouse’s “residual” pension, is what a woman gets when the husband pops his clogs. It comes as a shock to men to discover that the divorce courts consider pensions as much a part of a joint estate as houses and chattels.

The concept behind this is that what a man can earn when a woman is building the family , he is earning for the family. This includes any pension rights. Infact the rights to pensions are family rights and not particular to any person, unless that person chooses not to have a family.

Men are slow to make this adjustment in their thinking and women are slow to assert their rights – not just to the money – but to the management of the pension.

This is no longer an issue of competence.

Any man who feels he is more competent at making financial decisions, as sponsor, provider or beneficiary of a pension, because he is a man – is “de facto” incompetent.

Not only is this evidentially incorrect, it is immoral and verging on the illegal. It is as mistaken as supposing that Christians are superior to Moslems, or Afro-Caribbean’s inferior to Caucasians. That females are different from men is undoubted, that men are superior to women is heresy.

Today I will be attending a pension conference which I hope will show a greater diversity than previous pension conferences. I do believe that the great women of pensions are making that happen,

Lesley Titcomb, Charlotte Clark, Michelle McGrade, Ros Altmann, Caroline Rooks, Helen Dean, Debbie Gupta, Debora Price and Jeannie Drake have changed pension policy and practice from within the public sector. There are many more.

Carolyn Fairbairn, Joanne Seagers, Ann Richards, Emma Douglas, Stella Eastwood and Hilary Salt are women within the private sector who have shaped the way I think and act. There is a new dynamic within the private sector which encourages these people to become leaders.

But the business of private pensions –  is one of those areas where the vestiges of the male hegemony live on. The lack of diversity is particularly present among independent trustees, IGCs and executive boards. My own firm has 8 male and only one female in charge.

It is my generation – those who are ironically the first to enjoy “pension freedom” who are the glass ceiling both to women and broader diversity and it is our job to actively change this.  I am finding it hard to sit still and listen but I must.

At the same time – it is important for women to speak and speak out. The opportunity to lead is still a tough one, no one is pretending that it’s as easy for a woman to lead in pensions as it is a man. But it is vital that women know that the door is open and my generation are sitting in the audience – waiting.

A chance to talk at work

The Pension Play Pen lunch is on May 8th in the Partners Room  at the Counting House in Cornhill, we meet from 12 and the lunch discussion kicks off at 12.30, the formal discussion ends at 1.45 and the meeting disperses by 2pm. The cost is met collectively though you no longer need to pay in cash! All are welcome , but as organiser, I will make sure that both male and female views are given equal airtime!






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NEST’s disclosure welcome. Thumbs up from the Pension PlayPen


noisy nestIt’s not often that someone creates a business plan and sticks to it. But the plan for NEST, hatched between 2008 and 2010 and displayed to the EU in 2010 is being rolled out with method and purpose.

For those who only read my headline “NEST dirty washing on the line” missed the point. What NEST is delivering is precisely what was in plan. Colin, I do not have a vendetta against the public sector – and I don’t hate NEST. But I want people to know what they are buying and it wasn’t till the publication of Robert Devereux’s letter that I properly understood the plot.

Yes, NEST’s debt is doubling between now and 2026 and yes the current charges will persist till 2038 or thereabouts but for most people that is not a crime. There are around 300,000 active members of NEST – if it stays that way they will be bearing some £3-400 of debt repayment each with the balance being spread over deferred members with small pots. These are not great sums of money and they will be born in proportion of the size of contributions and pots.

The 1.8% charge on contributions is there specifically to repay the loan. The loan could have been repaid another way – through a charge on employers. Private sector competitors to NEST do charge employers either with an upfront or recurring charge. There are exceptions – L&G and Smart but they either have prescriptive interfaces or higher member AMCs. NEST offers employers a free implementation and a slick interface. Provided you play by NEST’s rules, NEST is not difficult for employers and there are now some 370,000 of them to prove it.

Where I have an issue with NEST – is not with yesterday’s disclosure, but with the lack of clarity over the past few years. Confusion has surrounded the £600m loan limit (I’m still not quite sure what it refers to – a cap on the first 10 years borrowings which is now put to one side?).

Since nothing has changed from the 2010 plan, why weren’t these numbers better publicised and understood? We can now be definitive, for the foreseeable future these charges will remain, the debt will be repaid and those who invest in NEST will be responsible for that repayment (not employers or the taxpayer).

Similarly the subsidies on the interest that NEST pays to the taxpayer via the DWP is understandable as explained in the Devereux letter. How much better to have had this statement when we asked for it – some four years ago.

For the choice facing employers (NEST v the rest) is now much more cleat. With NEST you are buying into a gilt-edged proposition that delivers to time and at a stated cost – it is not a bells and whistles product and does not offer scope for price reductions but it is as reliable as its name suggests.

Private products will offer innovation and  the pension freedoms in a way that NEST cannot. The choice is not as stark as private education or healthcare, nor is there a premium price for a private plan, but the disclosures define the choice the employer has. The positioning of NEST is sharper and the choices easier for yesterday’s disclosures.

So well done NEST and the DWP. The timing is disappointing – we could and should have had this stuff earlier -though NEST will argue that they wanted the evidence they have gathered. But the disclosures are very worth the while.

Will they put employers off. Probably not – these numbers are not going to be front page news and even if a tabloid runs a splash, this will be good for the pensions debate. As Otto Thoresen- NEST’s chair has said, it is best that those who chose NEST know what they are buying.

Let’s hope that conversations about workplace pension choice will be more vivid and real for the disclosure, let’s hope that a few accountants will wake up to the money going to NEST belonging to real people who have a right to understand what they are investing into, and let’s hope that employers will question what they are buying and what they are bought.

At yesterday’s CSFI auto-enrolment round table, Michael Johnson claimed that AE has been a success because people have no engagement with what they are investing in. This may be true today, but it will not be tomorrow. In tomorrow’s world, people will want to know what is going on -which is why I am pleased with what NEST has told us!




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