Will trustees rely on fiduciary duty to deliver DC pensions?


We intend to rely on the trustee’s fiduciary duty to act in the members best interests when developing the suite of products and services. However, we will keep this under review and may introduce further requirements separate to the fiduciary duty if what is being offered is not obviously in the members best interest.

With these considerations in mind, DWP will at the earliest opportunity place duties on all trustees of occupational pension schemes to offer a a range of different decumulation products and services to members at the point of access.

So what could these different decumulation products and serrvices be. The response is very lukewarm to CDC

We have carefully considered the role of CDCs in the pensions landscape of the future and see them as a potential future model for pensions. Schemes could consider a CDC option in decumulation for their members consistent with the market developing, which could be a default offer to their members.

We therefore intend to continue to work with the pensions industry to explore how to establish a CDC decumulation model that works in the UK.

DWP believes that trust-based CDCs have the potential to be a promising future model for pensions and could be actively considered by occupational pension schemes, including as part of their decumulation offer. The department is putting in place a regulatory framework for multi-employer schemes to offer CDCs, and we support the market development in this area.

Alongside this consultation response the department has issued a call for evidence on access to CDC arrangements and opportunities to stimulate the market.

Considering we have yet to have one implemented CDC scheme and no schemes available to small employers , let alone individual savers, I think this has dragged on far too long.

Much as I would like to have my CDC benefits overseen by the CDC Code, I would rather have a collectively invested pension scheme with longevity pooling and so long as the fund I use to get a non-guaranteed pension is overseen by the FCA  – that is enough for me.

There are plenty of ways to convert a pot to pension and they aren’t all called “annuities”.

CDC pensions sound great but they sound a lot too much like DB pensions for employers to let their trustees provide them.

Annuities are looking a good “lock-in” for now but most trustees aren’t pushing them for fear of being seen to be “anti-freedom”.

Drawdown is now being touted as a guided product with non-advised support packages being talked about by everyone (and implemented by very few).

Everyone is sitting on their hands waiting for clarification from the FCA on the “advice/guidance” perimeter. Having done my time in the FCA sandbox , I’m pretty clear that guidance includes the provision of information necessary to take a decision.

I’m also clear in my mind that most trustees are terrified of signposting anything in a way that might be considered “.the provision of a definitive course of action” (my definition of advice).

What the DWP is calling for (and what Nausicaa Delfas is also calling for) is for DC trusts to become “full service providers” and that means trustees having to provide a default decumulation option. This is necessarily giving people a definitive course of action and DWP are going to have a tough job convincing trustees that they are not giving advice.

Trustees tend to be “risk averse” and corporate and other professional trustees are risk averse for a living. So I see no appetite from trustees to share risk in a CDC arrangement.  Even if the sharing of risk is supposed to be between members, trustees know that risks tend to revert to sponsors (as KPMG found a few years ago). This is simply because when things go wrong, people look for people with deep pockets to sue.

Proposing drawdown as a default decumulator misses the two big guarantees that people want from pensions ;

  1. A guaranteed income
  2. A guarantee that the income will be paid as long as they do.

Even if trustees “hand-off” to organisations like Guiide, Retirement Hub or whatever Paul Budgen is coming up with, the hand-off may be considered a professional foul and risk an wanted red card from the judicial system , or regulator or both.

There is definitely a need for a default decumulator and as I write, the last man standing is the annuity. If after eight years of trying to find an alternative to “having to buy an annuity”, we require people to buy an annuity, I suspect the public will regard this as the biggest cop-out since the pension dashboard.

The idea of a DC pension is not one that has entered the argument yet. But it is not impossible. In a world of capital backing for DB pensions, might we not extend that thought to the capital backed DC pension, where a reverse transfer swaps pot for pension?



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Here’s how to save the triple lock

You can get behind the triple lock by signing this petition

Tom Selby: Time to get serious about state pensions

Commercial workplace pension and SIPP providers do not want to see a strong state pension, they want dependency on private saving. Tom Selby represents AJ Bell and his beef is that the state pension is providing too much to people retiring today

Had the ‘new’ state pension increased in line with inflation or wages since 2011, it would be worth around £180 pw today, rather than £203.85

The Government sets the level of pension credit slightly above the maximum payment from the state pension.

The DWP starts providing means tested support to those in genuine need of support where personal earnings are less than £200 per week. Should we consider the level of destitution lower? Is £180 pw a better measure?

Think about it, 1.4m households are not getting income through the door to meet their basic needs and we want to roll back the triple lock?

Take a step back.

What do you spend a week? How would you feel about a wage in retirement for 35 years of national insurance payments of £203.85 pw.

Tom argues that paying such a high state pension will impoverish younger generations.

Younger generations could ultimately pay the price

Tom is not saying we are paying older people too much pension , he is calling for a debate about whether we can afford to. I am not quite clear where the difference lies.

When I was 30, I didn’t think there’d be a state pension when I got to 65. Tom’s generation are the same. Each generation arrives at retirement thankful that the generation before did not turn off the tap.

But Tom thinks that this government is frivolous in paying the promises made by generations before. He wants change.

A serious government (or would-be government) would commit to undertaking a wider review of the state pension

The review in question (if commercial pension providers had anything to do with it) would undoubtedly question the triple lock. But Tom asks us to take a long-term view. Presumably this is a view  where Britain will be paid by private pots rather than the state.

This would require bravery and a long-term vision but is absolutely essential.

Those who are cowardly and short-termist will undoubtedly want out taxes to pay better pensions.

If you want to side with the wealthy and strengthen the case for more tax-payer’s money being poured into higher rate tax relief for the wealthy, please do not sign the petition.

If , on the other hand, you believe that £200 pw is a poor pension for a lifetime work, please sign the petition and make sure that the triple lock is maintained.

You can get behind the triple lock by signing this petition

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“Not my Government” – discontent over pension policy meltdown

The consensus from people I have spoken to , following the King’s Speech is that the Government we have today has lost its legitimacy and is increasingly looking like a marketing tool for the Conservative party at the next general election.

Most people aren’t that fussed about elections, they want the party they have to Govern in a legitimate way.

Perhaps the disenchantment from my friends and colleagues is summed up by the phrase “pedicabs before pensions” which references the King’s Speech proffering legislation to temper the behavior of City and Westminster rickshaws . I am a cyclist in those parts and can confidently say that pedicabs are not such a problem as the parlous state of much of the British pension system.

That there is no pensions bill suggests to me that that Government has not so much run out of ideas (there are 21 bills in the speech) as energy. I must admit to being in two minds about the invisibility of pensions minister Laura Trott, I had thought she might be holding herself back for a final year of  parliamentary pressure. But it turns out that having mothballed the pensions dashboard, swerved taking on the thorny issue of the state pension age , that she has abandoned the framework of the Mansion House reforms to another Government.

This sends a bad signal to the private pensions industry who have committed time and resource preparing for the various measures that the Government has legislated for in the Pension Schemes Act 2021 and consulting on the projects that the pensions minister had initiated in advance of a Pension Bill this weeks.

It is also a sorry signal to the Pensions Regulator and the FCA who had the value for money taken from them by big Government in the hope that the DWP could deliver where the regulators have been seen to be failing.

The aims of the Mansion House reforms were and are aligned with the aims of those in private pensions who want pensions with purpose, both social and environmental, we want a better governed pension industry and we had expected assistance from Government.

The Government is distancing itself from its previously held position as champion of sustainability. The Kings Speech provides legitimacy for those who promote fossil fuels. The whole-hearted efforts of the pensions industry to embrace TCFD are being undermined by populist initiatives that put votes before the planet.

The Mansion House reforms put “purpose”  as a fiduciary aim, it called on fiduciaries and providers to invest purposefully and it launched Compacts that could deliver with the assistance of a number of reforms envisaged by the DWP. I don’t see an end to the Compacts between pension providers or between the providers of venture capital, but the absence of proposed legislation to support them , is aligned to the general loss of purpose from Government over the past six months.

I expect there to be some assistance to these Compacts in the Autumn Statement but the key issues for pensions were with the DWP. Big Government has let us down and that is why I feel that this is no longer “My Government”.

Another casualty – the PPF

Yesterday, with bad-timing, the Work and Pensions Committee quizzed the PPF about its intentions for the future. The PPF is a success story both in its conception and its management. It wants to be more than it is, it wants to consolidate small DB plans and it has had the support of the Blair Institute so to do.

But it’s CEO is leaving and he spent his time at WPC ducking questions, It’s CIO made a good attempt to appear incompetent (I’m sure he’s not) and only the COO showed why we hold the PPF in high esteem.

If there is to be better use of the PPF, then the PPF needs to put a better foot forward than it did yesterday. The timing was awful, whatever we might have expected the PPF to do , cannot be done without the primary legislation that went missing at the King’s speech.

WTW’s powerful argument for the abolition of the PPF levy cannot be debated because there is no pensions bill to enable the small change in the levy’s operation to make this practica. LCP’s long letter to Laura Trott, published yesterday is of no import since its plan to extend the duration of its client’s pensions , depended on primary legislation for a super-levy.

As with so much else in pensions, the PPF has been disrupted and consulted upon over proposals that have been dashed. It is hard to think of how Government could have managed its expectations worse

Not my Government

The frustration that I have picked up from those I know and work with is already disseminating through the pension press.The FT has commented on the absence of Pensions from the Kings Speech,

I expect that the low but loud murmerings about the failure to produce a dashboard or a workable DB or General Code, the failure to get Royal Mail’s CDC scheme over the line or deal with the state pension age, will be amplified by the failing of this Government to put pensions before pedecycles – we will hope for better next time.

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Marginal improvements in fund management won’t float pension’s boat.

Toby Nangle

In this blog, I argue that fund management is one lever but not the key to solving systemic problems in pensions and the wider economy. Consolidation of funds may bring marginal improvements to the economy and fund performance, but the real benefits of bringing funds together are based on “pension”  management.

Nangle speaks like the insider that he is, assuming that

Greater economies of scale would allow them (larger pension funds) to reduce average costs while also being able to afford to attract top talent, run state of the art risk systems and build in-house private market teams.

He finds the theoretical case that “small is beautiful” is thin

arguments against amalgamation can sound like special pleading from fund managers keen not to see their revenues shrink. And the prospective hit to their revenues is not trivial.

But what Toby Nagle is actually finding from his research is that there is little or no correlation between the size of pension fund and its performance.  This suggests that the Chancellor may be barking up the wrong tree with his Mansion House reforms. He cites American Public Sector Plans

He also hints that large UK DC plans (typically master trust defaults) aren’t pulling ahead as we might expect.

Nor can he find much evidence that “size matters” in the  OECD  “Pensions at a Glance” data. Credit Nangle here for his integrity.

When an expert goes out looking for the evidence to support a generally accepted theory, and finds none, then we should sit up and take note.

And we should ask, as Nagle goes on to ask, “why aren’t big funds pulling away?

Frustrated by the lack of empirical evidence that size brings value, Nangle turns to research from the Resolution Foundation that finds that the underlying malaise in UK stocks (which have underperformed overseas equivalents has come about because there is a lack of concerted activism from asset owners.

diffuse ownership has impeded  performance by weakening UK business owners’ engagement over the past two decades.

British  stocks no longer benefit from the expertise of asset managers

Activist equity managers have seen their powers ebb with successive waves of clients allocating away from them towards liability-matching bonds or passive exposures.

Because asset managers no longer invest in British stocks

Hence, UK firms possess the OECD’s lowest share of “blockholder” shareholders capable of wielding substantial decision-making influence, according to Resolution. Consolidation could boost fund managers’ voices and ability to push for investment.

A fund manager arguing that fund managers should have more sway over the management of British companies, may sound like another case for the special pleading that Nangle elsewhere criticises.

But he gets the support of Border to Border ‘s Ryan Boothroyd

We look forward to seeing these benefits feeding through over time. I have already posted on the excellence of Border to Coast’s asset management but this seems hard for  other pension funds to replicate.

Is better stewardship the answer?

And the problem with this argument is that it is speculative.  We have yet to see what difference a substantial allocation to UK equities would make and it is a leap in the dark for pension schemes to assume that they can revive Britain’s flagging economy with their money and the expertise of in- house or outsourced fund managers.

Nangle is actually saying that consolidation cannot be justified purely on grounds of “value for money”. This is a sad indictment of  dedicated fund managers who can’t seem to make their muscle and expertise count.

If large pension schemes were to become their own fund managers- as happened in yesteryear, then things could be different. This rather ignores the recent trend to outsource the in-house CIO to large fund managers such as Schroders and BlackRock.

The proposition would probably require management of equity positions to move in-house in these new larger pools of capital to overcome well-documented incentives for external fund managers to underinvest in stewardship.

Nangle’s argument is ultimately that consolidation only works when the emphasis is on improving asset performance through asset management. The incentives of the asset manager must be aligned to improving outcomes not just for members, but for those in the invested companies and ultimately the economy in general

Policymakers have hitherto sought to increase value for pension scheme members by reducing costs. Given that only the latter can be controlled, this approach is understandable. Implemented correctly, the move to create larger pools of pension capital could, however, be the catalyst to unlock value for all.

His  argument for consolidation relies on  the long-term improvements it would bring to member outcomes and the more immediate improvements it would make to the productivity of British Companies.

Any benefits would, furthermore, be shared across the whole economy. As such, this seems a reasonable aim for the government.

This would suggest that the Chancellor will need to bark not just at the trees, but at the right trees. This sounds a big ask for a non-interventionist state function.

Consolidation is about improving pensions, not just asset management

After reading Toby Nangle’s article, I am even  less convinced that the Mansion House reforms can be justified  by the improvements that can be made in fund and asset management

I am more convinced that freeing up resource applied to the management of single sponsor schemes, can improve an employer’s ability to allocate the right level of contributions to sorting out the evident deficiencies of our workplace pensions.

Ironically, in this – the recent improvements in pension solvency, which have very little to do with fund management, are the Chancellor’s best ally.

We need to see a sustained period of investment in long-term assets , properly managed by trustees and asset managers with an eye on the same prize. We cannot go back to the mistakes of the past where we manage outcomes by fixating on the present value of the liabilities. We must invest in stewardship, and in the sustainability of the growth our savers need.

These big ticket items can happen , if the focus is on a handful of properly managed pension schemes, they cannot be achieved with the current structure where value is so dissipated through inefficiencies. But the big wins in consolidation come from the business of creating and maintaining pensions, of which the investment solution is just a part

Ultimately, VFM isn’t just a performance problem, it’s about the sustainability of the system . Consolidation is more than a fund management issue, it’s about the proper management of pensions of which the asset management is just a part. Without consolidation , we simply can’t sustain the value for money pensions we promise ourselves.





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LEBC – fall out for the fall guys


The demise of LEBC has been slow and painful. It died a death of a thousand cuts and now one of the most innovative advisory firms in Britain is no more than a hole in the balance sheet of its principal backer.

I blog not bo bury LEBC but to praise it, and to ask whether the firm has become the fall guy for those who  it served.

What brought LEBC down was the weight of DB transfers it facilitated through its advice. Its business was “de-risking” occupational pension schemes, its customers were the sponsors of those schemes who wanted to reduce liabilities by buying them out on better terms than they sat on the sponsor’s balance sheet.

Such was the difference between the record on the balance sheet and the amount payable as a “cash equivalent” transfer value to the member, that many transfers were enhanced on a time limited basis (transfer now while prices last). These incentives were known as ETVs (enhanced transfer values) and were sometimes paid as cash in the pocket. This practice was labelled “sexy-cash”, Steve Webb, then pensions minister shamed the Boots pension scheme for incentivising transfers, but no employer has been stopped from doing this by the Pensions Regulator.

Whether incentivised or not, it was generally thought that many members would take the bait and swap their pension for a cash transfer into a personal pension.  Indeed the success of a “de-risking exercise” was measured in the reduction of liabilities and the enhancement of the balance sheet. LEBC were no more than the paid agents who made transfers happen.

While the contract to “de-risk” was with the trustees – who sanctioned the approach to members, the money came from the sponsoring employer and both the corporate and trustee advisers were involved in ensuring that the “exercise” was in the member’s interest. The Pension Regulator paid a blind eye, the FCA regulated LEBC and their job was to protect the PPF and the remaining members. In as much as the transfers improved the sponsor covenant (eg the  employer’s balance-sheet), the trustees were seeing more security from the sponsor and less risk to the scheme’s valuation.

There were other interested parties. Insurers looking to buy-out solvent schemes often drove these exercises. Rothesay life was particularly aggressive, it carried the brand of Goldman Sachs behind it, which lended extra legitimacy. Corporate brands such as PWC were also high-profile advisers. With blue chip advisers and sponsors and with the blessing of trustees, LEBC could feel they were on the side of the angels.

And they had a management team that inspired confidence. Its CEO , Jack McVitie who died quite recently at too young an age, had advised many senior politicians, it included current stalwarts such as Kay Ingram , Nick Flynn. and other  personal friends of mine such as Simon Leyland and Chris Brown.

LEBC – a different culture

Jack McVitie (RIP)

LEBC fostered a culture where reward was based on customer satisfaction and not sales. So employees were salaried and had relatively low levels of reward  “at risk”. They looked after their staff with good benefits and the culture was to attract and retain advisers with integrity who took the long view. While at First Actuarial , I had many meetings with LEBC and can testify to their culture being quite different from other EBCs. LEBC became the last man standing for de-risking as rivals withdrew from the market. Again I can testify to other firm’s culture – I worked for a time for a part of Alexander Forbes, LEBC were different.

And LEBC became trusted. In 2017, under the advice of Willis Towers Watson , they were appointed to provide guidance on the options BSPS members had during its “Time to Choose”, they were the trustees’ safe pair of hands. LEBC were on a very exclusive panel of advisers that the top actuarial practices used. From CEO to the adviser they were seen as the acceptable face of advice.

LEBC’s role protecting BSPS members from poor decisions was overseen by the trustees, the FCA and TPR.  Their appointment was advised by one of the world’s leading actuarial consultancies.

So what happened?

It is quite clear that none of the sponsor, trustees or advisers who appointed or paid LEBC are going to take any blame for LEBC’s shortcomings. They have distanced themselves from LEBC and indeed from the de-risking they encouraged. You do not to de-risk a scheme when it is showing a balance sheet surplus. LEBC has been abandoned.

What was deemed their KPI, their ability to facilitate the transaction of CETVs is now their undoing. The FCA found that too many of the transfers were waived through without sufficient warning and that some should not have gone ahead at all. Where there is blame there is a claim and the claims for wrongful advice have overwhelmed LEBC’s Professional Indemnity Insurance and its balance sheet. Even with private equity standing behind it, LEBC had no way to meet the bills coming its way from the Financial Ombudsman and it has called in the receivers.

What could be salvaged was salvaged through a transfer of assets to a sister company but the bulk of the liabilities have transferred to the Financial Services Compensation Fund and will be met by the industry. If you want to read the details – this post from Aspira LEBC’s  CEO Derek Miles tells you what is happening to clients.

The clients can move but the liabilities stay behind. This isn’t a good look for advisers as this post explains

The FCA have overseen the dismantling of LEBC, removing its permissions  to advise and now overseeing it in administration. The Pensions Regulator, has no part to play and like those it regulates, has politely walked away. LEBC were part of its solution but they play no part now it is a problem

Fall out for the fall guys?

The last people standing at LEBC will get nothing but the stigma of not leaving the sinking ship when they could. They are the fall guys for what went before.

But – while the finger of blame is being pointed at LEBC, those upstream in the advisory chain appear untarnished.

Perhaps .when considering  LEBC’s demise , we should think about those who encouraged and incentivised LEBC to “de-risk” their customers ‘ balance sheets.


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Ten reasons why low-earners should not be auto-enrolled

Matthew 26.11

This blog asks questions about how best to deal with genuine poverty. The financial services answer has been  “financial empowerment” , saving our way out of debt. It is a flawed idea, ask those just getting by. Here are my 10 reasons why we should not enrol those earning less than £10,000 per annum,

  1. If you earn £10,000 and don’t have any other earnings, you spend a lot of time applying for benefits and visiting food banks. You should not find yourself in debt because you auto-enrolled into a pension
  2. It is a lot harder to opt-out of a workplace pension when you are short of financial  confidence and in need of the job.
  3. If you earn below £10,000, you should be entitled to an employer contribution from £1 of your earnings but you are not. This from the DWP

    If your income is low

    Your employer does not have to contribute to your pension if you earn these amounts or less:

    • £520 a month
    • £120 a week
    • £480 over 4 weeks
  4. If you earn less than £10,000 , you only get a taxman’s incentive (worth 25% of your contribution)if you happen to be in a  scheme operating relief at source (most schemes don’t)
  5. If you earn less than £10,000 and you don’t have a complete State Pension contribution record, you are probably in line for pension credit – an AE pot could knock that on the head.
  6. If you learn less than £10,000, you are likely to have lots of small pots, being eaten away by fixed charges
  7. Workplace pensions would rather stick needles in their eyes than take on a load of small pots that will never wash their face. (probably why the PLSA are highlighting the risks of removing the lower earnings limit)
  8. Even if you are unlucky enough to be a lifetime low-earner – auto-enrolment won’t make that much difference. These are the PPI”s numbers – it’s the state pension and benefits that matter to the poor.
  9. Those on low earnings often have incomplete national insurance records and might well be better buying years (especially discounted years) of state pension credits
  10. “Further research on low earners, the needs of under-pensioned workers, and the intersectionality of different characteristics are needed”  (Nigel Peaple -PLSA)

In my opinion , the best thing any Government should do for the genuine poor is support them properly with benefits.

The low earners used to be called “entitled”, which meant they were entitled to opt in to a workplace pension but they weren’t entitled to a contribution. That should change. If auto-enrolment is extended to cover earnings from £1 (taking away the contribution threshold) then low earners should be entitled to an employer’s contribution if they opt in (as those under 22 are).

The PLSA has asked

Can low earners be safely auto-enrolled in workplace pensions?

The answer is no. The 300,000 low earners the PPI reckon can’t afford to be “in” are often too vulnerable to get “out”. We must get out of the mindset that says that everyone should be saving, a great chunk of our population need to just get by.

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Superfunds jeopardized by regulatory torpor and timidity


One of the key planks of the Mansion House reforms needs is in urgent need of regulatory attention. There may be legislation and guidance enabling Pension Superfunds to consolidate DB plans, but without revision, the Pension Regulator’s guidance looks likely to leave no superfunds in play. I hope this is brought to Laura Trott’s attention. The DWP intent is being undermined by TPR guidance that looks little more than a cut and paste of what arrived in 2020.

Conversations I have had make it clear that the superfunds cannot participate until three key issues are addressed.

  1. Pension Superfunds must have clarity on how they make a profit. Without clear guidance as to how they can recover expenses and provide their backers with a return on capital invested, those involved will simply walk away.
  2. The Gateway rules must be scrapped or heavily revised. Almost every DB scheme can now claim to be sufficiently solvent to anticipate buy-out in the next 5 years. The Gateway precludes Pension Superfunds from competing for such schemes business. The market has changed but the rules haven’t. Without a market, where is the business case?
  3. Analysts have discovered that the  modelling of the risk-return of infrastructure, private equity and other private market asset classes has been retained. This modelling, carried out by Mercers has been challenged as “fundamentally flawed” The modelling means that too much risk capital would have to be put aside by a superfund to invest into productive assets in any significant scale. Superfunds would be no better placed to invest into the assets the Mansion House reforms promote, than the insurers offering bulk annuities. A “read across” or “cut and paste” from previously flawed guidance , does not make the guidance acceptable three years later. The modelling needs to be revisited, as do the restrictions on investment. The analysts are also shocked to find that ‘Investment Restriction 3’ on having more than 2.5% of an asset has been retained. This  makes direct investment into most private market assets impossible.

Laura Trott should feel deeply let down.

My analysis of the failings of guidance which has focused on the anti-competitive gateway and the feeble failure to prescribe the means of profit extraction is now reinforced by the revelation that the Pensions Regulator has done nothing to address the issues that have meant only one Superfund has got approval and that that Superfund has done no business.

While the DWP’s consultation paper gives a promise that things will change, the Pension Regulator’s Guidance shows no more than lip-service to the radical change promoted by the Minister and the Reforms.

Those behind the superfunds were first approached by a former minister in December 2016. In seven years , there has not been one deal done! Meanwhile, the £2 trillion corporate DB asset base has lost north of £600bn chasing the chimera of full liability hedging. There was an alternative. Schemes could have invested productively in assets that could have driven real growth in the British economy but that opportunity was shelved.

It is not too late to make partial amends for this  policy failure. But as each day passes by, the opportunity to put pension assets back to work , diminishes.

The Pensions Regulator seems intent on keeping the ball in the corner and seeing out the endgame in stalemate. Laura Trott should not let further financial calamity result from such regulatory torpor and timidity.

It is not just the superfunds and their backers that are fed up, this blog is fed up and so are the increasing numbers of people who back her vision for better pensions.

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USS shows its workings – including a £16bn fall in assets in a single year

The USS has published its April 2023 Valuation Technical Provisions which can be downloaded here You can read them on the presentation at the bottom of the document (without a title page). Well done USS for sharing them.

The headline numbers are as follows

Which looks pleasing enough till you remember that the assets in 2020 were valued at the lowest point in a market struck by the impact of Covid 19. By April 2022 assets had risen to £88.9bn , they have since fallen almost £16bn. Losing £16bn in a year is going it some.

In my view, the last two USS valuations bring the valuation process into disrepute. It cannot be right that a scheme that has an infinite horizon for its liabilities can move from in 2018 , considering closing to future accrual to in 2020 requiring massive deficit contributions and cuts to member benefits, to in 2023 – considering reversing the benefit cuts, stopping deficit contributions and radically restructuring the contribution schedule.

Any actuaries who think this rollercoaster approach to pension funding and benefits brings them any credit, had better start talking to USS members who are heartily sick of this. Let’s hope that a more stable way of managing this scheme can be found.

Confidence on hold

We will have to await the publication of report and accounts, expected next week , to know what (if anything) USS are saying about how they are valuing their private assets. The valuation of its 20% stake in Thames Water and any Thames Water debt it may own, are matters of immediate concern. Last week, Canadian public sector fund – Omers – announced it had written down its valuation by 28%, has USS followed suit? The £73.1m current valuation of assets is material to member’s confidence in the scheme’s capacity to meet its obligations

The detailed analysis in the technical provisions suggest there should be confidence in the sustainability of the scheme’s funding but not to justify irrational exuberance among USS’ executive, trustees or sponsors. These are faithfully recorded in Professional Pensions, this being an example

UUK chief executive Vivienne Stern had positive things to say about the “extraordinary transformation” of USS’ funding position, which she said was caused by rising interest rates and changes to the scheme following its previous valuation, as well as covenant support from employers.

She said: “Figures today from the USS trustee on the 2023 valuation point towards union and employer representatives being able to take forward their agreement on creating stability, lowering contributions, and improving benefits. This will make a big difference to staff in this cost-of-living crisis and to USS employers faced with significant budget pressures.”

Devil in the assumptions

A detailed examination of the “tweaks” in assumptions in the technical provisions will now commence. USS have no option but to be transparent in publishing its valuation but USS are still to be congratulated for doing so.

But USS stands in stark contrast to other open pension schemes such as Railpen both in its asset and liability management. It has international comparators, one of whom was talking to a UK audience as part of Cardano’s “Pioneering Pensions” series

However, to understand just how far USS is from achieving its potential, watch this

Innovation happens when bold ideas are turned into practical solutions. How do we step out of our comfort zone and implement change? In this episode,  Derek Dobson offers  a real-life case study of how a defined benefit (DB) scheme transformed its core product, to offer fixed contributions for employers and flexibility for its members. As a result, new employers joined the scheme, and introduced defined contribution-style savings with DB value and decumulation products. 

To talk to us about this case study is Derek Dobson, CEO and Plan Manager of Canada’s CAAT Pension Plan. He and Stefan Lundbergh discuss the design and the process of taking an organisation and its trustees on the transformation journey. 

I hope that Stefan has sent it to all stakeholders of USS.

Supporting information

Here is the  detail – here is the supporting information for the technical provision consultation on which USS is about to embark

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Do pension superfunds have super powers?

Do pension superfunds have super-powers?

The phrase “pension superfund” has been hijacked by the Tony Blair Institute to mean a not for profit investment fund that swallows up pension money from DB , DC from the PPF and maybe the tax-payer (if it wants to relieve us of unfunded public sector pension liabilities). It’s also used of Nicholas Lyons proposed £50bn UK Future Growth fund, which is more likely to get off the ground.

But waiting in the wings are two actual Superfunds, which could and should be doing the work that Tony Blair and Nicholas Lyons want doing. Both could be investing in real assets to provide people with pension payments today and well into the future.

The Pension Superfund is the more ambitious of the two , Clara has less ambition and is the first to have got approval from the Pensions Regulator. Clara is not quite the long term investor that the Pension Superfund intends to be, which is why it may have got its approval. However it has yet to announce any clients and as the HSBC master trust has shown, no clients – no future.

The Pension Superfund hasn’t got any clients because it hasn’t got approval but it is applying again and at a time when pension schemes are being encouraged to take on more risk, it offers many of the features that Blair, Lyons and Jeremy Clarke look for. I am sure its founder Edi Truell wouldn’t mind his superfund being characterised as having “super powers”.

What are these super powers?

The Pension Superfund is just an occupational pension fund able to take on other schemes assets and liabilities because it has a contingent asset  that can be sold if the fund gets into trouble. That asset is valued as the way of keeping PSF out of the PPF if anything major goes wrong.

Its superpower is its capacity to invest in growth assets and harvest returns that other long -term consolidators can’t. Insurance companies cannot invest DB assets in the way that Jeremy, Nicholas and Tony would like because of the solvency regulations that prevent them. The first superpower that the Pension Superfund has, is the power to invest into wider and more lucrative markets than insurance companies.

The second superpower it has , is that it can offer more for less. If that sounds too good to be true, let me explain. The cost of offloading your liabilities and assets into Pension Superfund (or Clara) is likely to be less than offloading them to an insurer. That’s because investing in real assets – is likely to give higher returns than investing the way insurance companies have to. So buying out through a superfund is cheaper and that means more upside. There is of course some downside with taking investment rich but that is compensated for by the contingent asset which can be sold if needs be.

The third superpower the Pension Superfund has, is to invest in amazing things which might otherwise not get funded. Things like a pipeline being built to bring thermal energy from Iceland to Scotland. Insurers can invest to a limited extent into infrastructure, but not to the degree of Superfunds. Superfunds have the capacity to be a source for good

What to do with surplus money?

Not so long ago , people laughed at the phrase “scheme surplus” – saying that such a concept was a “last-century thing”. But there are now schemes that have serious surpluses worried about what to do with them. The worry is that surpluses are trapped if kept within the scheme or lost if the scheme is transferred to an insurer.

The Superfund can operate using a formula to share the surplus with the superfund getting some of the upside (while providing a floor to the downside). This means that members can feel assured of getting 100% preservation of promised benefits with the option of more – if assets continue to exceed liabilities. (there’s an interesting discussion on surpluses in the LCP webinar – advertised at the end of this blog).

Will these Superpowers be deployed?

We have to wait and see. The DWP consulted on setting up pension superfunds in 2018 and has yet to formally respond to its consultation. Superfunds can be set up on some interim approval basis but the Pensions Regulator is nervous.

It is nervous because the Prudential Regulatory Authority are nervous (and perhaps because TPR is naturally nervous). The PRA are worried that pension superfunds will undercut insurance companies offering better prices because of less onerous regulation (a process called regulatory arbitrage).

That has meant that Pension Superfund keeps on knocking without the door opening. But that may change.

All this noise about superfunds from Nicholas Lyons, Tony Blair and voices inside Government may means that what has been a “no” and “come back later” could now be a “yes” and “what are you waiting for?”.

I hope that we will see the Pension Superfund approved before much longer and to see both it and Clara taking on and investing the assets of pension schemes contracting with them- this year!

Why not?

A lot of people, Tony Blair is one of them, would like to see pension superfunds set up as “not for profits”, meaning that while the management can get paid what they like, there is no shareholder to take dividends and increase price and risk.

I’ve never bought mutuality as a good model. I can see arguments for a not for profit PPF acting as a long-stop, but not for a competitive superfund competing against insurers.

We need the same entrepreneurial zeal from pension superfunds as we do from the companies they could be investing in. That’s not going to come from a “not for profit” mentality – though it could use not-for-profits investments to get returns.

Oc course, Pension Superfund’s rivals would be happy for it never to be approved, they fear the impact its presence would have on its volumes and margins and they could and should lobby against any change that restricts their unfettered freedom to choose which schemes to buy-out.

But just because the ABI is a powerful lobbyist , doesn’t mean that Clara and Pension Superfund can’t eat some of its lunch, and with the capacity of insurers to meet the demands of those buying out , limited – the arrival of new kids on the block should be welcomed by potential customers and regulators alike,

What’s changed?

I sense a spring in the step of the people I talk to in superfunds and it’s there because they see the attitude of Government changing. And more importantly, schemes now feel they are in charge of their own decisions – not in the grip of a deficit and the Regulator.

It’s not just Government pushing for change, it’s the progressive parts of the industry.

You can hear what LCP think has changed (and why) and you can listen and watch their webinar from the link below.

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Will the PLSA recognise the pension investment agenda has changed?

For a second time in a row, a PLSA  Conference will take place at a time of national debate about the impact of pension investment on the economy. The last Conference in October coincided with the BOE’s purchase period of long dated and index-linked gilts. This Conference will occur as our funding of pension promises appears to be being repurposed.

The noises coming out of the Treasury over the past week and reflected in Nausicaa Delfas’ speech last Monday represent a change of position on the management of pensions.

There will be profound ramifications for trustees, sponsors and  investment consultants.

Con Keating foresees a very different world going forward. It will be interesting to see how far this is recognised at the forthcoming investment conference in Edinburgh.

The new Funding Regulations and DB Code must now be dead. With all of this chatter about enhanced roles for the PPF, the motivation for that legislation has gone in the stroke of a pen. It was that there is harm to scheme members arising from the reduced benefits payable by the PPF.

Amazingly the PPF have never analysed just how large that loss was for the members of schemes which entered the PPF. This was always the central fault with those proposed Regulations and Code.

Consultants’ estimates of the degree of replacement vary from 80% to 95% of the sponsor promise. The more mature the scheme, the smaller the loss suffered by members. Our survey put the difference between PPF benefits at end 2021 and the technical provisions at 12.3%. The current loss to the existing members of the PPF will be smaller than this as its book of ‘business’ is more mature than the market broadly. Schemes within it have been in runoff for as long as 17 years. It is well within the existing surplus of the PPF.

It means that the low dependency, low risk portfolios required under that approach, which would of course be entirely inimical to any growth or productivity agenda, are history.

It also means that schemes will not have to meet the administrative costs of that regime, no small sum in itself, and that sponsors will not be called upon to meet the increased funding costs of that regime. These have been estimated to lie in the range £100 – £200 billion – funds which will now be available for investment in the sponsor business. Of course, whether they will be used for that purpose rather than the payment of dividends and share repurchases is another matter.

Another comment on a recent blog, this time from Jnamdoc is even more graphic

We cannot ever underestimate the damage that TPR deathstar has inflicted to our economy, systematically stripping our pension schemes of an investment mindset and responsibility, and the costs will be borne for some generations.

And the key word here is ‘responsibility’ – each demographics sector (and as a proxy lets assume DB schemes represent the economic interest of the non-working aged) has a responsibility to support and nurture the others. With improved longevity, the pensioner sector is just too large to freeload expecting a risk-free age-wage. All wages – whether working or age-related – need an invested functioning growing economy, in which all can share in the risks and the rewards.

Because of an utter and complete lack of oversight and/or understanding across successive governments, none of them really noticed or challenged the continual and corrosive powergrab of the TPR, and relied upon the actuarial experts. Actuarial experts can bring skills in complex maths and in hindsight analysis. Not about investing.

TPR only produced data that supported their narrow minded funding approaches, and despite the very very considerable power it wielded over Trustees and the professions, and hence over the investment direction and outcomes of c£1.5 – £2trn of Scheme assets, it operated without any remit or consideration to the broader economic impact. They will say, they were only doing their job.

We all know the dangers of the State seeking to choose winners in innovation and technology, but hitherto we have suffered under the worst possible regime – an unelected deathstar of a quango actively sucking all energy out of the economy. Of course until it is extinguished the deathstar will continue to look to blame others for not understanding including targeting trustees for not being “professional” enough to understand the maths modelling, or not having enough buffers to cover the known unknowns induced by TPR’s unique approach to investing.

TPR must step out of trying to offer Trustees investment guidance. Single solution mandated approaches (statism) doesn’t work. Let the market find and invest in the innovation and to deliver the growth we all need. Trustee board need to be filled with business people, not maths modellers doing the bidding of TPR.

I doubt these two voices will be much heard at the PLSA conference, but I will try to represent this point of view where I can.

Just as LDI took over the October Conference, so I expect the Growth Agenda to take over this.

This blog is restricted to a discussion of DB funding, there is an equally important discussion to be had about the repurposing of DC investment. While the funding of DB schemes is likely to be considered “legacy”, DC “is the future”. These characterisations are of course wrong, most of the pensions arising from our DB system are yet to be paid, there is no system yet to pay pensions from DC pots.

In future, we need to think of DC and DB pensions as one –  certainly in terms of  funding, They will differ in the duration of liabilities but  will eventually have  a common purpose. That purpose is the payment of an income for life which gives people dignity in retirement.


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Capita admits 470,000 academics’ pension data hacked

Three of Capita’s servers were hacked in March of this year. The Sunday Times put the hack on its front page in April and since then Capita has been reporting on its  cyber incident.  You can read the details on the blogs at the bottom of this page.

Capita until recently thought that only a small amount of data had been compromised but this turns out to have been wistful thinking. Yesterday the dam burst.

USS uses Capita’s technology platform (Hartlink) to support its in-house pension administration processes.  It says it  has been liaising closely with CApita over the course of its forensic investigations.

While it has been confirmed that USS member data held on Hartlink has not been compromised, USS was informed on Thursday 11 May that details of USS members were held on the Capita servers accessed by the hackers. The information potentially accessed includes:

  • Their title, initial(s), and name; their date of birth; their National Insurance number; their USS member number.

The details, dating from early 2021, cover around 470,000 active, deferred and retired members.

While Capita cannot currently confirm if this data was definitively “exfiltrated” (i.e., accessed and/or copied) by the hackers, they recommend USS members work on the assumption it was.

USS are telling their members that they are awaiting receipt of the specific data from Capita, which they will in turn need to check and process. USS uses Capita systems but not Capita’s administration.

USS will be writing to each of the members affected by this – and, where applicable, their employers – as soon as possible to make them aware, to apologise for any distress or inconvenience caused, and to provide ongoing support and advice.

Other Capita clients are not so patient. Colchester appears to have had a similar problem.

Colchester Council’s chief operating officer Richard Block told the Colchester Gazette and Standard

“The council is extremely disappointed that such a serious and widespread data breach has occurred and is robustly addressing the matter with Capita.

“I want to reassure all residents that we are taking steps with Capita to fully understand how they have caused this data breach as well as any further action required.

To be fair to USS

From the sideline, it does appear that USS are doing rather better than Capita in keeping “stakeholders” involved.

USS has information on its website providing tips on how to spot scams, and a set of Q&As is available here to  address any immediate questions.

Members can also email mydata@uss.co.uk if they have any further queries not covered on www.uss.co.uk.

USS is encouraging members to only ever give out personal information if they are absolutely sure they know who they are communicating with. It is advising members

  • If you receive a suspicious email, you should forward it to report@phishing.gov.uk. For text messages and telephone calls, forward the information to 7726 (free of charge). For items via post, contact the business concerned.

  • If there are any changes to your National Insurance information, HM Revenue & Customs would contact you – but you can also phone them on 0300 200 3500.

  • If you are concerned someone might be impersonating USS, please let us know by emailing mydata@uss.co.uk.

The National Cyber Security Centre and the Information Commissioner’s Office (ICO) both provide guidance that may also be useful.

USS has  reported this incident to the ICO and will work with them on any investigation they choose to conduct and any recommendations they might subsequently make to USS. USS has also informed the Pensions Regulator and the Financial Conduct Authority.

It says it is  confident members’ pensions remain secure. USS has reviewed their  own systems and controls to ensure they remain robust. My USS login information has not been compromised.

View of an outsider

This is more than an embarrassment . The data was hacked over 6 weeks ago and it is only now that the USS trustees and executive have been made aware. I have spoken with USS on this and have been told that to date no member has reported any impact from their data being compromised.

But the fact remains that nearly half a million current, retired and former academics are at risk from their data being traded on the dark web.

Alan Chaplin, my senior correspondent on these matters, has this to say

And the Pensions Regulator is clearly anticipating more trustees with problems

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Has it really come up roses for UK’s private sector DB schemes?

Over the last 7 yers, First Actuarial published its FABIndex which explained that using “best estimate” actuarial valuations , rather than “marked to market” accounting valuations, the defined benefit pension schemes sponsored by corporate employers were not running deficits but were in rude good health.

Rather than the volatility shown by the accounting method’s estimates of surplus and deficits, the actuarial method shows that the PPF 7800 schemes under scrutiny have consistently been in surplus and that surplus has hardly out of a range of £20-30bn.

While FABI is less noisy and less newsworthy, it makes sense of pensions to the ordinary person in a way that the FRS17 accounting standard doesn’t.

There are few fundamental changes to the amount pension schemes are on the hook to pay their pensioners. We heard at yesterday’s Pension PlayPen coffee morning, that the anticipated improvement to life expectancy over the period hasn’t materialized and that there is likely to have been a slight reduction in how long the current generation of pensioners are likely to get their pensions. But this Covid-dividend is of relatively small import.

What has happened over the period, which has turned accounting deficits on their head has been the end of QE , the reappearance of inflation, the increase in gilt yields and the increase in the discount rate that governs marked to market liability valuations.

While these factors have also been recognized in FABI, they are much less pronounced in terms of impact and could have meant that – had assets maintained their value, pension schemes would now be so much in surplus that they would be once again a national treasure.

Sadly, the yield dividend was wiped out by over £500bn of real asset losses resulting in part from poor investment conditions in 2022 and in part by the impact of the LDI blow up in Sept/Oct.

So has it all come up roses?

The story that defined benefit schemes were in desperate trouble and were likely to drag our larger companies down with them was one that gave birth to the de-risking fever that gripped consultants and trustees in the years following the financial crisis. It was a story that the Pensions Regulator was only to happen to go along with, de-risking made for a chance to show off TPR’s powers to extract deficit payments from employers.

Employers were able to justify coercion to get members out of pension schemes as prudent. ETV and PIE “exercises” meant that members lost their pension rights for a cash equivalent and many members did. Low discount rates meant for high transfer values and over the period between 2016 and 2020, over £100bn of pension promises were swapped for cash paid to retail pensions by Trustees.

Meanwhile, deficit contributions to DB pensions meant that DC pension contributions were kept to a minimum, investment in R and D, plant and machinery and in the innovation British companies needed to compete was swapped for massive pension contributions to meet the cost of all this de-risking.

It now turns out that they need not have bothered. The most solvent funded DB pensions are those that had no need to de-risk, the schemes such as the Local Government Pension Scheme that did not over-purchase gilts using the derivatives market but invested for the future without thought of any end-game.

They are now seeing everything coming up roses. They are the schemes that can afford to invest in productive capital for the benefit of Britain’s economic future and they are now in the fortunate position of being less of a burden on their sponsors (both employers and members).

The opportunity cost

Employers will look back on the past decade with regret. They will ask whether they should have adopted pension strategies which led to such massive exposure to collateral calls when their borrowing strategies went wrong, they will asked why they paid so much to de-risk liabilities relative to the transfer values of today and they will rue the opportunity to focus on growing the assets of their pension schemes , rather than worrying about fake deficits on their balance sheets.

First Actuarial pointed this all out throughout the period when schemes were being herded into “de-risking”. They pointed out that the PPF, in whose name , TPR and Trustees were demanding deficit repayments, was in rude health and they were right. The PPF is now embarrassingly over-funded. Corporate pensions have not folded and – as this article shows, project fear is now exposed as project fake.

All this de-risking has been at a massive opportunity cost to schemes, to members and ultimately to the UK. We will  look back at the past twenty years of DB pension strategy as lost years in which pensions played a substantial part in the UK’s poor economic performance.

To read how one consultancy stood out against the trend – here is the link to FABI and First Actuarial’s monthly briefings/

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Capita and their clients – there but for the grace of God…

Spare a thought for Capita staff , spending much of the weekend working out what has been hacked from the three servers reportedly impacted.

If you are a data controller, you probably depend on organisations such as Capita to manage the data effectively and keep it safe, but are we confident that were we the victims of a Russian cyber-attack, we would have a plan in place, much better than Capita’s Plan A.

We have our trust in Amazon Web Services, we have a Plan A and we have insurance, we were instructed by a NED one of whose businesses was hacked, we have taken what precautions we could but I remain nervous – who wouldn’t be? How would I react if the unthinkable happened?

Most of us, I suspect, would instinctively want to pull down the shutters and minimise disruption and reputational damage to the business. That’s what Capita did , until the Pension Regulator wrote to 300 trustees responsible for pension funds that use Capita asking them to  investigate whether the personal details of millions of people had fallen into the hands of foreign cybercriminals.

A problem shared is a problem halved – unless you have no data. Most trustees must have read that letter thinking this problem hadn’t halved but doubled. Capita and the trustees are very much in this together.

It is Capita that has to identify which members have had their data compromised and it’s up to the trustees to break the bad news. All that trustees can do right now is thank the grace of God that they have Capita to support them .

Ultimately, the decision to employ Capita, or any other third party administrator, is taken by trustees, they have that reckoning to follow. So have Capita

The Trustee plan A required perfect knowledge from March, clearly plan A did not work

Each now has to develop their own  Plan B as they respond to the very specific request from TPR

“As a data controller you need to gain assurance that your data processed by Capita is secure and take action as necessary to protect your members … Please tell us what steps you have taken to meet your obligations as a data controller.”

If you are a trustee reading this that didn’t get such a letter, then give double thanks for the grace of God as you can now prepare yourself to ensure that if your data  is compromised, either directly or through a third party, you have a Plan A in place that learns from what Capita and their impacted clients, are going through now.

There is a common enemy in this and this may be a case where the best means of self-defence is adopt a common approach. What is obvious from the failure of Capita’s Plan A is that saying nothing , when hacked, simply kicks the problem down the road.

These hacks occurred in the middle of March ,we are now in May, if you are a data controller, make sure that months don’t go by before you know what has happened.

Use your time before your hack wisely to have a plan A that works.Then pray for the Grace of God to grant plan A will never be actioned.

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Consultants – we must end the “AMC limbo” now!

A long time ago , I and a colleague were presenting to the trustees of the parliamentary DB pension plan (the PCPF), an alternative AVC arrangement to the Equitable Life (whose proposition was collapsing).

We knew that we were offering our service at twice the price of others presenting in the beauty parade which had been organized by a firm of consultants. Our pitch was based on the value we would bring and – even then – the value for parliamentarians money.

When we finished, the Chair of the Trustees, an eminent MP , asked us how he could justify to his members putting forward the more expensive service.

My colleague, inspirationally replied

” Sir, we believe our rivals are selling at a loss, if you agree with me and appoint one of them,  then you must instruct your members to report every contribution they make to the parliamentary privileges’ committee”.

We were appointed , I suspect on a combination of product, wit and chutzpah. But I suspect that many purchasers of DC pensions know that their fiduciary duty to those they purchase for extends beyond comparing prices.

Selling on price

Selling workplace pensions on price is nothing new. It happens out of laziness. It happens because of a combination of these three things.

Those who market pensions workplace pensions are too often rewarded on volume not margin, their job is to squeeze their pricing actuaries – an internal broking job that enables to compete when the horse-trading happens prior to an appointment

Those who purchase workplace pensions, employers – or trustees selecting the workplace pension to transfer member assets too, have insufficient information or education to consider a decision based on value.

Those who advise on the purchase find it easier to justify their fees by quantifying the saving in price to the purchaser of each bp off the AMC.

It has happened for decades and it is still happening today and this is why we are seeing so little innovation in the investment of DC.

To win new business , providers need a headline AMC which is not only competitive enough to make the shortlist, but has the give in it to win the horse trade prior to appointment. If you go into a pitch knowing that ultimately you will win or lose on price you need an investment proposition which can be stripped down to win theAMC  limbo dance.

“It’s only DC”

The problem is systemic and it comes about because of a phrase I have heard when working in pension consultancies . “DC” pensions are not taken seriously by many consultants  who value their work in DB over the work of their colleagues in DC. DC is – to them – a kind of broking, the product a commodity and the outcomes of the products of little interest. They are only DC and the people in the actuarial practices assigned to the DC departments are those not up to doing proper work.

This engenders low esteem in DC consultants which encourages them to sell their wares on their broking skills. Since they haven’t the courage of their convictions with regards “value”, they commit resource into marketing themselves to potential clients rather than researching providers. If the value of the service they are offering is challenged, they point to their fees being lower than those who do the job properly and the results of their work being lower AMCs.

Dumbing down has become vertically integrated from the senior partner to the most junior consultant- “it’s only DC – normal standards do not apply”.

What does this mean?

The consequences of the dumbing down of DC pensions are these

  1. Pricing of workplace schemes is now so keen that providers have no choice but to strip out value enhancers in favor of the cheapest passive funds they can purchase.
  2. Passive managers, starved of margin, look for back door profits
  3. Fund governance – such as ensuring transitions are completed at fair value – is not done
  4. What members get by way of achieved return is less than the declared net performance
  5. In this race to the bottom, quality decision making is abandoned.

And this is the area of financial services  that Jeremy Hunt wants to encourage to invest in high-value , highly-priced growth opportunities.

Measurement must change

We must start measuring the outcomes of the investment strategies employed by workplace pensions better. That means moving away from the top-down approach where fund performance is measured in theory, charges based on assumptions are netted off and net performance based on hypotheticals is ditched. Performance measurement must be based on achieved outcomes using member data, what and when they save and what the pot value is on the day of measurement.

Moving to a measurement system based on what actually happened is the only way of outing poor practice, hidden fees, kickbacks, sloppy transitions , late investment of contributions , dry powder in funds – all of the little things that create the tracking error between what a saver gets and what they should get.

If standards improve -accountability will follow

If workplace pensions are considered on the basis of what they have actually delivered, employers and trustees can hold those who manage their saver’s money to account.

If the declared net performance is not being achieved in practice, then providers should be asked to explain where there is leakage and either improve or be sacked.

Simply taking the investment manager and the administrator’s word for it is not good enough. Their performance needs not just to be measured but properly benchmarked.

Without this accountability, there can be no hope of moving towards better practice.


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A year off you life – a year on your pension. Windfalls are for sharing

What’s that William McGrath up to now? Sweet-talking the Trustee with a lyre and a tablet?

One year off your life – a year on your pension. Windfalls are for sharing



Well said that man – and there’s more

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The pension dashboard needs more than a reset – it needs a rethink.

Aon’s bizarre messaging to keep us working on dashboard data and connectivity.

The dashboard is being delayed again. Team PDP is already four years late getting the pension dashboard  crossing the line but our grand-prix racecar is in the best of hands –  even with that retro-refuelling pipe!

It was originally intended that pension schemes would join in three waves, with large schemes due to jump on between August this year and September 2024, medium schemes between October 2024 and October 2025 and smaller schemes from 2026.  That timetable has been scrapped – there is no new timetable.

That we are already a number of laps behind our European counterparts is of no consequence to the current Minister for Pensions. This is not a problem that happened on her watch, like successive ministers over the last decade, she is merely managing someone else’s bright idea.

Like the iconic watch,  ministers never actually own  dashboards , they just look after them for the next generation.

The dashboard’s illustrious timeline

This dashboard won’t be ready in this parliament and there’s no certainty it will be ready in the next.  The dashboard will be  “transforming how consumers think and plan for their retirement” but not for a few years yet.

The story of the dashboard dates back into the last millennium with Hansard recording Frank Field being told by the then DWP SOS that Combined Pension Forecasts had been piloted in 1999!

Nearly a quarter of a century has passed since that pilot and now we hear that the digital descendent of the CPF is to be delayed again as Government struggles to display  digitally combined pension forecasts on our phones.

In the meantime we have seen open banking become a reality for most of the population with payments managed in seconds with a flick of a finger.

Open Banking happened because of the resolute refusal of a group of people who refused to take “no” for an answer. Requiring the core retail banks to sign up to a set of protocols and make data available to their customers sparked a step-change in our approach to banking.

Today, nobody writes cheques and most of us even use a cashpoint, we seldom visit banks and the time we take managing our finances has been radically reduced. We are reminded of when we have a bill to come by smart messaging and banks can now display pension balances on their apps in the spirit of pension forecasts.

All of this started from a very small base. Pension dashboards were launched in 2016 as pensions answer to open banking. The enthusiasts did open banking, the DWP and MaPS have stymied open pensions.

Now we hear, despite all promises , the pension dashboard is further delayed, with the dashboard availability point for consumers now receding into the second half of the decade.

Once again, we have no timetable. The odds of my accessing my state pension  (Nov 28) before my dashboard in BAU, are shortening.  Amidst all this – Aon can still liken progress to a pit-stop on a grand prix and PASA , the ABI and the PLSA can breathe a sigh of relief.

The days of sabre rattling from Guy Opperman against unprepared schemes are long gone. The DWP , MaPS and the PDP is now looking more like the special military operation this time last year.

For 7 years this blog has been calling for a simple pension finding service from which we can build. The DWP has not listened and along with MaPS they’ve made an arse of this – just as predicted. It sounds to me like Laura Trott has worked this out.

The Statement from the MfP

Laura Trott’s statement to the house 02/03/23

Time for a rethink

It is time to rethink what people want from a pension dashboard

Here are my two must-haves

  1. A means to find my lost pots
  2. A display of all the pots I have and links to pots  I may have

There’s £26bn in lost pots, Martin Lewis dedicates half his show to it.

People don’t lose their DB entitlements – they don’t lose their state pensions, they lose their pesky pots.

Here are my three nice to haves

  1. A reminder of where  I have defined benefit pension rights (with links)
  2. a forecast of my entitlement to my state pension
  3. a forecast of my defined benefit pensions

If you can remind me who’ll be paying my defined benefits – that’s kind. Yes it would be nice to know what I’ve got coming but I’m not holding you to it, please don’t bother me with GMP rectification , McCloud and complex forecasts of future inflation.

Here are the things I am really not bothered about

  1. Certainty about what my pots and pensions will give me in the future
  2. Completeness of information – I can live with information gaps
  3. Being scammed – sorry but I expect to be protected from data mismanagement

If you can’t be certain what my pension is going to be – tell me this is your best guess – be honest and brave

If you won’t link your data to dashboards say so, the dashboard can list all the schemes that couldn’t find a way to make their data available. Be honest about your incompetence.

And if you can’t share data with a pension dashboard without the risk of it being stolen, don’t  – just tell us that you can’t share data securely (and we’ll giggle).

Please listen this time.

Every successful dashboard in Europe and around the world has started by displaying the information it can display with the promise of completeness in years ahead.

If when this digital dashboard kicked off under the Treasury in 2016, we had limited its scope to my nice to haves , we could have had an operating dashboard finding pots and reminding us of pension rights by the original delivery date in 2019.

No one listened to the people who called for open pensions , instead the DWP took control (as they are doing now) and in a series of hideous meetings transformed dashboards from fintech enterprise to 20th century mainframe mindset.

Yes Britain has the most complicated pension system in the world, which is why we need a dashboard more than any other country.

But it may not be this decade that we   deliver a dashboard that focusses on the things ordinary people aren’t that bothered about.

We need to prioritise, work out what we can deliver now and deliver it. We must stop this foolishness that the dashboard available point needs to deliver the lot – it can’t.

Delivery must be staged with the priorities around the things that matter most to people- finding their pots and showing what can be found.

We must put a full time person in charge (maybe Chris Curry but the evidence is he can’t run this and job run the PPI) . We must take MaPS out of the equation and let it sort itself out – the dashboard is first and foremost a technology project- it needs to be treated as such.

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The public’s bullshit detector caused the “pension pandemonium”.

There were two quite separate dynamics to today’s Pension PlayPen coffee morning.

Speaking on behalf of the millions of members of workplace pensions scared stiff by talk of a pension crisis was Tom Selby, head of retirement policy at AJ Bell  and speaking back at him were a number of experts on LDI led by Con Keating but including Jon Spain and John Hamilton.

The common theme was “mis” or possibly “dis” information. Has the public been misinformed over the nature and consequences of the crisis in LDI. For the purposes of this article. I’ll define misinformation as careless with the truth while disinformation is the deliberate telling of lies.

In Tom’s view, the “waterfall of information” from the BOE to broadcast journalists through to the broadsheets, tabloids and trade press created misinformation because the subject matter was complex, the consequences obscure and ultimately because there is a story that needs to be told that cannot bide too much “nuance”.

In Con’s view, the telling of the story of the breakdown of LDI is – if not a conspiracy of lies – certainly a deliberate perversion of the truth.

As chair, I was left to conclude that the public and most people in pensions are not well informed about the consequences of the surge in gilt yields and the crash of gilt prices and have not not had access to good quality information from top to bottom. If we take the point of information to be guidance, then the guidance from the Bank  of England, the Government and the media has been lacking and frankly whether that is because of laziness, lack of bandwidth or because of a deliberate attempt to hide the truth – the end result is damage to pensions.

Tom Selby’s time spent answering the calls of those frightened by reports of a pension crash is recounted in this story in Money Marketing.

It is the mark of a very good journalist that he or she can make a complex subject accessible without dumbing it down to a point where we get misinformed. This is how a very good journalist describes Liability Driven Investments (LDIs)

LDIs are designed to hedge off the risk associated with gilt yield movements. At a simple level, that means when gilt yields fall and the accounting value of liabilities increases, the investment bank running the hedge will pay the scheme money. Conversely, when gilt yields rise – as we have seen recently – the scheme has to pay the investment bank.

This worked fine during an ultra-low gilt yield environment but became a problem as yields spiked in the wake of the mini-budget – particularly for those LDI funds that had leveraged positions.

he continues

As a result, some LDI hedges demanded huge sums of cash, with the risk the gilt sell-off precipitated by the mini-budget would be made even worse by pension funds dumping gilts to post extra collateral. What we saw was therefore a gilt crisis involving a specific type of investment held by a specific type of pension scheme, rather than a crisis that posed any direct risk to people’s pensions.

Bear in mind that Tom is riding for financial advisers who understand what a hedge is , a pension liability is and a gilt yield is – this is clear information that guides advisers to an understanding that this was not a crisis leading to insolvent pension funds , rather one that threatened the stability of the gilt markets.

Talk of pension funds becoming ‘insolvent’ or pensions being at risk was, at best, hyperbole and, at worst, entirely misleading. It is the strength of the employer that is paramount when determining whether or not a DB pension promise will be paid – and even where this is compromised, the PPF provides a valuable safety net.

Employers stand behind pension promises and the PPF stands behind an insolvent employer to provide a safety net.

The problem identified by Tom is that on the buy-side of the story are punters who have no idea whether their workplace pension is going to provide them with a pot of money or a replacement income, or whether their pension is invested or provided by the taxpayer. To quote the OFT some eight years ago now

So how can employees in workplace pensions seek reassurance about the pensions they are in? What are the solutions?

Firstly we need better direction from the very top , in this case , the Bank of England, the DWP and the Treasury. For various reasons , mostly connected with the crisis in question, all three have been preoccupied. But none has been able to put out a sensible briefing that explains how a pension crisis involving the solvency of (LDI) pension funds is not going to damage people’s retirement prospects. Simply telling people that their pensions are now safer because gilt yields are higher is meaningless.

Part of the problem we have with communicating this LDI crisis is that we refuse to tell the story in a credible way. People do not believe that a pension crisis is not a crisis for their pensions (something that Tom repeated several times)

The reality is that the actions of the Government (the micro-budget) have weakened most people’s pensions either because they held gilts and bonds in their DC plans, which were worth less when gilts plummeted in value) or because of the collateral calls from leveraged LDI which forced many schemes into a fire sale of investments  or simply because the economic situations of those in workplace pensions have or will hit savings levels and/or drawdowns. There is no upside to the 1.6% increase in the cost of Government borrowing at the end of September or the intervention of the Bank of England both of which mean that the country is more indebted and our pensions in real terms – weakened.

Unless these consequences of the crisis are accepted, people will continue to see what is being told them as a cover-up.

Here we move into areas which may be called disinformation. If – for the purposes of keeping a lid on a crisis, participants deliberately conceal what is going on, then they risk pandemonium from dodgy information. People will infer that their schemes are insolvent even if (and especially if) they are told that there is no problem.

I will return to the PLSA conference and the silly attempt to bounce the Bank of England into extending the support for DB pension schemes which told the market that the pension schemes were not ready for the October 14th deadline. At the same time that the PLSA pressed this panic button , they were reassuring us that there was no problem. Is it any wonder that people were baffled.

This purposeful attempt to calm the general public only led to what Tom calls “pensions pandemonium”.

The solutions to problems such as the one pension schemes were facing is to tell it how it is and let the public decide based on the guidance they take from the facts. Failing to provide a clear factual account of what was going on , meant that the likes of Robert Peston briefed his viewers that pensions were in danger but that could have been avoided.

Meanwhile those pensions that were in danger , had it not been for calm brought about by the BOE, were given signals from the Regulator, the PLSA and the docile pension press, that there was nothing to worry about. Which is why so many schemes did run out of runway and became forced sellers – or even lost their hedge and their collateral.

As any good punk knows, the way to convince people is with the truth, bullshit will out. The solution to the problem people have with pensions lies in transparency, You cannot dress up the truth , we must learn to explain the complex with the skill of Tom Selby.

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We should have a Government of National Unity.

We are about to embark on another Conservative leadership election that will divide not just the country but the Conservative party. There is a strong moral argument for a General Election but this is unlikely to happen. Watching Question Time last night, there was an appetite for a general election but that was demonstrated by those who wanted to participate in the political debate. Most people don’t, we need a way of Governing over the next two years that recognises that the will of the country is for something quite different than what we have had over the past 18 months.  I propose a Government of National Unity, please read on.

There are two electable Conservative candidates and a third whose very candidature is an insult to our parliamentary democracy. That does not mean that Johnson, who is currently on holiday will not do his best to mount a comeback. He will have plenty of supporters amongst Conservative backbenchers who will see him as their best hope of getting re-elected.

For those who have given up on politics as a serious business, Johnson would I suppose be fun – the Clown Prince returning after a short rustication. But if we are to take our democracy seriously – and we should – there should be no door open to him. Ideally he should resign his seat before it is taken from him, he should leave the political arena .

But I fear he will hang around like a bad smell, he should be given no job, nor should Rees Mogg – they have disgraced themselves. Johnson should give up his classical pretension to be Cincinnatus , he is a petty criminal who needs to learn the law applies to him as it does to us all.

We have a new monarch but we have an old parliamentary system. Worse we have the old parliamentary Conservative party to contend with.

The Conservative party is  the big problem facing Truss’s replacement, whoever they may be: is this a party capable of unifying around any real-world programme?

This is a party that has, since the UK voted to leave the EU, voted against the spending cuts of Philip Hammond, rejected the tax rises of Sunak, driven itself towards the tax-cutting excess of Kwarteng and may now reject the return of austerity under Jeremy Hunt. It opposes higher inflation and dislikes higher interest rates. It wants a balanced budget but endeavours to keep taxes low and spending unchanged. It wants to be pro-growth but also to have a distant and at times hostile relationship with its nearest trading bloc.

But there is an alternative to a Conservative Government, I’m calling for a Government of National Unity.

This  new Government could be led by the elected party but include in its Cabinet and Ministries, the best of all parties.  We have able leaders in the SNP and the Labour Party and we would probably have more unity between a cabinet including the SNP, Liberals, Greens and Labour than the various factions of the right. Indeed I see much more that unites Sunak and Starmer , Rayner and Mordaunt than the between the left and right of the Tories.

I have been impressed in recent weeks by a number of politicians who have shown good sense in a time of crisis. It is right that the Conservative party forms the Government but that does not mean that it cannot work with other parties to get us out of the current mess we are in.

Ideologically , the center left and center right can work together for the national interest without the rancour we are currently seeing. Excluding the far left and far right from a Government of National Unity makes absolute sense but such a Government should not exclude the Scots and Welsh and Northern Irish , all of whom could and should be considered part of the Union.

This radical suggestion is made seriously. Reaching across the floor of the House of Commons for the remaining two and a bit years of this parliament would make for a more productive political process where we would see things done at a rate. The Conservatives have nothing to lose, if they continue as they are doing they will lose catastrophically and their best hope is to show that they can act in the national interest for the last part of this parliamentary term. For Labour and maybe the Liberals, working within Government rather than against it may mean that at the end of this parliament there is a chalice handed to them which is not poisoned.

This could happen only if the Conservatives agree to play nicely over the next week. They should move fast to ban Johnson from contesting, there should be an agreement between Mordaunt and Sunak that one will stand down if it becomes clear the other will win (Sunak should have done this early in the last contest). There need not be a vote and there need not be any factionalism going forward. Ministers who were doing their jobs prior to the Truss regime, should return to their former positions, those who have behaved vilely, should be banished to the back benches (Bravermen , Truss and  Johnson for starters). Where this leaves vacancies Kier Starmer should be invited to offer his best candidates.

Starmer himself should stand beside the new Prime Minister as Clegg did beside Cameron. Hunt is a passable replacement for Osborne but he should be shadowed by Rachael Reeves and Yvette Cooper in a Treasury team that takes the really tough decisions consensually.

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What is “useful content” on LDI and who should publish it?

John Belgrove , who has long been a friend to this blog , has published on Linked-in a Venn diagram.

This is not an ad hominem attack on John, he is being helpful in articulating a commonly held view (judging by the 200 or so comments on a recent FT article trying to explain why the BT pension scheme has lost £11bn in a couple of months)

John’s diagram suggests that the vast majority of the red box – people writing about LDI, neither understand it or understand DB funding. They are therefore not producing “useful content”.

Patrick Lee, a former  member of the Institute and Faculty of Actuaries has asked..

Isn’t it rather odd that [the IFOA] has had nothing to say about the crisis in #LDI pension plans which caused the Bank of England to intervene in the UK gilt market to prevent a possible catastrophic downward spiral and which independent pensions expert John Ralfe has said .. requires an urgent investigation by regulators including the Bank of England and the Pensions Regulator?

Presumably , to properly understand all the nuances of LDI , you need to be an actuary, lawyer, pension scheme expert and investment professional. Even John Belgrove is not all of those!

Who can write about LDI?

So we might conclude that the FT should not be writing about LDI and that I shouldn’t either. Infact we should confine the comments on LDI to the tiny coterie who John considers can write “useful content“.

Patrick Bloomfield, partner actuary at Hymans Robertson is worried that the press are needlessly alarming people

“Many of the headlines, especially mainstream press stuff, has been wildly misleading and scaremongering,” ,

“Most schemes use a bond yield for that calculation or maybe a gilt yield plus a margin. So as gilt and bond yields have gone up, there’s more discounting and liabilities have come down. So high yields means low liabilities. In other words, this is good for pension scheme funding.”

So the public have been misled by the Bank of England’s £65bn safety net, designed to stop LDI pooled funds being wiped and segregated funds being met with collateral calls that if met could do serious harm to scheme and sponsor?

In answer to my question, I suspect that discussions of the impact of LDI on UK pension schemes should be written by actuaries and lawyers for actuaries and lawyers in their journals and the doors firmly locked against journalists , let alone the general public (aka pension scheme members). Click this link to get an idea of what I’m talking about.

This reminds me of the days when people who published biblical texts in English were burnt at the stake. LDI is as accessible to ordinary people as the bible was in vulgate Latin. Allowing people to see what is going on in the bible , means allowing them to make their own minds up – something that the Church was so afraid of that they martyred the publishers and translators.

I doubt that many journalists felt quite that heat this month, but reading the comments to their article from anonymised experts, I am sure they felt uncomfortable. It is not they that should be uncomfortable, it is those who wish to suppress the provision of information and the revelation of the consequences of schemes over-loading with gilts to meet regulatory demands that should feel uncomfortable.

There were other ways to fund schemes over the past fifteen years, LDI was not the exclusive strategy  . There are those outside the inner sanctum who are trying to talk and read about LDI in a language we all can understand!

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Are LDIs the greatest scandal of the lot?

Let’s unpick this headline , statement by statement.

Do we need a rethink of pensions?

Undoubtedly we do , the current pensions regime is under review and the DWP have drafted some draft regulations which are supposed to make them safer. These regulations have met considerable opposition, particularly from leading pension experts Willis Towers Watson. Ironically, compliance with these regulations would force pension scheme to be more rather than less dependent on gilts.

Do gilts increase rather than reduce risk?

The gilt rate represents the cost of borrowing for the Government, normally Government’s borrow cheaply because they don’t default on debt. Currently the markets are marking up the cost of Government borrowing because they see it as irresponsible and incompetent.

This doesn’t mean that the fundamental reason for buying gilts has gone away, they normally pay a yield that is low but safe. Gilts become risky when packaged into LDI contracts which double , triple or quadruple the risk when something goes wrong. The problem that the pensions regime has is that two thirds of all defined benefit pension schemes have been at it.

So why have gilts been so popular? The answer is that the accounting standards to which pension schemes report , and have done since 2004, make holding gilts the best way of demonstrating solvency of a scheme. But as Terry Smith (the boss af Fundsmith) has shown, where an employer is prepared to stand behind a scheme, a more risky strategy can be more rewarding.

And what do we make or a risk free asset that can do this?

As anyone who has found themselves in a standalone “pre-retirement” fund , losing 20% in a year leading up to your wanting your money, is not a pleasant experience.

Gilts are risky assets , no matter their matching properties. Doubling or tripling down on gilts is a risky business. LDI is a risky strategy and pension schemes that have embraced it are now at risk of losing their hedge, their collateral and even their solvency.

Is the pension regulator a weak and captured watchdog?

Let’s hear what Ruth Sunderland has to say

The Regulator promised that lessons would be learned and its powers in regard to reckless employers have been strengthened. The UK is no stranger to pension scandals, from Robert Maxwell to Equitable Life. But LDIs dwarf the lot combined and the Regulator is out of its depth.

That no one knows how big the potential write off of collateral, the sell down of equities and the cash calls on employers are . is evidence that this crisis is out of control.

I sat and watched as TPR CEO Charles Counsell explained to an audience eager to be reassured that there was really nothing to see. That was because TPR have are blindsided.

They have been captured by circumstances that they will say were beyond their control but which happened under their noses.

Why does LDI dwarf the lot?

We don’t know what has been sold to meet collateral calls. JP Morgan are saying £149bn, which looks a precise number until you remember that there are 9 zeros behind a billion.

I suspect the figure is a lot higher and while some of that money will revert to the scheme, an indeterminate amount won’t.

The reorganisation of asset strategies now involves such exotics as “synthetic equities”.  We are in unchartered waters.

Is the Regulator out of its depth?

A smiling and calming CEO , an urbane head of policy, a charming and charismatic Chair, all very much on display in Liverpool, but the damage that has been done to the system has happened in countless meeting where case-workers have co-erced schemes into LDI strategies that worked for a decade but blew up in a few days

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Millions may have small pots, but thank God they have!

Occam Investing – thanks!

Occam Investing is a blog I thoroughly recommend. Its author is anonymous but  highly qualified, meticulous in the presentation of his/her work and the narrative is relaxed, personal and pitched at those (like me) with little aptitude for complexities! You can subscribe to the blog here, I hope the author gets as much fun out of Occam as I am out of my blog. The author is also on twitter as @OccamInvesting.

What DC pot sizes tell us about financial resilience today

I’ve nicked some of the charts from a recent Occam blog that repurposes ONS data on pot sizes to show that the amount we’ve got coming from our private pensions isn’t as much as we might think. I’m going to look – not at the wealth in the system, but at the lack of it. That’s because my focus these next few months is on what the least wealthy (aka poorest) in our society, do with the limited means available to them.

My argument is simple, many people will be financially resilient over the next two years with the help of their pension savings. Occam’s charts show us why we should be focussing our efforts on those with small pots, they need our help most.

Occam starts by looking at the distribution of pensions wealth across age bands (cohorts)

This shows a picture of pension wealth concentrating on those approaching state pension age with it diminishing as people get into their later years.  Those who worry about lack of consumption may ponder why there is so much wealth in the 75+ cohort, but that’s not for this blog.

Even these averages don’t suggest that with a drawdown of 3-4%, the average saver is going to be anywhere near what the PLSA consider “comfortable” in retirement, but they show that there’s a lot of wealth in the system for all that.

But things start getting less rosy when you consider that 55% of us have no pension wealth at all

It’s worrying because the self-employed, those caring for others and those who are simply not working, are not enrolled. There are also opt-outs of auto-enrolment (and increasing number of them). Put these people on the first chart and averages start falling


But this is still fairly abstract information , we need more granular charts to work out what the distribution of pot sizes is. Occam, creates two really good charts that show that the bottom quarter of pots when looked at separately , are nowhere near £100,000 at maturity.

If we look at personal pensions, which tend to be funded with discretionary spend (above AE minima) the picture looks like this.

The orange dots are shooting away, representing the kind of wealth looked after by advisers at SJP, non-advised SIPPs and by IFAs. The red dots may or may not be advised, but the pots represented by the blue dots , those who are in the bottom quarter of pension savers by pot size, are unlikely to be getting much help- other than from Pension Wise.

And when we get onto occupational schemes, some of which like those of the banks are super well funded but most of which , like NOW, Nest, People’s, Smart and Cushon- aren’t. The picture is even more dramatic

The blue dots are struggling to get beyond a £15,000 average.

So what does this tell us?

It tells us that we cannot generalise about pension wealth. More than half of us haven’t got any and so we should be congratulating the 45% who have got some (not telling them they haven’t got enough!)

It tells us that the bottom half of savers are struggling to have saved £50,000 when they get to state pension age and that the bottom quarter struggle to get to half that.

It tells us that pension wealth , as recognised by the wealth management industry and to some extent, insurers, is really concentrated by the top quarter of savers – only about 12% of adults and that we simply can’t treat pensioners as a homogenous group. Most pensioners will regard their private pension as a side-pocket , their income will come from the state pension and benefits. This is Steve Webb’s lesson to us

A sobering thought

I am hearing a lot of tosh at the moment about our pension pots being precious, that they should be preserved for the future and not spent on household bills as the cost of living crisis squeezes us.

But when we look at the proportion of income coming from occupational Dc and personal pensions (look at the pink slither), then we get some perspective. It really doesn’t make much financial difference to the low-earner whether they spend their pot now or in a few years (we’ll leave out the implications on means tested benefits which point to spending now).

In the grand scheme of things, what matters is that people have got pension savings available to them right now- which they could fall back on – if they needed to as fuel poverty kicks in.

And that is precisely the message I would like the pensions industry to be giving those people needing reassurance. We can give those over 55 this assurance.

“You may not get by without access to your retirement savings. If you need it- here is your money.”

Thank God for auto-enrolment which means millions who would have nothing, will have enough. It may not have made us self-sufficient, but it will get millions through this crisis.


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August 1st – CDC day!

The 1st August is the day applications open for a new type of UK pension – what pension people know as CDC (though in regulation it is collective money purchase).

The party line from the DWP is about innovation and can be read here. The DWO – and especially the Pensions Minister , have been supporting innovation through CDC since March 2018 (read this blog for Guy Opperman’s early comments). But by setting the regulatory bar as high as TPR’s CDC code does,  the DWP has so far only offered a  niche service for Royal Mail , its actuaries and lawyers. The DWP acknowledges that it needs to widen the user-base, but it’s light on a marketing plan. For consumer driven innovation, the DWP should be looking more broadly, in particular it should be making CDC part of its “decumulation review”, due to launch a consultation soon.

I am more interested in the views of those who have a consumer focus, and look at CDC as potentially a “pensions boost for millions”.

Adrian Boulding is one such enthusiast, I am another. It’s not just Adrian and I , who are excited. The FT has firmly pinned its colours to the mast in supporting a collective way of spending on. as well as saving for, retirement.

Research conducted by the RSA from customers saving for retirement (July 2021)

Employers are not very enthusiastic

CDC currently looks like a work in progress

Retail or “contract based” CDC

So far, there has only been interest in running CDC as an employer sponsored scheme. But I see demand from consumers for a default investment pathway that is neither an annuity or a drawdown policy but something in-between.

Annuities without the guarantees” or “Drawdown which never runs out” (bottomless drawdown) are concepts yet to be properly explored by insurers or regulators.

It’s likely that retail – or contract based CDC will be delivered through a fund not a scheme.

Let’s hope that now CDC is “open”, we can get on with “opening” the concept to those not the Royal Mail delivers to!


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Al Rush calls out FSCS for failing BSPS transferees

Al in Port Talbot

In a scintillating hour long session, Al Rush

  1. condemned FSCS for its lack of transparency towards steelworkers
  2. explained his relationship with Clark Wilmott and how Philippa Hann became involved with the FCA
  3. confirmed that Andrew Bailey fell asleep not once but six times in a meeting with him
  4. argued that while most of the steelworkers he had worked with were happy, they still deserved compensation
  5. annoyed IFAs by telling them that the British Steel Action Group’s financial analysis was irrelevant to the 404 redress scheme
  6. called the FCA inherently not fit for purpose
  7. explained the level of care needed to get steelworkers ready to decide on whether to transfer or not
  8. remembered the behavior of rogue advisers in time to choose
  9. made us laugh many times
  10. left us with a deeper understanding of how the BSPS fiasco happened and why it is turning into a mess for FCA, FSCS, TPR, FOS, IFAs, Tata and most of all the steelworkers.

Billy Burrows called it one of the best sessions he had ever attended. I thought Al captured the Zeitgeist of the moment. You will not be able to capture the immediacy of the moment by listening to the audio, but it is well worth a listen nonetheless

The link to the recording is here

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Treasury deprives the low paid of nine years of savings incentives – with a press release


After 7 years of campaigning that started when Kate Upcraft identified the problem for the Friends of Auto Enrolment, the Treasury has pulled the rabbit out of the hat , righted the wrongs and tried to cover itself in glory. “It has at least fulfilled on its promise to provide legislation that can be implemented in time for its leisurely timeframes , something that the Low Incomes Tax Reform Group acknowledge in their cautious welcome for  the amended rules

In this blog, I comment on the press release that accompanies the new regulations published today.

The Treasury has not covered itself in glory. It has spent 7 years telling campaigners

  1. That those who don’t pay tax – can’t get tax-relief (despite paying the equivalent of tax-relief to non tax payers in personal pensions that use relief at source) HMRC pays incentives to children of wealthy parents before they even go to school!
  2. That it does not have a means to incorporate these changes into its systems (which seems to have been resolved by not backdating payments but allowing those who have missed out for the past 7 years to wait 3 more years for recompense , only one of which will be eligible for compensation).

It has been peddling these half-truths for so long that by the time they receive their first repayment they will have lost up to 9 years of their entitled incentives. One year’s compensation out of ten years missing out. This is 1/10 solution.

So what is the Treasury saying now?

The standard text is from HMT’s press release, my comments are in bold.

  • 1.2 million low earners to see a boost to their take-home pay from 2025

Around 1.2 million low earners will receive top-ups to their take-home pay from 2025 which could be worth hundreds of pounds a year. Note how this is being woven into the cost of living agenda. The repayments won’t boost pensions – they will divert money from pensions back into take home pay. People will get one year’s repayments though they may have missed out for ten years!

Today the government has published legislation confirming that low earners who save through a Net Pay Arrangement (NPA) will get the same level of government top-up as those who use Relief at Source schemes. But will they? These top-ups will be considered earnings – with negative implications for universal credit payments – HMRC gives with one hand – takes with another

For NPAs, pension contributions are deducted before income tax is calculated, whereas with Relief at Source it is after.

1.2 million people are eligible for this pay boost – with 200,000 set to see a £100 increase in their take-home pay. The average beneficiary will receive an extra £53 a year. Information that is available in a press release today that the net pay action group has been denied for years.

75% of those to benefit are women, whilst 11% are based in the North-West and Merseyside and 12% are in London. Playing to the levelling up agenda…

Financial Secretary to the Treasury Lucy Frazer (in post since September 2021) said:

A quirk in our pensions tax system has meant that over a million low-earners have lost out on government top-ups to their pensions, resulting in comparatively less take home pay. (a quirk/anomaly that’s been known about for 7 years and results from complexities created by the Treasury – abetted by DWP)

We are correcting this injustice so low earners will get the same level of government support, no matter what type of pension they use. This injustice was created by a coalition government and perpetuated by a conservative government. It will be partially corrected, but not until we have another government in place. This solution has been extracted out of government with huge difficulty and is nothing for the Treasury to be proud of.

Since 2015, people saving through a Net Pay Arrangement (NPA) have had less take home pay compared to similar earning savers who use a Relief at Source scheme. This is because those using the latter type of pension scheme receive a 20% top-up from the government on their savings, whilst those using NPAs receive tax relief at their marginal rate – 0%. The Treasury here repeat their persistent trope that the RAS top-up is tax-relief – it is infact an incentive to save – which is why non-tax payers get the incentive. HMRC like to repeat that non tax-payers can’t receive tax-relief under NPA – as if the “incentive” didn’t apply. This is pure mendacity, the kind of thing that drives people to despair of ever understanding pensions. 

Today the government has published legislation confirming that it has rectified this anomaly (quirk),  as low earning pension savers will receive similar (but not the same as RAS top-ups aren’t considered earnings) top-ups regardless of what pension scheme they are using.

Beneficiaries will receive their top-ups directly into their bank accounts from 2025 and HMRC will be notifying those who are eligible then (there is still clarification as to whether low-earners  will have to claim the money – which is not the same as getting it – see Pension Credits). The net pay action group’s understanding is that claiming this money will an application process and the sharing of bank details with HMRC. Despite people’s pension contributions being taken by payroll, no payroll solution has been considered to ensure the money is returned.

The government has pledged to deliver these changes in full and on time and will ensure the complex nature of these IT changes are ready to deliver this wide-impacting change. The “in-full” assumes 100% take-up; this is highly unlikely unless the payment is automatic and paid by HMRC through payroll, universal credit or even pension credit. I would be interested to see HMT’s internal estimates of take-up of the benefit. This is of course not being shared in the press release.

In short!

This is as begrudging an acceptance of a cock-up as the Prime Minister’s resignation speech. Like that resignation , we will have to wait for rectification and the damage done will not be put right.

In claiming it is righting wrongs, the Treasury/HMRC is insulting the people who it has robbed, is robbing and will continue to rob for years to come. Margaret Snowden shares my annoyance at the Treasury’s approach, Here’s her response to fellow members of the Net Pay Action Group

.. the announcement made my blood boil!  We must be careful not to praise government for a solution that sounds like a teaser for a forthcoming election campaign. NPAG has fought hard to right this wrong and it has not been righted yet. The solution looks like some sleight of hand

While it is good that a solution has been found, it could and should have been found earlier .The size of the problem (which is now being used to show how generous is the solution) has never before been published – a glaring failure in public disclosure.

Government seems to think that it can present resolution of its mistakes as a major achievement. It cannot – it should be called out for its poor behavior and its pathetic attempts to spin its way out of an apology to the 1.2 million savers who have been short-changed on promised savings incentives.

The pension taxation system is quite biased enough against the low-paid and in particular women. It does not need the bias to be made worse by the failure of HMRC to put right a quirk it created.

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Better savings beat bitter outcomes!

I watched Martin Lewis’ pension edition of his Money Show last night with a mix of admiration and disappointment.

I admired Martin and his panellists, eloquence, precision and passion, but I was disappointed in finding myself struggling to keep up with what were pension basics. As my partner, who was chair of the PMI examiners, said to me – “it didn’t exactly make pensions easy..”

It didn’t because they aren’t, which is why so little is said by Martin about the things that drive successful pensions – investment – pooling and 20%+ contribution rates. These aren’t things within the compass of those saving through workplace pensions, who form the majority of his audience. Successful pensions, measured by their capacity to deliver meaningful replacement of final or average salary, are in short supply and what is left to us, is the promise of free money from the taxman and employer to boost what otherwise would have gone into cash ISAs or deposit accounts.

For many of the 10m new retirement  savers who Martin was addressing, the message was “don’t opt-out, do opt-in”. This is a good message, especially as the tax advantages to those with small pots are savagely good (most won’t save enough to pay tax  and their biggest worry is preserving their right to pension credit and other benefits which can be wiped by drawing the pension pot in the wrong way. That’s real world economics.

Which brings me back to the tweet exchange with the admirable Steve Glennon (top accountant, top man). Steve was responding to my blog on the opportunities for those in the public sector to top up their pension rights, he’s right to highlight the issues for high earners and those with long service for whom this may not be a good idea.

It is extraordinarily easy to blight a simple concept like topping up your pensions with tax-subsidised AVCs, because of the risk of penal taxation on the benefits arising. But to do so is madness. Just as stopping low-earners is madness because many overpay their contributions by 25% or get caught in a means-tested benefit trap on benefits arising. We cannot allow the exceptions dictate the agenda!

And whether you are an accountant or an IFA or a lawyer or a regulator, you must accept that there will be bad outcomes arising from well intentioned policy, or advice, which arise because of changes in circumstance. How (for instance) do you explain the tax implications of a pension contribution to someone on the margin of a tax-band, when you don’t know if the contribution will get a 20 or 40% tax rebate? It’s one of those “it depends” – where the decision is ultimately about alternatives (investing, spending, paying down debt or simply banking salary).

And notice the word that comes to my mind when I talk of contributing to a pension . It’s a word that Martin Lewis is very familiar with and very fearful of – “investing“.

Martin did refer to saving for retirement as “investing“, but if you look at the faces of those who he is addressing on the video-clip above, you can see how sceptical many ordinary savers are of giving money to people who “invest” it.

This is the biggest achievement (so far) of auto-enrollment, it has finally realised the Thatcherite dream of turning Britain into a nation of owners in UK PLC. (Well maybe more overseas equity, but that may change). The people in that video may not know their retirement money is invested in UK and world markets, but it is.

And what if the world markets did crash, as they nearly did in 2008?  What if those investments were virtually worthless? Would we then be saying that people should never have saved? There are risks which cannot be insured, because they are so systemic that the risks would wipe the insurers too!

Which brings me back to Steve Glennon’s tweet and my response. I was very struck by a presentation made by Steve Webb in early December last year. Steve’s thrust was that pensions are a lot more about the state pension than pension experts generally admit and that the things that bother pension experts tend to be “first world problems” associated with earning too much or having too much wealth.

That is spot on, even for public sector pensions, which give people the chance to be part of a successful pension (see above) for little more than minimum auto-enrolment contributions.

My message to those who are in public sector pension schemes is to ram home their advantage

My message to those who run workplace pensions is to use everything at your disposal, your capacity to pool investments, longevity risk and your marketing capacity to increase contributions; – to give better value for money on the investments your savers make.

We have a two-tier workplace pension system that can broadly be described as public sector and private sector. Some people in the private sector may be paying more towards public sector pensions than into their own such are the oddities of our taxation system. But the oddities do not mean that pensions are bad, they just mean that pensions are odd- sometimes!

Let’s encourage weak workplace pensions to aspire to be best, not level the best by limiting their outcomes.

And oh that we could all look at life with the charm and grace of these two!

Having a sense of humour about these things is important, as it gives us a sense of perspective. The broader perspective needed , looks beyond the problems with the AA, LTA and MPAA and addresses the bigger question of how we make the most of the great  possibilities of retirement. A key lever in creating the retirement we want are the tax-incentivised pension savings plans available to us and nowhere are the tax-incentives for saving greater than for those in public sector pensions.


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Public sector worker? Two great ways to boost your pension.

This chart is from LCP’s excellent paper “the ski-slope of doom” which explains that a generation of workplace savers employed in the  private sector  will no longer be getting DB pensions but inferior DC pots (which they will have to turn to pensions).

For them the getting through retirement looks like a black run!

To get down the mountain, many private sector workers will have to take big risks

But I’m focussing not on the private sector’s “ski slope of doom” but the public sector’s blue and green runs which take skiers down the mountain in a much less risky way!

It’s a gentler ride if you’re in a public sector pension scheme

While those in peril are in the orange and red slices of the pie at the top, those on the blue and green runs are in the grey slice. They are the 6.6m people paid by the public purse to teach, police, fight fires and judge; they work in  local government, in the NHS or in the civil service.

And those with public sector and state pensions could do even better by using available facilities to top up these pensions

I found myself this week talking to people who are in public sector pension funds , I was amazed at the deals available to them. So I thought the perspective of someone who most definitively isn’t a public servant might be useful.

I urge you to use available cash you have to improve your retirement prospects by topping up your public sector pension and perhaps your state pension too!

Financial advice (and tax)

On this occasion, I’m not suggesting you automatically go to an IFA for advice. What I’m suggesting costs you nothing in fees as you can get these deals directly through Government and private websites.

If you are a high earner or if you’re like Jeff and been in a public sector scheme all your life, you should model before you meddle. Most public sector schemes offer modellers to check if you have headroom to improve your pensions and there is a lot of guidance to be had from the schemes and from unions. Here for instance is the guidance to members of the NHS pension scheme from the BMA.

The three limits you should be checking if you have pension wealth and/or are a high earner in a publics sector scheme are 1) the lifetime allowance (LTA), 2) the Annual Allowance (AA) and if you are or are thinking of drawing down from a personal pension of SIPP, the Money Purchase Annual Allowance (MPAA).

I worry that some advisers over-egg these three tax problems.

Much financial advice to high earners  on pension top-ups  is “don’t risk it – take out an ISA” – with the “it” being the risk of breaching the AA, MPAA or LTA. This advice carries its own risks, principally the risk of missing out (opportunity cost).

I’d remind the expert reader that pension tax limits are largely irrelevant to most people. To quote Steve Webb at a recent PMI event

“According to HMRC, “95% of savers approaching retirement are currently unaffected” by the LTA

With regards Annual Allowance charges, in 2018/19:

-13,660 charges reported via ‘accounting for tax’ returns by schemes

-34,220 people reported contributions over AA via self-assessment

In that year there were 31,600,000 taxpayers!

Most people don’t earn £40k per year, still less put that much in a pension!

One limit which does matter to ordinary people is MPAA which needs reform”

MPAA – an unexploded bomb

Sadly, the MPAA is rarely mentioned in any Public Sector documents , it is a limit that occurs where someone starts drawing money from any pension while still saving into other pensions.

Drawing from a personal pension while saving into a public sector reduces your annual allowance to the money purchase annual allowance level of £4,000 pa. This presents a much more significant risk to many in public sector pensions, a risk that can be easily avoided by leaving pension pots alone – until you’ve started taking your public sector pension.

Further information and guidance available on pension tax.

Be aware that paying Class 3 NICS (see below) does not impact your annual or lifetime allowance. It is usually  a better way to top up a pension than to use an ISA if you have annual allowance problems – I hope that IFAs point this out.

In any case, if you are lost –  you can also get personal guidance from Money Helper. This guidance will be based on the provision of factual information and will be, I hope, aligned to what you are reading here.

Most people who have problems with the Annual and Lifetime Allowances know to speak to IFAs and accountants.

If you are considering topping up or drawing on  any pension and are not clear after reading this article, please validate your decision with an independent financial adviser. Be aware, this could and should cost you a fee.

Part One – Topping up your Public Sector Pension Scheme

Firstly. public sector pension schemes do not always provide you with a full pension. Infact unless you are in a public sector scheme a full 40 years (hat-tip to LGPS supremo Jeff Houston who has ) you will need to pay extra pension contributions to properly replace your wage in retirement. You can do this in two ways.

1.1. Paying for extra service (added years)

In the olden days, people bought added years of service, but this has rather fallen out of favour as the terms for purchase aren’t favorable to members. Instead there has been an explosion of interest in another way to top up your public sector pension. You can read more about this option here (this is the LGPS example- you can do this in other public sector schemes).

1.2. Paying (money purchase) AVCs

This other way  is known  as paying  AVCs and there are a number of insurance companies who provide investment services to public sector funds. Prudential are the main one, followed by Standard Life, Clerical Medical and General, Scottish Widows, Aegon , Zurich and L&G. There are still a few AVC schemes with the now discredited Equitable Life (who now trade as Utmost).

The great thing about these AVC schemes is that they can be exchanged at retirement for tax-free cash, meaning that on your AVCs you get tax relief on your contributions, your investment and on your cash benefit. It also means you don’t have to sacrifice pension to take your cash (often on unfavourable terms).

Although you still have a choice, the vast majority of those who choose to top up, use AVCs over added years.

1.3 Paying Shared Cost AVCs

Recently, a new kind of AVC has been pioneered for the Local Government Pension Scheme called a “Shared cost AVC”, where the cost of contributing is even lower as the employer shares savings in national insurance by paying your contributions for you (in exchange for salary).

You pay £1 per month into your AVC fund as your contribution and the remainder of your total monthly contribution amount is paid by your employer, through a salary sacrifice arrangement.

You make savings in Income Tax and National Insurance Contributions (NICs) on the amount of pay you have sacrificed. As a result your take home pay increases in a Shared Cost AVC arrangement, when compared to paying AVCs in the standard way.

The organisation that has made this AVC sharing possible, AVC Wise has so far only marketed it to the Local Government Scheme, but the standard AVCs are available to any member of a public sector plan.

If you are an LGPS employer and you are not using Shared Cost AVCs, you can contact AVC Wise on this link

If you are in the LGPS and your employer offers Shared Cost AVCs you should contact AVC Wise on this link.

If you are in the LCPS and your employer doesn’t offer Shared Cost AVCs – you should contact AVC Wise on this link and they’ll see what they can do

You can learn more about the LGPS and Shared Cost AVCs by watching this video

Part 2 – Topping up your state pension

Public sector  pension schemes were designed to provide a part of the old state pension with a part of member and employer’s contributions. In return for this, both paid lower national insurance contributions. The problem today is that for the time that people paid lower contributions, they were not building up an entitlement to the state pension and some people retiring early from Government schemes may not have a full 35 years contribution history. That means they’ll get a reduced state pension.

An example of a pension forecast showing a shortfall in state pension

This Government video explains the basics well

2. Paying Class 3 National Insurance Contributions

If people have decided to opt out of work, they may not be able to make up these “lost years” and get to their full set of 35. Instead they can buy the years back paying what are called class 3 National Insurance contributions.

Buying extra state pension is becoming an increasingly popular use of pre-retirement cash – especially as payments aren’t part of your annual allowance (if you are struggling with that – lucky you!)

The reason why Class 3 NICs have been growing in popularity is that they are a very cost-effective way of buying extra state pension.

The  cost of buying an added year in 2021/22 is £15pw or £800 pa. Each additional qualifying year works out to be an extra £5.13 a week (or £266.83 a year) in State Pension, based on 2021/22 rates.

So you only have to live 3 years past your state pension age to find yourself in credit.  Compare this to an annuity purchased from an insurance company and you will see what a bargain class 3 NICs are for those who need them and can pay them.

Of course before you think about Class 3 NICs you should check to make sure that you aren’t going to get a full state pension anyway or that the extra years are needed. You can only go back 6 years to purchase extra state pension , so the benefit is rationed but if you have headroom and can afford it, this is a sensible investment of cash in the bank for people close to retirement to consider.

I’m grateful to Aon’s Lydia Whitney who points out that

you can always go back 6 years to fill in gaps but some people can also fill in earlier gaps. It is a complex set of rules so do check your forecast. This loophole to go back more than 6 years closes in April 2023 so do check whether you could take advantage if you are not going to get to 35 years by the time you retire. It can even cost you less than £800 if you had some earnings that year but not enough.

You can find out how do this by using this Government website using these contact points

Which should I do first?

In my opinion, the advantages of AVCs and especially Shared Cost AVCs are so great that you should look at them first. Of course you may have no headroom to bolster your benefits (like lucky Jeff Houston) but most people can and the only downside of paying AVCs is if you are so well off that you fall foul of Annual Allowance or the Money Purchase Annual Allowance (details here). You may already be protecting your Lifetime Allowance in which case AVCs are definitely a “no-no”, but these are first world pension problems and if you are rich enough to have them, you should have a financial adviser or accountant to help you!

For those who have topped up their state pension or have an anathema to investing money with an insurance company, paying added Class 3 NICs is an obvious alternative.

Model before you meddle!

But only think of investing for your future once you’ve worked out what your income in retirement is going to be. You can do this using a modeller provided by your public sector scheme or by referring to your most recent pension statement (this link’s for the Civil Service Scheme but all public service schemes should offer one) . Once you’ve worked out your works pension , check out your state pension using this link.

When you have the information from your public sector pension, your state pension , you can add in any other pension pots or pensions you have found and use the Moneyhelper calculator to work out how far short you are of where you want to be .

Although public sector pensions  are brilliant, most people will not get a replacement salary from them in retirement (even with the state pension included) is less than £5,000 p.a. That’s because people don’t stay long enough in the scheme and sometimes miss valuable years of pensionable service.

Put together, the State Pension and your public sector pension , put you ahead of the game. Ram home your advantage by investigating these two great ways to boost your income.


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Picking an IFA who’ll stay the course.


John Quinlivan

My friend John Quinlivan is fond of asking me “capital or covenant?”

He means me to answer whether my business case is  based on the weight of money I can call on , or my trust that I am right.

He is right to ask the question, when you are dealing with other people’s money, it’s right to have recourse to capital – if you make a serious error.

Most IFA’s have little capital; you only need £20,000 in reserve to do the basics and while your reserve rises as you expand an diversify, the bar isn’t very high. If asked whether they have additional capital to call on in case of a negligence claim, they would point to the limits of their professional indemnity insurance.

The covenant or “promise” made by an IFA is not based on retained capital but based on trust. You trust in qualifications, websites, listings, ratings and ultimately the word of the IFA – that things will go right.

Most people chose an IFA based on covenant rather than capital. They are not expecting an IFA to go bust.  But going bust is precisely what many IFAs have been doing –  at an alarming rate ; especially in the hinterland of the large steelworks where steelworkers with large BSPS transfer values, looked for their services.

Such was the demand in 2017/18 for these transfer values to be realised as more readily available capital that could be drawn on, that for many steelworkers, capacity was the issue. There simply weren’t enough IFAs in town. Questions about the covenant of the IFA were secondary, the job had to be done and Terms of Business were signed with little thought to resulting risks.

The latest intervention from the FCA is against an IFA that is known to me, one of the Directors is a member of my AgeWage and Pension PlayPen linked in group. The unfolding story shows how the slow car-crash following the debacle of “time to choose” is playing out as  a series of mini-catastrophes.

None of the players would have ever thought that the consequences of what appeared a “no-brainer” decision, would be so public or so ruinous.

The FCA’s decision to prevent AJH from depleting its capital without its permission poses many questions as to how the protections that the FCA put in place – fell away. What is clear, from reading the judgement and AJH’s accounts, is that the dividends payable to AJH Directors are small relative to the claims being generated by the Financial Ombudsman.

The sad end-game

What is the context for this intervention?

And why has it taken till 2022 for this action to be taken?

Rich Caddy, a steelworker himself, has taken the trouble to look at the IFA’s accounts, these show the depletion of capital has been going on some time

IFA Andy Boyt, who after 40 years service, describes himself as a “financial services survivor” , questions the proportionality of this judgement.

Capital or Covenant?  Can the customer make that choice?

If we were to determine our decision on who to take advice to those properly capitalised, we would find ourselves with a short list of what IFAs call “nationals”, firms with private equity or insurance company capital and recourse to more if time get hard.

The lucky claims are against IFAs whose pockets are lined with inward investment.

But most IFAs are not like that, they pride themselves of being their own masters and indeed the value that many place in such IFAs is that they are able to operate with a personal service that is lost by the homogenisation of the processes which comes with scale.

But choosing an IFA primarily on trust (covenant) means that you are in danger of falling back on the FSCS minimum, if things go wrong.

The National Audit Office will no doubt be noting this and the fact that many of these smaller IFAs were promoted on websites such as “Unbiased”, “Vouched For” and the Government’s own directory at MaPS.

Should such listings have included a “financial strength” assessment or score? It is easy to ask such questions in retrospect, but I doubt that many potential clients would have acted on such information in the circumstances of Time to Choose.

The NAO will have to ask itself whether small IFAs were properly insured and why that insurance fell away in cases where IFAs went bust because of professional negligence claims.

And the NAO will have to ask whether the FCA should have reacted sooner to the capital depletion going on , not just at AJH Financial Services Limited.

The FCA has made this statement on the matter

We will act to prevent firms from disposing of assets which may be required to pay redress. We will look to impose requirements where firms have not acted in accordance with the expectations in our Dear CEO letter or have attempted to phoenix or put in place structures to avoid potential redress liabilities. We will continue to monitor firms who have advised on BSPS transfers and take action where necessary.

No doubt this is the right way to go but it will be scant comfort to many whose redress has been capped because the IFA did go bust, for whatever reason

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How do we measure the value of financial advice in retirement?

What do we worry about in retirement and how do advisers help?


We are often told to take advice in retirement but we don’t often know what to expect for the money we pay. This has become an important issue for me, because I am due to speak shortly with the National Audit Office as they conduct their review of the FCA’s regulation of those advising steelworkers who chose not just to transfer away from the British Steel Pension Scheme, but also chose to pay ongoing advisory fees in retirement.

I have been reading a long post by my friend Al Rush , explaining to his clients and others connected to him on Facebook, what they might expect from their adviser and why they may have reason to claim they are not getting value for their money.  It is of course easy enough to see how much we pay advisers (thanks to the RDR), but it is a lot harder to assess the value of that money.

I will be commenting on this post and the important issues it raises about how FSCS compensation works (or doesn’t). In the meantime, I’m asking myself whether we really understand what the value of retirement advice actually is.

Five reasons I’d pay for advice.

  1. I want to manage my retirement cashflows so I maximise the amount I pay myself, without finding myself short in later life.
  2. I want to minimise the amount of tax I and those I love, pay on the money I’ve saved. as it’s paid back
  3. I want to ensure that any benefits due to me from the state are fully claimed and not prevented from being paid by the way I get paid from my pot
  4. I don’t want to (inadvertently) commit a fraud against the taxman, benefits agency or anyone else.
  5. And I want to make sure that whatever I do with my money, it matters in terms of ES and G.

I do not consider the increase in my net worth as a key measure of retirement advice

The problem with this kind of advertisement is that it doesn’t tell me what I’d be worth if I hadn’t had an adviser. Most wealth managers see wealth preservation as an indicator of success, while most people I know are not made happy by wealth but by their capacity to have a fulfilling lifestyle.  My five measures do not focus on wealth but on income, as the one thing I don’t have in retirement – which I had when I was at work – is a regular wage.


The amount I take from my pension pot as a regular income can vary from a return of capital with minimal interest from my bank , to the 8% pa  drawdown that is commonly taken (according to the FCA’s Retirement Income Survey).

I would like advice on the risks of drawing too much or too little but I also want to know how much risk I am taking in the pot (or perhaps I should say “in my portfolio”.) There has be a “golden mean” or sweet spot for me – where I take enough risk to get what I can but not so much risk that I get what I want today and run out of money.

Here the need for advice is ongoing, you cannot “set and go” a strategy around drawdown, our capacity to take risk is not static, we often change as we get older

I would pay good money to be able to outsource this  problem to someone I trusted both as competent and as acting in my best interests. I would pay more to know that there was a system in place that meant that if my adviser left, his or her cashflow strategy for me, continued to be reviewed/


We have a duty to pay tax, but no duty to overpay tax. Managing my tax affairs as efficiently as I can is no easy matter with such a range of income and capital taxes that my retirement income could be subject to.

I’m worried not just about my tax coding and self-assessment in 2022 but in 2032, 2042 and to some extent I’m worried about the tax burden I could leave my loved ones when I die.

I would pay good money to make sure that I do not get landed with unexpected bills and that my pay-coding in retirement remains as light as possible. I’m interested in tax-free cash but I’m not so blinded by tax exemptions as to want them to prevent me getting a proper income in retirement. So I’d like to know how and when to draw my tax free cash and I’d want to have strategic advice about the shape of my retirement income from my savings and other pensions, so I can avoid paying higher marginal rates of tax.

I can imagine situations in the future where I might like help on capital gains tax. The need for tax advice increases as I get richer , the need for benefits advice increases as I get poorer.


I don’t get much by way of state benefits but I recognise that in 7 years or so, I will be getting my state pension. But for most people I know, their state pension , universal and pension credits and other bits and bobs from the state make for a fair portion of my retirement savings

 So an adviser needs to make sure that I’d expect that If I am going to lose any benefits the loss will must be explained  documented and justified.

I’d want my adviser to be finding out whether you could be entitled to any benefits I don’t already claim.


Like a lot of people, I am most scared of what I don’t know and I don’t know when I fill out my self-assessment , that  I am always 100% right. For instance I nearly claimed higher rate tax-relief on my pension contributions before being reminded that I sacrifice salary so have already got my relief.

I would pay good money to any adviser who limited my capacity to inadvertently claim reliefs or benefits I was not entitled to.

This may sound trivial but it is not.

Making my money matter

I give money to good causes out of charity. But I don’t want to give up my rights to an income in retirement to improve governance, help society or save the planet. I want my money to matter but not at a cost to my pension.

Or if there is a cost to my pension, I want to know what the cost is and then make an informed choice as to whether to pay it.

I would pay good money to know how my money is managed , what it is costing me and what good it is doing .

Is advice worth it?

Like most luxury items, advice is only worth it if it can be afforded. If the cost of advice is at the expense of pension to a point that the pension would be bigger without advice, then advice is not value for money.

The attraction of advice increases the greater the need for it , tax being an obvious area where it is needed by the wealthy.

There is also a question of self-sufficiency. Many people love DIY and not just for home improvements! Those people who claim that we should all take advice (or guidance) run into the same problems as those who demand we are all vaccinated. But by not taking advice we are unlikely to be doing anyone harm but ourselves.

So I am not an advocate of requiring people to take advice- other than where the capacity of people to get things hugely wrong (such as transferring DB) and making ourselves a burden on others.

So when I speak with the NAO, I will be asking myself , whether those who have bought advice following their decision to transfer out, have got value for their money. There has to be an objective measure for valuing advice and I suggest that advisers would do well to document the value of what they have done, rather than rely on an assumption that advice is always worth it.

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What will this “investment big bang” mean for our pensions?

This u-turn comes 6 months after the publication of its draft DB funding code of a suggested cap in investments in private markets,  explained in a blog from the Pensions Regulator.

Jo goes on to consider what might be the Regulator’s next steps.

So why has the Pension Regulator changed its tune?

Hours before TPR’s announcement , a “challenge” letter appeared on the Government website.  It challenged  UK pension funds, both DB and DC to

To seize this moment, we need an Investment Big Bang, to unlock the hundreds of billions of pounds sitting in UK institutional investors and use it to drive the UK’s recovery. It’s time we recognised the quality that other countries see in the UK, and back ourselves by investing more money into the companies and infrastructure that will drive growth and  prosperity across our country

It explains the Treasury’s efforts to make this happening , pointing to the issuance of the first green gilts in September , the launching of the Long Term Asset Fund as a new investment vehicle in the autumn and relaxation of solvency II rules to let insurers participate.

The letter says that the Government were under pressure to mandate investment in these areas but chose instead to encourage a “change in mindset” among institutional investors.

Choosing which assets to invest in to secure the best outcomes remains a matter for pension fund trustees, and other custodians of institutional capital. We recognise that there is no single ‘right answer’ for the amount that should be invested in these long-term asset classes. Some funds are already highly active; some – for good reason – are not. You will know best what is right for your business– whether that is committing to invest a greater proportion of your capital in long-term UK assets, establishing the vehicles to allow others to do so, or
providing the necessary specialist advice. But we strongly believe this is a question that all institutional investors should be considering.

It looks as if that change of mindset has applied to the Pensions Regulator too.

Understanding the DWP’s position on consolidation

Many  have questioned the motivation of the DWP to accelerate the consolidation of smaller DC schemes into master trusts and other multi-employer schemes.

The language used by the DWP is the language of the Treasury, it is about removing barriers to change, changing mindsets and building back better.

The investment big bang, envisaged by Johnson and Sushak needs to be not just in the interests of the larger British economy, it needs to be in the interests of DC savers and the funders of DB plans. It needs to result in higher inflation adjusted returns on the way up and better pensions in retirement.

The investment big bang is likely to accelerate a move towards collective pensions arising from DC saving – aka the use of Collective Defined Contribution within master trusts. The long-term nature of the illiquid investments envisaged is aligned to the long term time horizons of pension schemes (as opposed to retirement savings schemes)

How does this change our view on value for money?

To date, the value for money equation has centered on costs , charges and the features of a pension scheme.

If we are to have a change in investment mindset, it needs to include a change in how we value our pensions.

It appears that the FCA have pushed back its publication of its response to its consultation of CP20/9 (on value for money) and I fully expect it to include a measure of value that reflects the change of mindset. Will the FCA go so far as to say that DC Pension Schemes that do not invest assets in private markets are not offering their members value?

Stranger things have happened, including the U-turn from the Pensions Regulator.

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Webb and Snowden on the state pension and scamming

There are no better people to listen to on the problems people have getting their pension entitlements than Steve Webb and Margaret Snowden.

To get an invite to the coffee morning, login to http://www.pensionplaypen.com or register (it’s free). You’ll find registration using the “event” tab.

There will be loads of great content coming your way if you do.

It’s great to see Pension PlayPen hosting this online coffee morning and I hope that plenty of  us will be signing up for the session.

The Pension PlayPen is a great forum for discussion and I’m very proud the work that’s been done to restore this site to former glories.

If we are to “confidence in pensions”, then we need Steve and Margaret to be listened to.

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Does Britain need an Aussie style “Retirement Income Covenant”?


The Australian Treasury has recently consulted with its citizens on how to oblige Trustees of its huge Super funds to provide them with retirement income.

There are parallels in the UK. Over the autumn and winter, the DWP will be talking with our master trusts about what they would need to offer in-house pensions (as part of the CDC initiative). Some DC schemes already offer investment pathways and some signpost pathways of other providers. However, there is no obligation for them to do so, and the discretion of trustees is often used to protect the scheme and sponsor from the liabilities arising when people get their later life finances wrong.

A Retirement Income Covenant

The Australian Retirement Income Covenant ; “will place a key obligation on trustees to formulate, review regularly and give effect to a retirement income strategy outlining how they plan to assist their members to balance key retirement income objectives.”

The strategy will be a strategic document developed by the trustee, outlining their plan to assist their members to achieve and balance the following objectives:

  • maximise their retirement income
  • manage risks to the sustainability and stability of their retirement income; and
  • have some flexible access to savings during retirement.

In the UK , savers have access to 25% of their pot at any time after 55 as tax-free cash. However there is little obligation on trustees to maximise retirement income on a stable and sustainable basis.

There is a strong case for the UK following Australia down this route. Requiring trustees of the fast diminishing stock of sole-occupation and multi-employer DC schemes to spell out the service they offer their members will help determine whether the scheme is providing value for members. Trustees who cannot offer answers to the questions posed by a Covenant Assessment are the trustees that the Pensions Regulator should be asking to consider their and their scheme’s future.

Why does Australia need to introduce this measure?

Despite being held up as a model for other countries, the problems facing members of Aussie Super Schemes sound remarkably like those approaching the close of their working lives in the UK. They struggle with decisions on how to spend their savings

The long-term implications of these decisions, and their complex interactions with other systems like tax, social security, aged care and housing, make it very challenging for retirees to determine an optimal retirement income strategy on their own.

And as with their UK counterparts, Australians are reluctant to take advice

Yet most people do not seek financial advice at retirement to help navigate this complexity.  Rather, in the face of this complexity, evidence shows that Australians currently follow others, disengage, or fall back on rules of thumb and defaults that are not fit‑for‑purpose

The consultation suggests that Aussie savers struggle to spend their pots (clearly as much a  problem for the Treasury as for ageing Australians.

The ‘nest egg’ framing of superannuation compounds the complexities around deciding how to manage their superannuation in retirement. Partly because they have only ever been primed to save as large a lump sum as possible, retirees struggle with the concept that superannuation is to be consumed to fund their retirement.

Because retirees struggle to develop effective retirement income strategies on their own, much of the savings accrued by members through the superannuation system are not used to provide retirement income. Rather, they remain unspent and become part of the person’s bequest when they die.  By 2060, it is projected that 1 in every 3 (Aussie) dollars paid out of the superannuation system will be a part of a bequest

All of this resonates with the UK experience of pension freedoms so far. Retirement living standards in the UK are requiring massively more than the average DC pot can bring, yet there is evidence that many DC savers are starving their lifestyle’s for fear of running out of money later on.

And of course there is the risk of doing quite the opposite and spending your savings too hard, which appears to be equally a problem

So what will these strategies look like?

The consultation document makes it clear how a strategy should be created

In effect, the strategy is a strategic document developed by the trustee that:

  • identifies and recognises the retirement income needs of the members of the fund; and
  • presents a plan to build the fund’s capacity and capability to service those needs.

The retirement income needs of members, and the plan to service those needs, may be different from fund to fund, or from cohort to cohort within a fund. There is significant flexibility for trustees to identify the particular needs of their members and develop a retirement income strategy that is suited to those particular needs.

Knowing your members

The consultation makes it clear that trustees should not be getting involved in providing financial advice individually, introducing soft defaults (such as an option from which you have to opt-out) or a “one size fits all approach”.

Instead the Trustees of a Super Scheme are expected to gather data about their membership and organize them into cohorts who can be offered support as a group

The factors used to identify cohorts of their members are at the discretion of the trustee, but could include consideration of:

  • the size of a member’s superannuation balance
  • whether a member is expected to receive a full, part- or nil-rate Age Pension at retirement
  • whether a member is partnered or single
  • whether a member owns their own home outright, owns their home with a mortgage, or is renting at retirement;
  • the age a member retires and/or starts to draw down from their superannuation.

Clearly some of this  information is not available to UK trustees (and GDPR will make it hard to find it out without member consent).

However, there are interesting thoughts here for UK policymakers to consider. This is the kind of thing, I’d like Nest Insight to be pursuing.

Balancing three objectives – (returns, risk-reduction and flexibility)

The toughest decisions for trustees look like being around trade-offs between mazimising returns, minimizing the risk of money running out and providing the freedom to take cash when needed.

Frankly, this is where I start getting concerned.  There are many good points made in the consultation, not least the recognition that on average income needs fall as people get into extreme old age, but can trustees really manage these trade offs without either financial advice , a soft default or a one size fits all approach?

It strikes me that a strategy that simply highlights the problems isn’t much of a strategy, more another guidance document that leaves members not much better off.

Even if the guidance documents are presented to different cohorts in different ways, this kind of approach still relies too much on members working out the trade-offs. Put simply, members cannot take financial decisions in four dimensions (time being the fourth).

The solutions being put forwards focus on “more products”.

I suspect that in the UK, “attractive products” will be slower to emerge and depend on a highly regulated approach to product development (see CDC regulations published earlier this week)


Does Britain need an Aussie Style Retirement Income Covenant?

My answer is “yes”. However I think that the Covenant needs to be better defined than in Australia, where the trustees are in danger of just adding to the noise with glorified decision trees.

Trustees may consider it perverse to be providing people with guidance towards pensions, but I consider trustees as perverse for running a pension plan where the pension option isn’t at least the soft default.

We have investment pathways but we have no soft option default and (other than Royal Mail) no one size fits all solution.

We should be thinking hard about what a Retirement Income Covenant could do in the UK and how it might be introduced. Put this on your shopping list Mr Opperman!

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Freedom – at what cost?

Rousseau’s famous phrase “man is born free but everywhere is in chains”, will be to the front of many people’s minds today. The true liberal reaction to the pandemic is herd immunity and early blogs from the Covid actuaries explored what that might look like in terms of infectivity , hospitalizations and deaths.

In early April 2020, Joseph Lu wrote for the Covid Actuaries

With a high proportion of infected people displaying little or no symptoms, the lack of a blood test to confirm how many people are indeed infected is problematic to modelling.

For example, without the number of people infected, we would not know if the proportion of infected at risk of severe disease is 1 in 10, 100 or 1,000. Lourenco and colleagues (2020) showed that this uncertainty could lead to a wide range of estimates for the percentage of people infected and immune in the UK, ranging from 5% to 70% by around mid-March.

This has an important policy implication. If the population is, say 70% infected and immune, no stringent measure is needed because we have achieved herd immunity. If it is only 5% immune, then the UK has challenging days ahead and the lockdown is essential. 

15 months later we remain divided as to whether we have got to a stage of herd immunity and whether further lockdown is necessary.

If not now-when?

The question is being asked the world over. If not now- for the Tokyo Olympics – when. The surreal spectacle of a huge air balloon shaped as a human head, now hovers over the city , suggesting that the success of the games is down to our cerebral reaction to what we see.

Over the weekend, I went out twice on Lady Lucy, most of the people who came on the boar had had Covid , all of them had had two jabs, no-one wore face masks, except where required and life seemed pretty normal.

We were outside and the river and locks were full of those like us.

But many people, including one couple who cancelled their cruise,  spent the weekend in isolation as a result of being pinged. We have at last found a way to warn each other that we have been in the company of those infected, precisely when that no longer seems so dangerous. The  danger of scanning a QR code is now obvious, your future plans are dependent on the company you keep.

The idea that you should voluntarily submit yourself to “chains” is an odd way to celebrate freedom. If my experience of the weekend is common, most of us will find freedom by celebrating this amazing country and its natural beauty

Slipper launches in Freebody’s yard

One elderly boater dived from the roof of my boat into the pool outside George Clooney’s house and declared that this was because having had a stroke , lost most of his eyesight and having been hospitalized by Covid, he needed to stay free of fear.

We pulled him out with a sling and a rope ladder and he delighted in his feat of bravura. I suspect that he is not the only 75 year old who feels and behaves this way.

As his wife told me “this is his way of keeping going“.

Our way of keeping going

I know that many people have lost momentum in their lives. It is as if they have furloughed everything and now contemplate a return to freedom as a challenge they do not want to take.

I hear these people talking on the radio in all night shows which have become a place they can share their inhibitions.

We must allow them  the freedom to remain in isolation and not impose freedom on them. The challenge facing our society is to keep going and be tolerant of those who have withdrawn. We must be kind to each other.

The trauma of the pandemic for many people has not abated and is made worse by the sight of millions of Britains who don’t feel traumatized. The inscrutable Japanese head looks down on us all without emotion as if to say “how you go forward is a conscious decision”.  

I worry that many people are not mentally ready to move forward and are struggling to stay still. We need to be very careful how we go, for freedom is being won at a cost.


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The proof of SJP’s self-confidence is in customer outcomes.

From Boring Money’s “SJP – value of financial advice”.

My friend Robin Powell who speaks for the evidence based investor has republished my comments on SJP’s Value Assessment (it’s nice to see my words properly set). I agree with Robin’s title,


But maybe for different reasons!

Tim Simpson offers an interesting perspective as an SJP customer

SJP talk to their happy customers – should they talk to us all?

..like last year, the first I knew of it was when someone in Citywire recommended your commentary for the previous Assessment. I then checked my SJP Client login: nothing. I had to request it. Yet again this year I still have had no notice of it, so presumably I will have to request it again unless it’s just on their website for anyone to see. Interesting that all their weekly notices that are circulated never mention these or similar publications available. I assume, to use an SJP word, that would be a ‘distraction’. Yes the Contact does quickly reply and is reasonably helpful but, nowadays, they aren’t even SJP staff.

So, in answer to your question, unless your investing over eight figures, I doubt that it will ever be likely..

Actually, the report is on SJP’s website, you can access it here, but Tim’s comment opens up an important question.

“Who owns the client relationship, the platform or the partner?”

As platform manager, SJP reports to the FCA and is responsible for reporting to  client/customers such as Tim. But in reality, the relationship is primarily with the SJP partner/adviser who is self-employed and effectively a franchisee.

This most delicate balance has been preserved over five decades since Mark Weinberg set up independent distribution at Abbey Life and then Hambro Life (Allied Dunbar). Owning your own distribution is nothing new, nor are the issues it brings.

SJP’s partners are of course restricted in the products they advise on and responsible to SJP as well as their customers for the advice they give.

SJP have argued to me that the partner is responsible for distributing the Value Assessment but that many partners do indeed see such formal documents as a distraction to their clients.

I would hope that SJP can break down this perception over time. If Value Assessments are to be worthwhile, they need to be high-class documents that tell the truth and that is what the SJP 2021 Value Assessment is. SJP Partners should be proud of their value assessment and Tim should not be having to ask where to find it (psst…here)

I would like it to be talking to a wider public than just its internal stakeholders, as SJP is the largest financial adviser in the land. It has over 4000 regulated advisers meaning that more than one in five advisers are working for them. It is the single largest contributor to FSCS, it pumps £30m a year into training and has its own academy. It is the breeding ground for the next generation of financial advisers. It should talk for financial advisers.

Unfortunately, it doesn’t. Nor does it talk of its own experience to a wider public. Bearing in mind it owns data on the behavior of around half a million  Brits over the age of 55, SJP has the capacity to be authoritative on how the mass-affluent are arranging their financial affairs in later life. If the average drawdown on our Sipps is 8% pa, SJP may be able to show us that with advice, we can do better!

The value that is sunk into paying for advice, comes from the funds people own and the fees that many complain of, are used in part to ensure customers do not overpay tax, do not invest inappropriately for their needs and that cash flow is managed so money is in the right place at the right time for the right people.

I was educated as a financial adviser in the 1980s to focus on adding value this way and it seems that people value financial advice delivered by real people as much today as they did when I worked at Hambros and Allied Dunbar.

Where I differ from Robin is that I am not opposed to the advisory regime or indeed the fees charged by SJP partners if they can be seen to be value for the money they cost. What SJP appear to be defensive about is whether all the money that flows to partners, platform management  and shareholders, is delivering value in terms of outcomes.

Bearing in mind the encomiums from those who pay the fees, it could be argued that the value is in the sense of financial security that the client/partner relationship brings. This is well brought out in this study by Boring Money. But the b-side to the Holly’s hit single is the financial proof in the pudding. Are the Partner’s clients and SJP’s customers getting good outcomes?

For all the assessment of value, there is very little hard data in what SJP produce to show that the platform and funds are delivering what Partners promise.  And its this that justifies my and Robin’s criticism of SJP falling short. It is not enough to deliver financial well-being today, you have to deliver on expectations tomorrow, expectations that you as an adviser and platform manager have to set.

There is nothing to say that SJP aren’t delivering on these expectation, but there is nothing to say that they are. SJP in the past have told people like me that this is none of our business and that is right, I am not a customer or client and my status as a “commentator” is based entirely on this blog. Nonetheless I will keep asking the question, how are your customers doing to SJP because I can’t ask Partners how their clients are doing.

And if we don’t know how half a million of the nation’s affluent oldies are doing, then it’s pretty hard to judge what can be done for the rest of the nation.

My call is to the management of SJP and to its Partners to be more trusting with the wider public, to get on the front foot and share information that is important for us to know. Principally I think we should know about the outcomes of saving within the SJP Sipp and about how the Sipps are being used to provide income or capital in later life or on death.

This high level information, presented in ways that make sense to the financial services industry and the general public, would be the ultimate Value Assessment and proof that SJP are as confident in delivering on their promises as I believe they are.

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What is consolidation doing to DC contribution rates? WTW’s surprising results!

The collapse in confidence among small pension schemes gathers pace as Corporate Adviser reports.

Two-thirds of employers who currently run their own trust-based pension plans are considering switching to a master trust within the next two years, according to new research from Willis Towers Watson.

Its annual FTSE 350 DC pension study shows that on top of this 12 per cent of employers who already use a master trust are also considering reviewing their provider within this time scale.

Corporate adviser  reports Gemma Burrows, director in Willis Towers Watson’s Retirement business, as saying:

“For many employers that moved to a master trust five plus years ago, the options available in the industry have changed dramatically. Some of those employers are now starting to look around and consider whether there are more suitable, alternative providers that could offer better value or service to members.

Master trusts now represent the chosen method of delivery of nearly 1 in 4 companies in
the FTSE 350, given it is only a little more than 7 years since they entered the mainstream
market – that is amazing!

Contributions matter  and it matters who you work for.

With every member having the option to take their benefits from their DC scheme to wherever they like, WTW are right to emphasize the importance of a healthy employer contribution

If you are working for a FTSE 100 or FTSE 250 company, you are likely to have contributions well above the AE statutory minima. I suspect that WTW’s results are biased towards employers who care about pensions (and are prepared to pay for good consultants). Nonetheless, you have to look at these improving numbers with satisfaction as Gemma Burrows does

“Clearly it’s good news for employees that DC contribution rates held up during the recent challenging financial circumstances for many employers. However, we can see that from a retirement savings perspective less than 20 per cent of companies enrol at a default contribution rate in excess of the minimum level on offer. Therefore, there may still be work to do to overcome inertia in decision making so individuals understand and take advantage of the more valuable contribution rates that could be available to improve their own outcomes.”

It interests me that WTW report on the move to master trusts and the increase in sponsor contributions on the same slide. I am hoping that this is sending a subliminal message to sponsors that money spent on maintaining their own trust is money not being spent on improving the contribution rate. Let’s hope that consolidation improves contribution rates as WTW infers it may be doing already. I’d be interested to hear more from WTW on whether savings in scheme management costs are being passed on as improved contribution rates or whether consolidation is leading to a further dumbing down of pension sponsorship

WTW are right to point out that where there is an employer match available, take up of that match will settle at the default rate. So the question for reward and pension managers is to what extent they want to set the match low and target those people who have the sense and financial capability to opt-in to higher contributions and to what extent they want matters the other way round. Inertia will determine the take up of the match and the default is the “inertia setting”.

A final point worth making is that the vast majority of employers do not contribute to workplace pensions at anything like the rates advertised above. Can Government find encouragement in these numbers to nudge up the AE rate for all employers with workplace pensions as they have promised to do by the middle of this decade? Levelling up is devoutly to be hoped for.

Hope for CDC?

Willis Towers Watson are principal consultants to Royal Mail and have been firm supporters of legislation allowing that employer to sponsor CDC. For the first time in a WTW DC survey, I have seen mention of CDC as an option for other employers.

I doubt we will see many employers engage with CDC directly, but I suspect that master-trusts that offer CDC scheme pensions as a default  option for members in retirement – will be working at a commercial advantage in the consolidation process. Willis Towers Watson offers the market Lifesight, a commercial master trust which could take advantage of CDC.

Perhaps the title page of the report offers another subliminal message. Is this WTW’s view of investment pathways?

WTW’s perception of investment pathways?

With Guy Opperman intent on introducing legislation for multi-employer schemes like Lifesight, to use CDC rules from 2022, we ought to watch this space and look forward to next year’s report!

Thanks to the WTW team for an excellent paper , which I will return to in future days.



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TPR – publish your pension scheme register – or be damned!

£400m now thought to be £20,000m – big numbers

Following yesterday’s blog moaning at the Pensions Regulator for not getting its act together and publish a register of scheme URLs I have been informed of regulations changes that have the potential  to make this happen. 

DWP’s climate governance regulations which, subject to parliamentary approval, will come into force in October have put TPR in a position to be able to publish central repositories of a number of scheme disclosures.

Regulation 3 of the draft Occupational Pension Schemes (Climate Change Governance and Reporting) (Miscellaneous Provisions and Amendments) Regulations 2021 amends the Register of Occupational and Personal Pension Schemes Regulations 2005 so that TPR must require, via scheme return notices, that trustees provide the website address where their most recent TCFD report has been published as well as the website address of their published Statement of Investment Principles, Implementation Statement and excerpts of the Chair’s Statement. Trustees will be under a duty to provide this information in their scheme return to TPR.

As part of their Climate Strategy, TPR have already committed to publish on their website an index of the web addresses of schemes’ SIPs and will be able to replicate this for TCFD reports also.

This compares with the aforementioned TPR’s statement on launching a register of  the 1200 DC schemes facing consolidation…

The only trustee details we publish are those of the ITs on our register of trustees that we appoint to schemes in certain circumstances – it’s not available on line but a copy can be requested (About the trustee register | The Pensions Regulator). We don’t currently hold website details, though we are hoping to start collecting the urls for the VFM, charges and investment information that trustees are (or will shortly be) required to publish on line, via the annual scheme return. We have not yet taken a decision on whether we will publish that information

The URLs for  TCFD and SIP statements is the URL for value assessments and most pressingly for consumers, a searchable address to find people who can trace lost pensions.

So let’s hope that the tPR will join hands and adopt a single approach to all occupational schemes that allows us to research companies and create a new more dynamic approach to finding out who’s looking after our money.

If they feel constrained , pass the information to the DWP who seem more confident in listing and sharing websites already in the public domain.

If big Government wants us to move faster , we can do, but we need its help too!

Publish – or be damned!

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What if your pension is being consolidated?

Over the past five years, millions of people have found their money , locked into company pension schemes , under new management.

The trend for company pension schemes to close and transfer people’s savings into multi-employer schemes (known as master trusts) looks set to increase as Government announces new tests for the viability of company schemes which may encourage or even force trustees to “consolidate”.

Even  large employers such as Vodafone have decided that the cost of managing their own staff’s money is not worth the kudos and effectively outsourced pension arrangements. It’s understandable that staff who may have felt loyalty to their company of former employer, may not be so happy having their money managed by the trustees of  an insurance company or a pension consultancy.

What then are the the options for employees as they face the future?

Option one – roll with it.

The people responsible for making the decision to move your money to new management are trustees. If you are in a group personal pension, only you can pull the trigger. So if your money is moving it is because your  trustees think that at worst you won’t be worse off and at best you could benefit from being in a larger scheme with better resources to manage your money.

The option of “rolling with it” and letting the money move across is usually a good option. Multi-employer schemes usually have better retirement options because they are set up on a commercial basis and want to manage your money to and through retirement. If you want to find out what your new pension managers have on offer, you can usually find out online or by speaking to its support team. Your current employer may not resource its trustees to offer these options and may feel uncomfortable taking on responsibility for the outcomes you get. In general, the commercial master trusts into which you are likely to be consolidated will be safe havens for your money for longer and may even be able to pay you a pension in years to come if they adopt a collective approach to turning member’s pension pots into an income that lasts as long as you do.

Option two –  manage your pot yourself

For many people, money management is a hobby which they pursue enthusiastically. For such self-confident people there are a range of self invested personal pensions (SIPPs) which are looking for you to transfer your company pension pot. If you have such a SIPP already, the chances are that it has a tiered charging structure that means the new money you bring to it should be managed at a lower rate than your existing money. SIPPs  are typically  on-line and user friendly for the tech-savvy. They can also offer a range of investment options including a facility not to use funds but to invest directly into the markets.

The well known names in this space include Hargreaves Lansdown, AJ Bell and Pension Bee.  If you are looking at SIPPs , you don’t need me to tell you how they differ, you will be able to work that out for yourself and if they baffle you, don’t use them. I have to say I find Pension Bee very simple while some of the more technical SIPPS scare the life out of me but this really is an “each to their own” market where you pays your money and you makes your choice.

Option three – you give your money to your adviser to manage

Many master trusts are managed by pension consultants and could argue that they are “adviser managed”, but you may feel that kind of management a little remote and not what you want.

If you have a financial adviser, the chances are that he or she offers a pension management service which either watches over decisions you take or offers a discretionary management service which takes decisions for you unless you look to over-ride and take back control.

Financial advisers are able to manage your money with you in mind. Investment decisions can be tailored to your chosen level of risk and advisers can advise you of the tax consequences of what you pay into and take out of your pension. They can also help you with the paperwork involved with consolidating small pots and the best ones can also manage the transition of money to reduce out of the market risk and take some assets “in specie” meaning transition costs are kept to a minimum.

Of course all this personal attention is expensive so this kind of option is really the preserve of the wealthy. Few advisers want to manage portfolios of less that £250,000,  which is just as well, as the fees for small pots can make this kind of service uneconomic.

What everyone could and should do!

The movement of your money from a company pension to a master trust is an event which you can use to review your plans for the future, even if retirement feels a long way off. It will probably be in your interest to take the line of least resistance and roll with it, but it could be the time you decide to go it alone or employ an adviser to do the work of managing your money for you.

If you’re about to make important decisions about your work and retirement savings, you should consider taking professional advice.

But a good starting point is the free information and guidance available from a number of online tools and resources. If you are among the millions feeling extra financial pressure, consult the Money Advice Service. If you’re 50 or over,  phone Pension Wise for free to talk about what you can do. If you’re worried about the movement of your money derailing your retirement plans, contact the Pensions Advisory Service.


Want to know more about pension scheme consolidation?

If you are interested in the dynamics of the retirement savings market , you may want to spend some or all of next  Thursday  afternoon (17th June) at a pension master class I am helping to organise.

For those who would like to register an interest, here is the link:

Register Interest to Attend Consolidation Masterclass — SG Pensions Enterprise

Here’s the agenda


Thursday 17th June 2021



Consolidation is the name of the game in UK pensions.  In the DC space, employers are increasingly rolling their plans into master trusts, in pursuit of efficiency gains, scale economies and wider investment opportunity sets, and are strongly encouraged by the authorities to do so.  Similar arguments pertain for DB plans, especially smaller ones, though the rush to consolidate is less pronounced to date.  LGPS plans have already implemented asset pooling across the entire sector, of course, with the streamlining of administrative activities a possible next step.  Delegates to the Masterclass will examine the actual state of consolidation across the pensions industry, whether it is really delivering on its promises, and what further developments need to take place in order to deliver significant and measurable improvement to the health of the industry and to overall member outcomes.


13.30 – 13.50

Meet and Greet

13.50 – 14.00

Welcome and Introduction

Chair                                                                                                        Programme Director

Robert Branagh                                                                                     Stephen Glover

Chief Executive Officer                                                                         Director

London Pensions Fund Authority                                                      SG Pensions Enterprise

14.00 – 14.25

Presentation and Q&A:  The State of Consolidation Across the Pensions Industry

Magnus Spence                                                                                     Hal La Thangue

Managing Director                                                                               Associate Director

Broadridge                                                                                             Broadridge

Our speakers will set the scene with the historic context for consolidation in UK pensions.  They will discuss the drivers of consolidation, among them the current low return environment, the increasing burdens of reporting and regulation and the demand for better services to members of pension schemes.  This will be explored in relation to trends and projections for the 3 main pensions sectors in UK pensions:  LGPS, private DB and DC schemes.  He will posit that there is a minimum level of AUM to achieve scale benefits, and discuss the significance of the emergence of new players in the pensions marketplace, including fiduciary managers, transition managers and master trusts.

14.25 – 15.05

Panel Discussion:  The Big Consolidators Account for Themselves


Robert Branagh

Chief Executive Officer

London Pensions Fund Authority

Adam Saron

Chief Executive Officer

Clara Pensions

LGPS and Master trust executives to be confirmed

Senior executives of three large consolidators, representing an LGPS Pool, a Master Trust and a DB consolidator, will describe and justify their approaches to consolidation, and how well they are working.  The themes they will explore will include the correlation between size and investment performance; the governance challenges imposed by scale and how to manage them; whether consolidation is necessarily better for members; the pitfalls and drawbacks of rapid growth; and the optimal limits of consolidation on an industry-wide basis.

15.05 – 15.25

Sponsored Presentation:  Best Practice in Transitioning Assets

Graham Dixon

Director of Transitions


As consolidation trends develop further across UK pensions, this will translate into an enormous volume of assets on the move between funds, between institutions and into new investment vehicles.  The importance of managing this process efficiently can hardly be exaggerated, given the great costs involved and the need to mitigate significant out-of-market and operational risks.  Our speaker will discuss how best practice in transition management is evolving in light of these circumstances and the steps involved in getting this critical process right, including the vital criteria for identifying the right transition manager.

15.25 – 15.45

Coffee at home and Online Networking

15.45 – 16.05

Sponsored Presentation:  A Special Case – The DC Small Pots Problem

Adrian Boulding

Director of Policy

NOW: Pensions

It is well documented that the proliferation of small pensions savings pots will continue to grow almost exponentially if left unchecked.  This gives rise to a huge administrative burden, rendering many pots totally uneconomic, both to the saver as well as to the pensions provider.  Various solutions have been proposed, among them raising the bar on flat rates; transforming the general levy; nudges and pushes to members to consolidate their pots; legislative measures; and various technological solutions, not least the pensions dashboard.  Our presenter will outline the scale of the problem and propose a personal view of the best way to resolve it.


16.05 – 16.55

Expert Discussion Groups:

Group 1)       Predator or Prey?:  Consolidating Smaller DB and DC Schemes

Facilitator:               Henry Tapper, Chief Executive OfficerAgeWage

Lead Discussants:  Andrew Blair, DC Investment and Governance Lead

Department for Work and Pensions

Paul Budgen, Director of Business Development, Smart Pension

Louise Sivyer, Policy Business LeadThe Pensions Regulator

Further discussants TBA


Savings to employers

Improved contributions to members

Wider investment opportunity sets

Exorbitant costs per member for small scheme administration

Barriers to consolidation

Why even big schemes could shed a bit of weight



Group 2)       Next Steps for LGPS Pooling

Facilitator:               Mike Weston, Chief Executive Officer, LGPS Central

Lead Discussants:  Anthony Parnell, Treasury & Pension Investments Manager, Carmarthenshire County Council

Abigail Leech, Finance DirectorLocal Pensions Partnership

David Rae, Head of Strategic Client SolutionsRussell Investments

Further discussants TBA


Achievements to date on asset pooling  –  is it working?

The LPP model:  consolidating admin activities as well as assets

Lessons from overseas public schemes

Future legislation and outlook


16.55 – 17.00

Return to Plenary

17.00 – 17.30

Panel Discussion:  Feedback from Expert Discussions and Lessons from the Conference


Robert Branagh

Chief Executive Officer

London Pensions Fund Authority

Henry Tapper                                                                                         Mike Weston

Chief Executive Officer                                                                         Chief Executive Officer

AgeWage                                                                                                LGPS Central

Discussion group facilitators will report back on their main conclusions, followed by a debate on the main takeaways and action points from the conference this afternoon. This will include who will be the significant winners and losers of consolidation trends, the further step changes that will need to take place and, as a consequence, what the future pensions landscape will look like.

17.30 – 18.00

Final Thoughts and Open Networking

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FCA delivers tardy providers and their IGCs a sucker punch

In a surprise statement, the FCA has accepted it my not given providers of workplace Group Personal Pensions (GPPs), sufficient clarity on what the FCA is looking for them to disclose.

Some stakeholders think that costs and charges data should be published at the level of the overarching HMRC registered scheme, with the data indicating a range of charges paid by members in different employer arrangements within that overarching scheme.

We don’t consider that aggregation of costs and charges at the level of an overarching scheme would promote meaningful comparisons, however. Instead, comparisons at the employer level could play a useful role in helping to improve value for money in workplace pensions.

However, some firms have told us that they were unclear at what level disclosures were required and have been preparing disclosures at registered scheme level.

It is more surprising that the handful of firms who have workplace GPPs to report on, had not sought clarification (the consultation has been open nearly a year). It sounds to me that either they are bad at reading consultations or they decided to put the original proposals in the “too hard” box.

The FCA’s sucker punch

Despite the FCA saying they are offering an easement, some employers can now look forward to some even more interesting disclosures over the summer, not least – an understanding of what other employers participating in the same “HMRC scheme” as them, are getting by way of a deal.

The disclosures that will be published by the IGCs this scheme year (by July 31st) go considerably further than any information previously published. The workplace pension Independent Governance Committees (IGCs) will need to either comply with the existing requirements laid down last summer

  •  To ‘pick a small number of reasonably comparable schemes or investment pathways, including those that could potentially offer better value for money (against the factors set out in the rules), to conduct their assessment.’
  • When selecting these schemes,   ‘take into account the size and demographics of the membership. This comparison with other comparable options on the market applies to the extent that information about those options is publicly available.’


  • disclose each set of costs and charges that they levy (and the number of employer schemes which have these costs and charges), or

  • show the distribution of costs and charges by employer arrangement in some other way, for example by dividing the range of charges into deciles (ie without also disclosing the relevant employer or scheme details against the particular costs and charges)

The  second option  appears an easement but may prove even more disruptive. It is infact a sucker punch to insurers and IGCs.

It will be interesting, reading this summer’s IGC reports , to find out which route each IGC takes and whether they and their providers consider the original disclosure the better of two evils.

That some IGCs and their providers have struggled to disclose benchmarking information is no  credit to them. That the FCA needed to publish this “easement”, suggests a growing frustration with the IGCs inability to act for savers rather than their sponsors.

Impact on provider margins

In my experience (I was head of sales at Zurich/Eagle Star 1995-2005), employer scheme pricing was based on what margin we could agree with the gatekeepers – the employee benefit consultancies.

These gatekeepers worked on “leaving something on the table for the next man“, which added up to providers getting deals at pretty favorable prices to the insurers.

The schemes which were set up at the turn of the century with no assets, are now looking very healthy, if your employer pension has £100m in assets, the provider is earning £1000 pa for every basis point (0.01%) of charge they are making. The range of charges is between 10 and 75 bps (0.1% to 0.75%) so there is considerable scope for negotiation and the FCA know it.

Indeed, the statement that the FCA put out early in June shows that they are now on top of this subject and have grasped how important it is that employers are empowered to understand their costs. The FCA sees the disclosure of charges at employer level as meeting three statutory objectives;

  • competition – scheme members and others can access better information about costs and charges, promoting more effective competition between firms in the interests of consumers.

  • consumer protection – better information about costs and charges should enable scheme members to decide if their scheme is giving them value for money and if it will meet their future needs.

  • market integrity – workplace pension schemes should be better held to account by their members, which would improve the orderly operation of the financial markets.

I think it ambitious to expect members to be picking up on costs and charges they are paying, through disclosures from the IGCs. However employers have the capacity to be more assertive.

And I see an opportunity for HR, reward and payroll departments to benchmark themselves and renegotiate charges for staff either with the existing provider, or by switching to a rival.

The problem for employers was correctly identified by the Office of Fair Trading in 2013 when it wrote in its market study.

“The buyer side of the DC workplace pensions market is one of the weakest that the OFT has analysed in recent years. Part of the reason for this is that most employees do not engage with, or understand their pensions. Pensions are complicated products, the benefits of which occur a long time in the future, for many people”.

Consumerists have long argued that employees did not have the information to make sense of their pension pots. But moves are afoot at both the FCA and the Pensions Regulator to make sure savers in workplace pensions have simple statements that tell them both the costs they are paying on simple pension statements published by law. So, both employers and members will be better empowered to take decisions – and soon!

Of course, employers should not be making purchasing decisions just on price, (value is the other part of the equation), but this move from the FCA should be picked up on by every employer that runs their workplace pension as a GPP (and many who participate in master trusts and have their own company workplace pension).


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TPR/FCA and Government – shining light on value for money

There is a crack in everything , that’s how the light gets in

TPR’s Corporate Plan  for the next three years is for the most part solid and uncontroversial. Where it extends beyond the 2020 plan is in a long section on value for money which I have quoted in full below. The pensions industry has yet to get the message but “value for money” now informs every aspect of the Government’s DC agenda. Put another way,  if a measure does not improve value for the saver, what is it’s point?

Thankfully the artificial and divisive phrase “value for members” has been dropped and it is clear that where tPR speaks , they speak with the FCA. It looks like what will come out of CP20/9 (the FCA’s VFM consultation) will be a discussion paper published shortly by both regulators

As someone who has pioneered the benchmarking of performance and the scoring of value for money, I am encouraged by the statement

Our exploratory work around value for money will include considering the merits and practicalities of a common, cross-industry standard and the development of benchmarks

This standardization is long overdue. The over-elaborate value for money frameworks established by IGCs and Trustees are so diverse they provide no means of comparison and the saver has no idea what value he/she has actually had.

Reference is made to the DWP’s work on “improving member outcomes” which I understand will be providing us with more detailed guidance next month. It is absolutely right that the focus of improvements is on the outcomes of members, too much talk to date has been about the characteristics of a good DC scheme and too little on what such schemes have provided by way of pounds in their saver’s pockets.

As such a saver, I want to know who has provided value and make informed choices based on evidence.  The longer-term work coming out of the FCA/TPR discussion paper is focused on the saver and focused on “cross-industry” standards, this is absolutely right.

Here is what TPR is saying , I have emboldened those statements and headings that I consider particularly important and I’d welcome comment.


Value for money

We believe savers’ money must be suitably invested, costs and charges must be reasonable and good quality services and administration are provided to all.

Savers in DB schemes have the promise of a certain level of income at retirement. However, significantly more people are saving into DC schemes where the retirement income amount is dependent on the level of contributions and the performance of investments – as well as the decisions made on approaching retirement by the saver.

Value for money was one of two priority areas in our joint strategy with the FCA published in October 2018. We will be using our powers to help drive value for money for savers and this includes setting and enforcing clear standards and principles where relevant.

Our research indicates that smaller DC schemes are often less able to meet standards of good governance and administration. The economy of scale of bigger schemes often means savers will benefit in a variety of ways, and therefore we encourage consolidation as a means of improving saver outcomes. Further to the introduction of the regulations from October this year, we will seek to ensure that schemes consolidate where they are unable to achieve value for money.

Savers are also less likely to receive good value for money when they have multiple small pots with varying performance and charging structures. Improved saver engagement through tools such as the Pensions Dashboards could help to address these issues in the longer term by putting the saver in control of consolidating their savings. However, there is more that industry can do now to address the existing stock of small pots and to prevent the problem continuing, and we support the DWP’s Small Pension Pots Working Group.

Figure 2 below depicts an activity timings plan for the work under Value for money. There is a date range across the top of the chart from left to right showing three consecutive financial years: 2021-22; 2022-23, and 2023-24. This date range is used to show where the activity (shown in swim lanes below) starts and ends.

Year 1 (2021-22)

A focus on developing a broader understanding of value for money

In year 1, we will increase our focus on this strategic priority, developing a broader understanding of value for money: its components, risks, and opportunities. This development will build on our current joint work with the FCA and ongoing dialogue with government.

Our exploratory work around value for money will include considering the merits and practicalities of a common, cross-industry standard and the development of benchmarks and we will publish a joint discussion paper with the FCA. We believe value for money assessments will be key to ensuring DC pensions deliver the best possible retirement outcomes for savers, and we have been guided by our stakeholders and industry on the importance of this work.

Following the DWP’s 2019 consultation ‘Improving outcomes for members of DC pension schemes’, regulations in relation to value for money assessments and consolidation of smaller DC schemes will come into force in October 2021. Statutory guidance in this area will be updated to help trustees and advisers ensure they understand what is required of them and that they are able to take the necessary action to comply with the law.

Years 2 and 3 (2022-23 and 2023-24) Continuing to work with trustees and our regulatory partners to establish cross-industry standards

During years 2 and 3, we will continue to work with the FCA to deliver common standards across the market. This will follow the joint discussion paper with the FCA on value for money, which invites discussion from the industry but does not set out a finalised framework. Clear, cross-industry standards would help drive positive change, particularly in the context of a smaller number of DC occupational schemes with large numbers of savers.

Continuing our work from year 1, we will work with trustees so they can assess value for money in relation to their scheme, and in accordance with the regulations.

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Can Pension Wise deliver a financial vaccine?

a financial vaccine?

Yet another consultation (the 11th this year) arrives from the FCA, looking to nudge people of my age into the arms of Pension Wise and away from scammers.

This looks sticking plaster on a wound that will continue to bleed our savings for some time to come. Take up rates for Pension Wise remain low and the dial is not likely to move much once the proposed changes come into place.

I have read the paper but it was heavy going …..

Click to access cp21-11.pdf

I’m not quite sure how I managed to insert the paper as I did, but I’m keeping it on display because it shows just how long-winded these papers are getting.

In practice, the 39 pages boil down to this

we propose that, when a consumer has decided, in principle, how they wish to access their pension savings, or transfer rights accrued under their existing pension to another pension provider for purposes of accessing their pension savings, pension providers must:

  • refer the consumer to Pension Wise guidance
  • explain the nature and purpose of Pension Wise guidance, and
  • offer to book a Pension Wise guidance appointment.

This is the big idea to get the guidance points illustrated at the top of the page- into play.

Financial vaccination

There is an obvious comparator, it is what the NHS is doing in getting us to go and get vaccinated, where there is pretty well universal take up (see C10-arg blog The public response to vaccine hesitancy – Joseph Robertson)

The way to win people’s hearts and minds is to present a clear counter-factual. If you don’t get vaccinated you run the risk of getting Covid whenever your third wave arrives and what’s more you’ll be limiting your capacity to join into the new normal (as you won’t get a covid passport). I know that isn’t exactly what the Government is saying, but it is what the public is hearing.

For Pension Wise to become as relevant as a vaccination, it is going to have make a promise as compelling and  that is a very long way from what the public are seeing. Pension Wise is not going to vaccinate us against scamming , nor is it going to provide us with a definitive course of action about what we should do with our retirement savings. Instead, it is seen by the majority of people I speak to as extremely worthy, very boring and rather ineffective. A bit like going to a vaccination center and not getting the vaccination.

The alternative

Rather than putting people in financial harm’s way, which is what pension freedoms do, why not turn the question round and provide people with a financially healthy way forward that pays them a pension with them having to buy an annuity?

Ensuring that every DC pot has as its default a scheme pension paid from a collective retirement fund is not fanciful. It simply requires any provider, whether the funder of the trust or the supplier of the contract, to offer directly or through a third party, a properly managed collective pension scheme set up and managed to pay a wage for life in exchange for the pension pot.

This doesn’t mean that the current choice architecture of investment pathways should be disposed of, but the variants – cash, annuity and DIY drawdown would be self-select options and only accessed where an individual wanted to make a positive choice.

This may seem like a return to the bad old days of compulsory annuitisation, but it is not. The annuity was the only option unless you could prove you had adequate income elsewhere. The opt-out proposal I’m mooting simply follows the tried and tested approach to pensions which is to put the onus on people to opt-out and not opt-in to the right decision.

The “right decision”

We are of course a long way from having consensus that a CDC scheme pension paid from a collective pool and insured by the collective pool is preferable to the investment pathways.

We are looking for a financial vaccine to protect people at retirement. In my view CDC will pay most people what they want better than any of the investment pathways – it is our best hope going forward.

A CDC pension could be paid from any existing DC trust that was willing to convert to CDC and could be authorised as one by the Pensions Regulator.

I see – within  a decade, CDC sections existing as the “wage for life” default option, of all the master trusts and it may be that one or two large employers decide to commercialise their existing DC trust based schemes. Put simply, if I wanted to defray the cost of providing a DC scheme to my members “to and through” retirement, I would offer the facility  admit the public to my CDC provided they were transferring benefits from elsewhere and I would admit these savers on commercial terms.

This should not prove a problem for the ABI, whose members are prominent either as funders of master trusts or suppliers of investment platforms and funds that will sit within CDC arrangements. Nor should it be a problem for the PLSA, for whom CDC should be a lifeline for ongoing relevance.

Where these proposals will meet with most opposition will be from scammers who will have to justify the arrangements they propose as opt-outs of collectives – on a value for money basis.


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The FT moves the needle on CDC

As I predicted, yesterday turned out to be a day of pension debate and what started as an editorial in the FT , was continued in an excellent seminar where Claer Barrett , Jo Cumbo and Sebastian Payne explored the idea of a “new pension deal for the young”.

Unequivocally, the FT put forward as its preferred solution a collective approach driven by defined contributions but providing non-guaranteed schemes pensions – like the state pension.

This is perhaps the most radical endorsement of CDC from outside the small fraternity of enthusiasts known as the Friends of CDC – to date. It is an endorsement based on improving the outcomes of the 10m new savers for retirement introduced by auto-enrolment and not a solution to the issues surrounding the employer covenant behind defined benefit schemes.

For once, the focus was on the hapless saver, a role for which Sebastian Payne had volunteered.

I’m not sure that Sebastian fully represented the “pension lumpen” but he showed a representative disinterest in any of the “solutions” being put forward to become a self-investing pensioner. Like most people I know, he wanted pensions done for him and was prepared to take a non-executive role in his own retirement.

Most of us, when it comes to personal decisions, find it hard. We can be convinced when shown the economic advantage to us of an employer match on what we put in, to put more in. We can be convinced not to opt-out of our pension saving  even if it means slowing our saving for a house deposit and we can even grasp the fiscal advantage of salary sacrifice, when that advantage is passed on to us. But beyond that it’s hands off – both in terms of investment and – so it seems – in retirement decision making.

Which of course is not what DC is supposed to be about. The FT seminar spelt out the alternative to engagement , an awareness of what needs to be done and a willingness to trust others to do it. Which is how CDC works (and why for many, DC doesn’t).

The pension industry response

I was frustrated to see response to the FT’s initiative being so feeble. Far from engaging with the issues that Jo, Claer and Sebastian were grappling with – issues of everyday people. The debate moved to discussions over whether the University Superannuation Scheme would move to CDC and was quickly mired in politics.

Jo Cumbo had to intercede and explain that what she had written and what she would be discussing was not to do with USS.

What the FT seminar was saying is that CDC , despite it being received as a political solution to the Royal Mail industrial dispute, is not a tool for employers to de-risk liabilities , but a means for those saving for retirement to make sense of that saving in terms of pensions.

It is a shame that in the febrile hot-house of USS politics and in the pension industry’s debate with itself over guarantees, the wider DC picture is being ignored.

A word about the LCP conference

I was a little disappointed that LCP ran their DC conference with no dedicated session on DC. This may be pragmatic as it focused very much on what employers and trustees can do right now (and clearly we still await the roll out of secondary regulation allowing multi-employer schemes to incorporate CDC).

What was said about CDC, was said with little enthusiasm or passion. It is clear that even a consultancy as progressive as CDC , still struggles to understand what it is like not to be a pension expert!

This conference comes round but once a year (and we missed last year). Which means an opportunity lost to consider the alternative to setting up investment pathways – or whatever the PLSA’s variant might be.

I would urge Laura Myers, Steve Webb, Dan Mikulskis and the many blue-sky thinkers within LCP to think of alternatives to engagement. Whether we think of everyday people as “lumpen” or “non-exec”, we have to accept that most people do not want to make strategic decisions about how they invest or how they disinvest their retirement savings.

Most people, like Sebastian , want things done for them – so they can get on with their lives without having to worry how to pay the bills in retirement. If we can focus on that simple truism, then we can start making sense of CDC.

The FT moves the needle on CDC

The last word goes (in this article) goes to Jo Cumbo.

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It’s time we tested the value we get for the charges we pay

If I had read the PLSA’s response to the DWP’s proposals to flex the pension charge cap, this time last year, I would have applauded it. I told the Pensions Minister to his (virtual) face that I saw no demand from the funders of commercial master trusts or employer DC trusts. I was wrong, while the barriers that the PLSA are still up for smaller schemes (and even the cash-starved People’s Pension), those master trusts moving to scale and those few employer trusts at scale are looking to allocate to private illiquid markets.

We learned this week that Nest has appointed CBRE Caledon and GLIL Infrastructure to invest £3bn into infrastructure equity by the end of the decade. This is on top of its initial allocation of £250m of its default fund to a partnership with Octopus energy to invest in renewable energy.

Stephen O’Neill, Nest’s head of private markets, told the FT :

“Nest’s investment strategy is evolving at pace in line with the growth in our assets under management, opening up new assets classes in the pursuit of the best risk-adjusted returns for our members.

We believe direct infrastructure equity investments can offer diversification benefits and a return premium to public market equities, at lower levels of risk.”

So when I read in the PLSA’s response to the DWP

we do not believe that the alterations will lead to a material change in investment in illiquids as there are a number of other important reasons why schemes do not invest in them. In particular, a focus on low charges in a competitive market, the prudent person principle which requires schemes to take careful consideration of risk and reward and this
is likely to always result in only a very low proportion of scheme investment in such assets and operational barriers, such as the flexibility to move pots when requested and daily dealing….

I have to question who the PLSA is speaking for.

It is not just Nest, there are a number of large DC pension schemes who are looking to invest from their margin, in more expensive assets, this can only be in the hope of improving member outcomes.

The PLSA may consider Nest misguided in putting outcomes above profit but they cannot deny that Nest have a plan in place and Nest is a member of the PLSA.

Is Nest a special case?

It might be argued that Nest is special because it enjoys the benefit of cheap Government debt and does not have the cash flow worries that beset many of its commercial rivals. It can better afford to take a long view and has a public obligation to tow the line. The line is being set by the Treasury and its agent the DWP.

The PLSA actually agree with the Treasury that investments such as those Nest are committing to, are in the long term interest of default investing savers.  So what are they caviling about?

It would seem they are assuming that DC pension schemes going forward look like DC pension schemes in the past. The DWP do not and make it clear that they want small DC schemes (by which they say schemes <£100m but really mean schemes <£1000m should not be investing at all, but folding into larger schemes that can afford to run illiquids in their defaults.

This is where the disagreements between the PLSA and the DWP/Treasury’s position seems to spring from. I can understand from a membership organization’s point of view, the collapse of small schemes into large schemes is not good news. A founding member of the PLSA’s Pension Quality Mark club – the Vodafone DC scheme- has already collapsed its assets into WTW’s Lifesight plan and if such a large scheme can go, what mightn’t. The PLSA are necessarily  concerned that we may find their role representing DC members limited to a few large schemes but that is what the DWP clearly sees the market offering them.

Nest is only a special case if you think its current size (£16bn+) will be exceptional within the time horizons the DWP have in mind. My feeling is that by the end of the decade there will be several large schemes with more than £30bn in them and that Nest will be challenging the largest DB schemes to be the largest funded pension in the land.

A changing landscape not a changing need.

The need for growth and income in the accumulation and decumulation of pensions does not change over time. The means of delivery changes, schemes in the future will no longer offer the sponsor’s covenant that defined income levels will materialize. So it is strange that the PLSA respond to the DWP that

“having a 5 per cent allocation to venture capital in the most popular “default” pension funds could “effectively double the total cost” of the investment portfolio. For this reason, private equity costs are not affordable within the default, and from a scheme perspective, appetite for this type of investment will also be tempered by the fact that higher costs, resource scaling-up and management will not guarantee higher returns”.

There are no guarantees on investment and you certainly don’t get certainty of better returns for paying a fund manager higher fees. But the risks of over concentration of capital in the most liquid markets suggests that value by continuing to rely on a single source of growth (passive equities) may be a false economy.  The need for reliable returns and the risk of not achieving them rest with the trustees who act on our behalf. The PLSA need to discuss with Nest and others why they are not relying on low charges to deliver to member’s needs and expectations.

It’s time we tested the value we get for the charges we pay

I agree with Con Keating that there is no reason for performance fees to manage most of the illiquid investments being considered by DC funds. Con suggests that many of the investments can be managed within investment trusts where the trust itself can declare a charge within the scope of the cap.

I also agree with Mick McAteer in considering the motives for industry pressure on the charge cap – self serving

However, I am also a pragmatist and I recognize that what the Government is really saying, by relaxing the charge cap to accommodate the smoothing of performance fees is a means of bringing alternative managers to the table.

So I am not against the flexing of the charge cap. I neither see it as necessary or deleterious. It is a sop to the hedge fund managers but no more than that.

What is needed is vigorous testing of the efficacy of the strategy being propose and this testing needs to be a field test, with real charges and using real DC member data. We know that the strategies of the managers touting for business have been back-tested, but have they been back tested in the context of the funds into which the managers want them allocated?

For the public to feel comfortable with these new illiquid strategies, it would be sensible for trustees and managers to abandon the usual non disclosure agreements and tell us what the strategies are, how they have worked in the past and what their impact will be on member outcomes. It’s important for people like Mick McAteer and Chris Sier. but even more for those invested in the defaults of schemes such as Nest.


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How DC consolidation can benefit DC members


Like Climate Change, Pension Consolidation isn’t something theoretical, it’s happening and at a great pace. I remember when DB transfers were at their peak (2018) people talking about what was to come. It had come and before the regulators had worked that out, the horse was cantering off into the distance.

Unlike Climate Change and unlike the tsunami of DB transfers in the late part of the last decade, the consolidation of pension schemes is not a threat but something to be devoutly encouraged. Most of the sub-scale DC schemes in the UK know they are likely to offer inferior outcomes to members and trustees are not holding their members or their employer sponsors to ransom. They are freely handing over their pensions to consolidators.

In this blog, I focus on the commercial advantages of consolidation and question whether they are currently benefiting members as they should. There are of course other advantages , than the economies of scale (specifically the capacity of large schemes to broaden and strengthen investment strategies. But consolidation should also bring lower charges to members and better facilities (such as retirement options).

I fear that much of the value is being too freely given to commercial master trust funders by employers who don’t fully understand the value of their gift

“Freely given”

I do not fully understand this phrase. The employer sponsored trust is in essence a mutual structure, it has no objective other than to provide benefits to members. In the past it was financed by employer contributions and where the trustees incurred expenses, these were met by short service refunds (if you left within the first two years of service, the employer contribution returned to a pot which paid the trustees and their advisers.

The abolition of short service refunds has meant a lot more small pots but it has also cut off the oxygen supply to the advisers who now have to bill the trustees who pass on these bills to the employer. Very few trustees now  have their own budgets and can take decisions autonomously. This has changed the market – especially for consultants who are find it harder getting paid.

The consultants have moved from a pure advisory role to become the funders of DC master trusts, arguing that this is the most cost efficient way for employers and staff to get the benefit of their administration skills, communication expertise and best investment ideas. It probably is.

But what consultants offer is not is an employer mutual, it is a commercial master trust which is freely given assets by employers who – with the consent of their trustees, decide to wind up the employer trust.

Outside of pensions , this would be considered “de-mutualisation” and the owners of the mutual – the employer, might reasonably expect to be paid for the transfer of the asset. In this case the asset is the fund value of the scheme and the ongoing covenant from the employer towards the staff’s pension. This could be valued and paid for as a premium for consolidation paid to the employer, who could choose to pass this money on to staff or keep it for shareholders.

Inside of pensions, this premium is reflected not in a cash payment to the employer but in enhanced terms to the transferring members. If the RRP of a workplace pension is 0.75% pa as an AMC, any discount from that amount could be considered a premium. In practice , the “going rate” for AMCs is well below 0.75% and commercial master trusts compete for consolidation at much lower rates.

On the face of it, the competition for consolidation is benefiting members because employers are not demanding cash for their schemes. But I wonder if most employers are aware of the valuable asset they are giving away in the consolidation process and whether they should be driving a harder bargain. Just as I wonder whether employers who participate in multi-employer workplace pensions (to comply with auto-enrolment) realise the value of these contributions.

The value of the bargain

The employer is potentially ill-served by a consultant who is both adviser and purchaser. Where the consultant is bidding to become the fiduciary manager of the employer’s DC assets, it is in the consultant’s interests to downplay the value of those assets and the future income stream from ongoing contributions.

Smart employers, engaged with “selling out” their trust based scheme, should consider getting the scheme independently valued , prior to entering negotiations with consolidators. It makes no sense putting this negotiation in the hands of the one of the bidders for the value of your scheme.

But I fear many of the master trusts that are run by consultants have done just this and have found they have sold their birthright for a mess of potage.

Should  commercial Master trusts  be considered  “fiduciary managers”?

The rules on the competitive tendering of fiduciary management are laid down by the Pensions Regulator and are explicit in what they cover. Fiduciary management does, under these rules, extend into DC trusts but only where the trustees are offering an investment mandate to a fiduciary manager.

But the consolidation of an “employer mutual” into a commercial master trust is akin to the granting to the funder of the commercial model, a  grant of fiduciary management. After all, members are given no choice in the matter and are simply seeing one set of trustees replaced by another.

The ceding employer , even when in future participating in a master trust, retains some control. It could be over the charges paid by staff who are members, it may even be the employer retains control of the investment of their money (with the help of consultants).And the employer retains the right to withdraw further sponsorship of the master trust and transfer future contributions to  another scheme.

But generally, the ceding of a single occupational trust in exchange for participation in a master trust , signals the end of employer control over the fiduciary management.

I don’t think that sufficient attention is being given to the commercial consideration to employers in this ceding of control and I sense that this is an uncompetitive market where employers, who the OFT consider “poor buyers” are being led by the nose.

Office of Fair Trading market study 2014.

Call to action

The table above and the chart below shows the state of the master trust market. It is at least a year ago as we know that Nest’s assets are £16bn today (rather than the quoted £12.7bn).

It shows how the market is dominated by a few large funders (mainly consultants and insurers) . Nest and Now , Smart and People’s Pension are the main providers to smaller employers operating Auto-enrolment.

Lifesight (Willis Towers Watson), Atlas (Capita), the Mercer and Aon master trusts plus Nations Pension (XPS) are the main consultancy funded schemes. These schemes are primarily consolidators and don’t depend so much on auto-enrolment (employer covenants are AE+).

Legal & General, Aviva , Standard Life and to a degree Aegon and Scottish Widows are operating in both spaces and working with consultants to offer bespoke sections of their schemes to consultancy driven bespoke defaults.

My concern is that the regulators will only pick up on the implications of this transfer of value to master trusts after it has been completed and that many master trusts will  have grown fat on poorly negotiated deals with employers. Some of these deals may need to be considered for conflicts (especially where consultancies take over the management of assets without a proper tendering process).

However, all is not lost. The ongoing role of employers in funding master trusts means they can and should have insight into the management of the schemes they fund and here “value for money” considerations can and should be strengthened. Mandates to asset managers need to be tested periodically, administration similarly. We can’t go on measuring value purely on the asset manager’s reporting, it needs to be tested at member level with reference to internal rates of return achieved. There needs to be proper benchmarking against a standard (a replacement of caps median) and there needs to be commonality of reporting.

All this needs to happen fast and needs to be driven by Government and its regulators.

The consolidation of the workplace pension master trust into a few mega schemes is good news for consumers, but only if it results in value  being passed on to members.


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MaPS – this is not the way to buy investment pathways!

I wonder how many of the 60,000 people who each month decide they want to “get at” their pension money, are finding their way to MaPS website set up for people to understand and compare their investment pathway options (for pension drawdown).

Not many I’ll be bound;  those who do are likely to be the 10%  with inquiring minds who took their Pension Wise consultation. Speaking to a couple of the pathway providers who I spoke to last week, traffic from the comparator site is minimal. This may be just as well as the site is a disgrace.

I have complained in previous blogs about the lack of relevant factual information on the site with which to make meaningful comparison but – having now had a month or two to dig deeper, I will restate my objections to the site.

Why is the MaPS investment pathway comparison site a disgrace?

First and foremost it focuses decision making purely on cost

This is a clip I did on a search for myself. I did so having been excited by this claim on the MaPS site

This is not a shop around service, many of the readymade investment pathways are not represented – where is the LV Product – where is the Vanguard Product, where are the offerings from True Potential, Open Money and SJP?

Confusingly the site tells me

I originally took this statement to be the reason why MaPS could not be inclusive. But I suspect that MaPS have been bullied by incumbents into including this statement. I would imagine that “deals” could be had with any provider – why the home bias?

Secondly, the basis of the “cost” comparison is deeply suspect. Everyone inside pensions should know that the amount you pay for pension management is much more than the explicit charges disclosed by the platform provider . But the site gives no details of the true cost of investing in these pathways . Instead every comparison gives the same explanation. The first year charge shown …

will take into account the expected charges for the pension drawdown product and the investment pathway chosen and, if applicable, any income you have chosen to withdraw.

But there is nothing on the site that allows the inquisitive purchaser to understand whether the hidden costs are included or a breakdown of costs. This is important because if you want to use the site filter, it becomes clear that the only basis of comparison is charges

You can also sort High-Low on the first year charge.

Not whole of market – not clear on charges – so what about value?

My journey through the site has given me “an idea of what the market looks like” and two ways to compare the market (hi-lo, lo-hi on charges). But I am also being told that I can

  • Click on ‘more information’ to find out additional details such as the product features and charges, along with a description of the risks and investment objective of the chosen investment pathway option you’ve selected.

Clicking on “more information” does not lead to any objective assessment of the value of the product purchased. It just gives the marketing departments of the various providers an opportunity to show off their compliance with FCA strictures. I have written at length about the inadequacy of this approach

What is iniquitous and disgraceful is that MaPS are making the purchasing experience one dimensional and giving no instruction on value whatsoever.

What is needed is a quantitative approach to value assessment and that needs to be done independently of providers using proper simulations of how these pathways and platforms actually work. This is not as hard as it sounds and I will be putting forward suggestions to MaPS on a way to compare the effectiveness of these pathways based on historic simulations (ex ante). No doubt those with stochastic models could do the same going forwards – though these monte-carlo simulations don’t do it for me.

Similarly, there are independent assessments of the sustainability of funds – ranging from TCFD reporting to Morningstar’s Sustainalitics, which could be employed to provide an insight into the E, S and G of the pathways.

Solutions are available, why aren’t they being explored?

I am increasingly frustrated with MaPS, which will come as no surprise to readers of this blog. The £108m spent by the organisation last year came out of levies which ultimately find their way into the charges we pay for financial products.

The users of those products should be demanding a service from MaPS that is at leas fit for purpose, this service is a disgrace. Someone needs to be held accountable for its delivery.

The best thing that can be said about the MaPS investment pathway is that no-one appears to know about it, let alone use it. It could easily become just another failed project that quietly fades into the distance, unused and unloved.

But investment pathways are the only game in town for those who cannot afford or do not want an advised product. Many non-advised products are providing value and many of those do not make it onto the platform. Those that do are being ill if not misrepresented. Purchasing decisions are being reduced to price comparisons and the price comparisons are dodgy.  Solutions that are available are not being explored and no one seems accountable.

We deserve better.


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Can the “cost of lifestyle” be measured or managed?

I’m pleased that Julius Pursail has commented on my post on lifestyling. He’s someone who cares a lot about member outcomes. He’s made it clear in Professional Pensions that he wants the trust he advises – Cushon – to do more than the lowest common denominator or a strategy of “minimum detriment”.

Here’s what he has to say….I’ve put my tuppence worth in red

There are two sources of cost that members bear inherent in Lifestyling.

The first is the potential forgone return that derives from members not being fully exposed to a high return asset class (equities) as derisking (into whatever lower risk asset mix the trustees have decided upon) takes effect in the run up to “expected” benefit vesting.

Trustees take these decisions based on complex trade offs around the range of possible returns for different cohorts of members and uncertainty around the timing and type of benefits the member is likely to take.

As Con Keating pithily observes, the size of this forgone return that materialises when benefits are taken, represents the cost the member has born for decisions the trustee has taken about risk.

I think of this as “opportunity cost” which can be measured by comparing the lifestyle outcome with the outcome from not lifestyling. Here is an example

Here the orange line represents the return for someone who had not been lifestyled and the green line the person whose fund had been totally de-risked of equities (the other lines are for those who are in between. You can see that for five years after the crash that followed the market peak at 2000, lifestyle would have produced better outcomes. But staying in a de-risked fund had an opportunity cost from around 2005.

You can see that the same pattern emerged in the 2008 crash, it wasn’t till 2014 that the lifestyle fund showed an opportunity cost.

By comparison , the impact of the pandemic on outcomes in 2020 was short lived and lifestyle only provided protection for a year. 

There really is no telling when the market is in freefall, how long lifestyle protection is worth having but like any insurance, its value is in relieving the stress of the short term market calamity. How many of those who enjoyed lifestyle protection over these crashes , were aware of the job it did? Conversely, how many savers are currently still in bonds and failing to enjoy the current market rally?

Lifestyle is an insurance that few know they have purchased. The value of that insurance is hit and miss and its cost can be immense. Using this insurance when it isn’t needed is a waste of money and this is why the kind of interactive messaging that Cushon wants to employ is helpful.

The second cost to members flows from the cost of trading between asset classes. This is an area where providers can help to minimise costs and improve outcomes by unit matching wherever possible between different members, benefitting both the seller (the older DC member) and the buyer (the younger member, still buying equities).

It must be right that trustees understand the impact of both these sources of cost, by measuring ex post member outcomes in the way AgeWage has pioneered. Understanding how well decisions made by the trustee about risk have turned out can help review the ex ante decisions trustees have taken about the risks members bear.

This is about execution and it’s something that trustees should be able to control. We can see historically the operational cost of lifestyling by comparing similar strategies executed in different ways. It’s a bit like measuring the time it takes to change wheels in a formula 1 pitstop, every car goes through the same wheel change but some lose more time than others. You can’t guarantee winners and losers but you can see which tyre- change times get it right more often than not. Past performance should be a guide to future performance – especially if its judged over two or more cycles (see above).

Turning to the questions you raise in your subsequent post about Cushon’s ability to use technology to engage with members, the 60% App driven member engagement figure relates to schemes that have been launched direct onto Cushon tech (we are in the process of porting the old Salvus (now Cushon) MasterTrust onto our technology). By using straightforward behavioural techniques and push messaging, that figure has climbed rapidly to 80% after just a few months. This level of engagement offers transformational capacity to create well tailored lifestyle strategies for our members, based on their own risk preferences.

As I have said above and in the previous blog, Cushon’s approach is a good one, provided it doesn’t overwhelm the member and get them sending messages to spam. Here is the challenge- laid down by Richard Chilman as a comment on my initial blog.

The trouble with much of this is that life is quite unpredictable.

Many of those for whom life is more predictable have great difficulty knowing when they might retire and what that retirement might look like, especially if it is a few years away. When it comes to it, retirement is often a gradual process involving part time working.

However, for very many people, retirement is driven by unforeseen and unwelcome events. There are first the redundancies, with the uncertainty of what (if any) work can realistically be done afterwards. There are then the health issues which often stop or limit the work that people can do, and indeed the things they may be able to do after work. And then there are the family issues like separation or caring for others. All these are the practical things that drive “retirement” for many and their access to their pensions and state benefits.

At least for most people, it is difficult to see how personalisation can work with any reliability at all. It can’t change how money has been invested in the past. For the future, the small percentage of financially sophisticated and organised people may continually feed changes of personal circumstances to a pension provider.  However, this is pure fantasy land as far as most of the “pension lumpen” are concerned. They don’t keep on top of a number of complex things in their lives and have little if any understanding of investment issues. They just understand cash.

It would be interesting to see any examples of the kind of nudge that Cushon have in mind. It would also be good to know whether Cushon’s nudge to their membership to think and invest green, extends to those in their fifties and sixties. “Lifestyle” can be interpreted in many ways, but for the lumpen  it is most connected with the quality of life we can lead!

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“The new bargain” – in conversation with Ros Altmann

This is our chance to speak with the bosses!

This blog is in response to Ros Altmann’s comments on Mark Fawcett’s “new bargain”. It is good that this discussion is happening, though my thoughts are amateur and are driven by opinion rather than a deep understanding of private markets. We need a proper debate about how our retirement savings are managed and this looks like part of it. Ros’ comments are in italics, mine in red.

Dear Henry, thanks for your response to my comments. I certainly do not advocate LDI and bond-yield returns for DC and am referring to the performance of the assets in DB schemes which have benefited from diversification into illiquid and other types of asset class, to benefit from long-term risk premia that should be available for success.

I am pleased you talk about long-term risk premia, from what I hear from those close to private investments, current conditions mean the harvesting of short-term risk premia will yield a meagre crop. This may be a good thing as it reduces the opportunities to trade – which I see as damaging the stability of companies invested in and rarely in the interests of investors.  There have been attempts to replicate LDI structures within DC, they have failed – DC is not ready to be locked down just yet!

The problem with DC investing, relying only on equities and bonds, is that this does not take advantage of the market inefficiencies which exist more frequently in less publicly scrutinized markets.

I agree that the private markets provide opportunities for growth , let’s hope we can avoid strategies which take advantage of vulnerable stocks and profit from their demise. This seems to be against the S in ESG and trustees need to be clear with their managers that they are looking at long-term growth.

Also, with assets like infrastructure, there is both a growth and a real income rationale, which can be tapped into and which DB schemes have used to their advantage. The current DC landscape does not seem to factor in long-term inflation protection directly at all. Even in the annuity space, the emphasis is always on fixed, level annuities (because they are the only way that buying an annuity at a relatively young age (in your 60s!) can look even remotely attractive for those in good health.

Your argument seems to accept that “DC and pensions” can be spoken of together. I agree that large DC schemes should be considering paying inflation proofed pensions and that the emphasis on scheme design needs to turn from lifestyling (where the aim is typically to de-risk) towards an ambition to pay a wage in retirement. Infrastructure supports the payment of “real income” – which I take you to mean – “income that keeps pace with inflation”.  Your points about annuities are well made. Currently, many annuities are set up with the option to be replaced within a couple of years by lifetime annuities, the current annuity market is in a holding pattern awaiting the return of interest.

Having a more diversified approach can help with inflation protection as well as upside returns. DB has become more obsessed with managing downside risks that many schemes have perhaps focussed too little on gaining the upside above liabilities which is essential for paying the pensions after costs.

Is this not a consequence of over-zealous regulation designed to protect the PPF at all costs? Your work in the Lords , with Sharon Bowles did much to convince Government to relax its position on “open DB pensions”, I hope this will be reflected in a softer re-write of TPR’s DB funding code. I have made the point to the Pensions Minister that open DB, CDC and consolidated DC share the capacity to invest for growth.

In the end, though, on the issue of fees, only the largest schemes are likely to have the muscle to negotiate the best fee deals and that is the same in DB. The advantage that DB trustees have is that they are not held to daily pricing or liquidity and can take a longer term view, which is what I believe we need in DC too.

This is part of the new bargain isn’t it? Mark Fawcett’s phrase has implications not just for fees but for people’s expectations from their pensions. So long as pensions are promoted as tax-advantaged wealth then liquidity will be to the fore. This is where the advisory market  and DC pension trustees diverge. The wealthy , especially since Woodford, have a right to be wary of illiquids. They find themselves locked into property funds and “gating” is still a specter hanging over hedge-funds. Right now, trustees are wary about offering illiquids on a stand-alone basis as members may be in the legal position of demanding liquidations under scheme rules.

I have heard legal opinion  that trustees may be liable to create that liquidity – possibly with recourse to the sponsor. Trustees have a right to be nervous.  But large schemes with defaults that allocate a small percentage to illiquids need not have these worries. The Government’s agenda is to bifurcate the market with SIPPs serving the wealth market and large workplace pensions serving the non-advised (and typically less wealthy).

I would not pay 2+20% to any manager because I believe the advantages are too skewed towards the manager. A 2% annual fee in the current interest rate environment seems extraordinary for an institutional portfolio. It has taken many years for DB trustees of the largest funds to negotiate harder on fee levels, the smaller schemes are still paying more. I suspect the same for DC is likely.

I am sure you are right, though Government seems bent on recreating the DC market so that the “new bargain” can happen quickly. I see a lot of people paying 2 and 20 type fees in the wealth market. They are not formally structured that way but if your client is paying 2%pa +  and being hit by exit penalties, the impact is at least as severe.

Of course a lot of this cost is to do with platforms and advice and buys a lot more than fund management, but if organizations like Nest can offer no penalties on entry and exit and funds that include the diversifying strategies you talk of, workplace pensions become an attractive alternative for the wealthy. The FCA continue to push advisers to get their clients to consider workplace pensions as a benchmark, I can understand why advisers are nervous – this kind of competition is good news.

There are no easy answers and QE has distorted conventional risk measures in ways we cannot yet understand, so we do not really know what relative risks in capital markets are. The Capital Asset Pricing Model relies on the underlying risk-free rate being ‘risk-free’, but central banks have interfered with this now, so I would argue there are no risk-free assets and concepts of ‘high risk’ and ‘low risk’ are less reliable than ever before.

This argument is new to me but I can see where you are coming from. Of course much advice is given on the basis of a client’s “risk appetite” and the assumption is that “risk” is measured against cash as a risk-free rate. If you are suggesting  that this assumption needs to be revisited, what do you see the new “risk free rate” as being based on? Do you think that “risk free” is a misnomer? I like Leonard Cohen’s view in his anthem 

“There is a crack in everything, that’s how the light gets in”

Once again, an argument for diversification across assets. But certainly not a case for paying extortionate fees.

I am very happy with your conclusion. I don’t understand why the price to access private markets should be set at such a premium. It is up to those who demand high prices to justify their value and it’s up to those who pay them to exercise their right not to.

The “new bargain” may include concessions on both sides. DC funds cannot demand daily pricing and force liquidity. Private managers must find a way to price their services at rates acceptable to trustees, regulators and the law. This discussion is helpful to me and I hope it is helpful to people who read this blog. If you have comments to make and would like to join in the conversation, please post them. We are all learning and the new bargain is still a long way from being settled.

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Fair shares from the state pension


In her recent article on the state pension in the FT, Sarah O’Connor reminds us

“In the UK in 1917, King George V sent 24 congratulatory telegrams to citizens who had reached their 100th birthday. By the mid-1980s there were about 3,000 centenarians. In 2019, there were more than 13,000.”


But what if longevity isn’t rising for everyone? Data from England, which predate the coronavirus pandemic, show a nascent but troubling development.

While life expectancy has continued to rise in rich neighbourhoods and in the poor parts of affluent regions like London, it had started to fall since 2010 in the most deprived areas of poor regions like the North East

Should the state pension be underwritten?

Is it fair that we increase the state pension at the same rate for everyone? Should where you live determine when you get your pension.  Should the state pension like most purchased annuities, be underwritten?

These are ideas which are being openly discussed in the columns of the FT .  Baroness Ros Altmann, a former pensions minister, has called for an urgent rethink of the system, with new flexibility so that struggling groups can access their state pension early.

John Ralfe, an independent pension consultant, argues the system is fair already because more affluent workers pay more tax.

“The people with the highest likelihood of reaching 103 are the people who are paying in the most anyway.”

Since the publication of this blog, Ros Altmann has commented on more fundamental issues (for the full comment, scroll below this blog).

Latest ONS figures show the shocking reality that the least well-off women have healthy life expectancy little beyond age 50, whereas in the best-off groups women’s healthy life expectancy lasts till their early 70s.

That is fundamental (and similar disparities apply to men too, but this fact may explain the tendency of policymakers to assume that raising State Pension Age close to age 70 is a reasonable option.

On the basis of these ONS stats and the vast differential in private pension coverage (again with women worst off, as well as many women losing out in State Pensions too), it seems clear to me that a flexible band of starting age is much fairer than the current system.

At the moment, if you are healthy and wealthy enough to wait longer to start the pension, you can get more, but if you are not healthy or wealthy in your early 60s you get not a penny! Even if you have 40 or more years of NI contributions.

The argument that the current system is ‘fair’ does not stand up to scrutiny. Firstly, higher earners pay far less National Insurance as a percentage of salary because of the cut-off of the upper earnings limits.

Secondly, higher earners can receive more State Pension by delaying the start date. Thirdly, higher earners have much more chance to build up other pensions.

I believe it is vital to reconsider the idea that raising State Pension Age is a reasonable response to rising ‘average’ life expectancy. The vast differentials in both healthy life expectancy and average longevity, as well as the fact that 35 years is not a full working life for most people, suggests room for meaningful reforms.

I was disappointed that the recent review ruled out using a flexible band of pension ages that allows for ill-health and very long working life. Flexibiilty should work both ways, not just for the better off!

These arguments stretch beyond financial economics and even social equality. There are arguments that there is little labor for laborers  in their late sixties , partly because those who toil with their hands , lose physical capacity earlier and partly because they don’t want to work until they drop.

Al Rush is currently running  a poll on this aspect of the debate, responses have been sufficient to make it meaningful

According to a large official survey of European workers, 72 per cent of high-skilled white-collar workers said they could do their current job at age 60, but only 44 per cent of lower-skilled manual workers. And that was all before the pandemic hit. It is likely the virus will worsen the health divide between rich and poor.

Although we still have a lot to learn about its long-term effects, we know that deprived communities had the highest infection rates, and that many of those admitted to hospital are struggling to make a full recovery

Those who rail against the cash stripping and high drawdown rates reported by the FCA in their retirement income market studies , should consider that many who have what are deemed “small pots”, see the proceeds of retirement saving as a windfall and as a bridging payment till the onset of the state pension.

Should small pots be used to bridge to the onset of the state pension?

A 55 year old today with a retirement pot of £30,000 has 12 years to wait for their state pension but could reasonably expect to pay themselves £250 per month from their retirement account without too much fear that the account would run dry at 67. I mention these figures as they approximate what’s in the pot for the average person by the time they get to 55. But of course the number is wrong for the poorest in society because so much employment has not been pensionable – especially if someone has been out of work, in self-employment or in work before auto-enrolment staged. The situation is particularly grim for women.

The grim truth is that there is rarely enough in the savings pot to reduce the burden of work, which brings into sharp perspective both the poverty of private pensions for the poorest and the value of the state pension, when it finally arrives.

Should there be early retirement options for the state pension?

This is where there are questions about the fairness of increasing the state pension age at the same pace for everyone.  A number of other countries have already opted to give pension benefits early to some groups. Portugal, France and Germany allow penalty-free early retirement for people who started work young and have had long working lives. Last year, Denmark decided to allow 61 -year-olds to retire one to three years earlier if they had spent more than 42 years in the labor market (which can include periods of unemployment).

I think there is an argument for allowing those who have most need of the state pension early – to have access to it early – with generous early retirement factors that recognize that the state will subsidize where it sees hardship. But this introduces an element of means-testing into the state pension which will be controversial. Whether the means testing is on medical grounds -(impaired annuity underwriting) , or linked to financial circumstances (becoming part of universal credit),  there is a strong argument for offering those in their sixties an early retirement option – based on need.

Fair shares for the state pension

There is no argument for offering people in good health with sound finances this option. People like me need to recognize we must work longer than we set out to do, or save a lot harder than we used to do or simply trim our expectations for retirement income.

My readers tend to be  the lucky ones who will benefit most from the state pension being a “wage for life”. We  should be innovating so that those with reduced means and impaired health get a just state pension.


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It’s not just what you save, it’s the way you invest it – that’s what gets results

Bananarama  and the Funboy Three do not figure on my Spotify playlists , they supplied us with some annoying earworms and the inspiration for this blog but  ‘Tain’t What You Do (It’s the Way That You Do It) is a song written by jazz musicians Melvin “Sy” Oliver and James “Trummy” Young. It was first recorded in 1937 by Jimmie Lunceford, Harry James, and Ella Fitzgerald and here it is

I’m going to remind readers – boringly. that the majority of your pension pots at retirement aren’t down to your savings, but your investments

The financial services are keen to promote saving because without it there wouldn’t be a financial services industry and it annoys me that most of the measurement of how good a pension system we have, is measured by organizations who’s primary measure is the level of mandated savings in the system.

The chart above shows the impact of contributions on the pot in red, a core level of growth in grey, a 1% boost from getting to average investment performance in yellow and a further boost of 1% which is about the best you can hope for, being outperformance of 1% against the average. All these results are taken from our proprietary data set and I’d be happy to share this and other charts with any of you.

In an excellent article, which I hope to publish on this blog shortly, Robin Powell explains that despite being ranked 4th in the world by dint of its $2tr mandated savings pot, Australia has work to do

..there is a broad consensus that the system could be improved by increasing transparency, lowering costs, reducing tax concessions for the well-off and having a legislated goal for super.

From July 1, 2021, new reforms will be introduced aimed at improving the efficiency of the system, reducing fees and holding super funds to account for underperformance.

There are also steps being taken to get wealthy Australians to spend their pots , many of which roll up as reservoirs of capital , feeding the financial services industry but doing little for the economy and sucking tax revenues from poor to rich (sound familiar?).

The Australians are waking up to some alarming realities, the retirement savings industry is neither socially just or economically advantageous, it is becoming otiose. While this realization sinks in, the plan to increase Super’s mandated contribution increase from 9.5 to 12% over the first five years of the decade has been put on hold. $30bn in rents is being extracted by financial services companies from the existing pots, enough it seems is enough.

Putting something back

One Australian reaction to the pandemic was to release wealth from younger people’s pension pots to provide emergency cash. This has been much criticized in the UK as it is can be seen as a  tax on  the future prosperity of the young rather than relief from general taxation.

Playing hardball with the young goes hand in hand with playing hardball with the planet and Australia lags other OECD countries, especially Britain, in the use of its retirement funds to drive positive change on climate issues.

I do not want to over-egg this pudding, but the Australian retirement savings system seems to be focused entirely on wealth preservation. It looks from here, that the economic miracle of Super is stifling wage growth and driving inter-generational inequality to a much greater degree of other – less highly rated pension systems – the UK’s especially.

Having spent much of the last 25 years being lectured by David Harris esq. ,I think now is the time to hoist the union jack up and make a few claims for what us limeys are doing right.

The way we invest it

Britain has embraced ESG like no other country. We can look forward to COPS 26 in November with impending pride. We will by then be reporting , using TCFD on our pension funds, we will have launched a Government backed special purpose vehicle to allow our savings to access private markets and we will be close to launching our first collective scheme that will see over 160,000 savers get pensions not pension pots at retirement.

We are increasingly investing for social good and the social purpose of our investments will be a proper wage in retirement for millions who have saved, not because they have to, but because they chose to. Rather than a mandatory savings system, we have a voluntary system with a not too generous safety net for those who choose to opt-out.

The Government has improved the investment of our pensions by making positive interventions that have kept the right balance between  innovation and  regulation. The charge cap and bans on active member discounts and consultancy charging have had a large part to play in limiting excesses in workplace pensions. The reporting of hidden costs and charges in Chair report have made for greater transparency and reduced bad practice. Now moves to drive consolidation, especially among occupational schemes, is creating the economies of scale enjoyed in Australia by Super Funds.

Government policy appears in many ways, ahead of Australia as does industry practice. Indeed we have so turned round our pension saving system since the Pension Commission reported  in 2004/5 that we are well on the way to restoring public confidence in pensions in the UK.

We are saving better and investing better and we should be back among the best pension systems in the world. Currently we rank only 14th. but I would put a “PP” against that place, Britain is once again going in the right direction. It’s not just what you save, it’s the way that you invest it.


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Pensions without purpose have gone wrong

I read two articles this morning on the sustainability of pensions, both are short and are free to read. If you have a few minutes read Richard Butcher’ “The future is… consolidation?” in Pension Expert and then read  “Social factors must be at the heart of pension schemes’ ESG strategy”, by Guy Opperman and Nimco Ali in City AM

Despite its chummy style, Richard’s article paints a brutal picture of scheme eat scheme consolidation where the winners will be commercial master trusts that can a) win the most business pitches and b) best engage members. Success is defined in terms of marketing.

Opperman and Ali adopt a diametrically opposed position, arguing that pension schemes

need to adopt investment strategies which deliver long-term value, by considering the risks and opportunities relating to supply chains and communities, employees and business models, local economies and landscapes. Success is defined in terms of social impact.

This is not a strictly fair comparison but for Richard Butcher – as a professional trustee – to argue in an FT publication that

Admin is a hygiene factor: get it right and no one notices, get it wrong and you are in trouble. Same, in a sense, with investment (leaving aside style preferences) and governance.

Shows how far apart policy and commercial practice have become. As with any polarization, reality lies somewhere in between. In writing together with one of Britain’s leading campaigners against violence to females, the Pension Minister is positioning himself in a very particular way which may be considered marketing. In writing an article that only mentions member interests tangentially, the Chair of the PLSA is positioning himself as the devil’s advocate.

Nevertheless, both Opperman and Butcher see consolidation in radically different terms, for Opperman consolidation is about improving member outcomes through undiluted ESG, for Butcher it is a commercial necessity. Many reading this that Butcher’s position is the more honest, but for me it is a misrepresentation of pensions – pensions without purpose have gone wrong.

Pensions and social purpose

Opperman and Ali argue that

While their money is often invested in familiar businesses, those businesses may make decisions and undertake activities that put people’s pension savings at risk. Pensions have huge repercussions for a healthy and stable society.

The article goes on to link causes that most of us would call “just” with the investment strategies that pension schemes could adopt

…economic justice for women – particularly in the economically developing world – is one of the biggest opportunities we have for unleashing a new wave of growth, while simultaneously reducing violence and discrimination against women and girls such as female genital mutilation (FGM) and sexual violence.

The Home Office’s call for evidence on violence against women has just closed but recent events have shown that this is front and center in the minds of almost all women and most men. Any pension scheme that can show that through the way it invests, it has reduced the risks of women being violated, has a higher chance of engaging with members (one of the two differentiators Richard Butcher claims can make master trusts “winners”).

Butcher’s argument is that engagement is about helping member to help themselves to better income in retirement and  Ali and Opperman argue that misogyny in business practice is bad business and devalues investments. It presents a risk to people’s retirement incomes which can be mitigated through properly managing the S in ESG.

Investment – to Ali and Opperman – is more than a hygiene factor in the value delivered by pensions and here I think there is a fundamental difference in the views of the two articles. For Opperman and Ali, pensions without purpose have gone wrong.

Is there evidence of a bridge between social idealism and commercial practice?

I think there is. The success of Pension Bee suggests that organizations that clearly demonstrate their social purpose by the way they organize and promote their investments can be commercially successful. Its  recent announcement that it intends to float on the London Stock Exchange, confounds conventional views that financial organizations can only be valued against Ebitda.

Smart Pensions has recently confounded me by investing nearly 10% of its default fund in an expensive illiquid fund that provides credit to parts of the world economy other investors will not touch. Nest has recently partnered with Octopus to improve the carbon footprint of the energy business. Cushon has focused its value proposition around the impact of its investments by declaring itself carbon neutral from inception.

The capacity of these organizations to stand on their own too feet and not be consolidated is largely due to their taking big commercial bets on social purpose. These bets could in the short term reduce profitability but I don’t see the shareholders of Pension Bee, Smart or Cushon objecting.

Pensions without purpose have gone wrong; pensions with purpose could be “winners” , unlikely as this may seem to some.

If you feel strongly about these issues – why not let your feelings be known. The Government’s Call for Evidence will help increase our collective understanding of what is being done here and around the globe, and what more we can do, to ensure both the risks and opportunities presented by social factors are adequately considered by pension schemes.

You can contribute to the call for evidence via this link



An answer to John Ralfe



If we believe in protecting ourselves we should believe in protecting our society and thus investing responsibly.

“Nel mezzo del cammin di nostra vita
Mi ritrovai per una selva oscura
Che la diritta via era smarita”.   Dante
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The Chancellor’s listening – are you? (a shouty blog)

I’m certainly going to be on this call and listening to both the Chancellor and the special guests

When it comes to talking pensions , it looks like Pension Bee are more likely to get the Chancellor’s ear than the usual suspects. No wonder the stock market is valuing what is still called a “start up” at £350m.

Sunak will be talking with the CEOs of Plaid, who hook financial institutions up via APIs, Plural AI who help us take better decisions by getting us better data, Hopin who provide digital platforms for conferences and 20 Minute VC , that gives Fintechs a voice to get funding.

You may not have heard of these organizations, I have not heard of some of them but they are the stuff of the future and that’s why I’ll be tuning into the call this pm.

So what’s the agenda?

APIs first!

If you don’t know what this is about, don’t walk away, listen! I’d have expected to see Pension Dashboard as a heading, it isn’t – I think I know why. The Pensions dashboard cannot happen without a digital strategy which makes pension data “smart data” and that means opening up pensions as the CMA opened up banking.

That means organizations like Plaid and Yappily, working with the big 12 pension providers to ensure that most of our data is available on an app to app basis, so that firms like Pension Bee, AgeWage and many other Pentechs can deliver information in real time. Putting the information people need to value their pensions is not hard , nor is it hard to imagine people using that information in constructive ways. The counterfactual is that people don’t get the data, don’t get it translated into meaningful information and don’t have the chance to take the necessary steps to sort their later life finances

To think that the pension industry is too important to listen to the arguments of Pension Bee, Plaid, Plural AI and Coadec is delusional!

This is no stunt!

Is Rishi Sunak playing a PR game? I don’t think you need to play PR games when you are the Chancellor facing the kind of problems he is.

Is the London Stock Exchange being bamboozled by Pension Bee? I don’t think you get a full listing on the back of a strong social media offering.

What is going on , behind the backs of the pension establishment is a revolution in financial technology, in digital communication and in the way the market values companies. It’s about responding to change – big and lasting change brought about by the climate, by our leaving the EC and by the jolt of the pandemic.

Sunak understands that these changes and the challenges they bring, are best met through innovation. Painful as it is for us to change, we must. We mustn’t miss out.

Pensions mustn’t miss out!

There is a very real chance that in focusing on our local issues, the UK pension industry misses the great surge in innovation happening everywhere else. I got a few emails yesterday from friends complaining that I wasn’t criticizing Pension Bee for an unrealistic valuation.

It is true that Pension Bee makes a loss and will probably make more of a loss as it invests more for the future. To those who quote Ebitda , I respond Ebitladeedah! The rewards of innovation are far distant – as are the rewards of a pension. If you don’t think that the innovation that Pension Bee, can deliver lasting benefits over time , perhaps you should be on this call. I urge you to come into the Clubhouse at 4.30pm this day – Thursday 25th March!

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Auto-enrolment’s difficult second album

When auto-enrolment started I, naively as it turns out, hoped that small employers would be excited enough by the chance to choose a workplace pension, to consider what made for a good scheme and download a report that told them why they’d made the choice they did.

Pension PlayPen did produce such reports and the methodology behind the report was signed off by a firm of actuaries who stood behind the research. In total we produced more than 7,000 of these reports and I hope that employers have kept them in their digital pension file to explain to staff why they are saving into the scheme they are.

But for most of the 1.1m employers that staged auto-enrolment, the default button was “choose Nest”, followed by “People’s” and “Now Pensions”. Many employers , new to workplace pensions, did not take a decision based on member outcomes, their primary concern was support so that they could remain compliant with auto-enrolment regulations.

But things have moved on and workplace pensions are now being asked to show how they will deliver more value for the saver’s money. A quick look at this simple chart shows that the main way that a pot builds in the early years of saving is through the red box (contributions) , but over time investment returns increasingly determine the size of the pot. This chart shows how , even where investments underperform (the grey box) , investment returns overtake contributions in the build up of the pot. If investment returns are in line with the average of all other savers, people get the additional build up of the yellow box and  if people can get a higher return of just 1% more than average, their pot builds with the addition of the blue box. The message is simple, improving member outcomes is all about improving long term returns.

Put another way, members and employers control the red box, trustees determine the rest.

Of course there are people who want to determine their own strategies and trustees must ensure they have the tools to do so, or make it clear why this isn’t allowed. At present only NOW pensions doesn’t allow self-selection.

In July we will have been auto-enrolling for  9 years. Many DC savers were saving before their employer staged auto-enrolment. For many people, their pot is now filling up faster from investment returns than from contributions.

The jewel in the auto-enrolment crown is that almost everyone who is auto-saving  is auto-investing into default funds that are growing at a tremendous rate (and have been for many decades). The chart above shows how people’s pots have actually grown over the past 30 years , net of average costs and charges but with average performance on an average contribution.

By comparison, an investment in a cash ISA would be filling the pot up at a trickle.

The difficult second album

The Government (in the shape of the DWP but with Treasury support) is embarking on launching what Guy Opperman calls auto-enrolment (2.0). Much of the noise is about increasing contributions for the self-employed, the young and those on low incomes.

But the much more radical agenda is Government’s interventions in the investment of workplace pensions , which are subtle but could be very important. Get it right and people will be getting the blue box, get it right and you’ll be stuck in the grey-zone of the chart above.

There are infact two interventions, the first is what woodsmen call “coppicing”, where Government is planning to cut out deadwood to leave the strong trees in the forest to grow stronger. This will be done by small scheme trustees voluntarily winding up their work and handing their assets to bigger schemes capable of managing money with an eye to the blue box.

This is a fraught process as many of the saplings in the wood have every chance of growing to strong trees, we don’t want to see innovative and courageous schemes being uprooted. We need to work out where the deadwood is and that means testing a few trunks.

But if Government gets it right and the coppicing speeds ahead, then we will find much fewer trees but trees that can grow to full strength delivering timber and lumber for many years ahead.

Excuse the mixed metaphor, but I think Government is going about this the right way and that in getting increased scale into our workplace pensions, it is creating an opportunity for DC schemes to make the kind of difference to people’s pots that means they are in the blue and not the grey. But to get to that point, things will be difficult and there needs to be collective resolve among people in pensions to accept that the long-term good outweighs the short-term advantage of immediate profit.


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The politics behind extending auto-enrolment

Yesterday the TUC conference discussed widening the scope of auto-enrolment to include the self-employed, the youngest workers and those on low incomes within the financial net of auto-enrolment.

Yesterday UBER finally admitted that it controlled its workers to a degree that , amongst other things, it would be establishing a workplace pension for them.

The two events are connected of course for , without pressure from unions, UBER’s drivers would not have the rights conferred on them yesterday. Some may call the GMB’s victory a restriction of trade (including some UBER drivers) but for those of us who consider workplace pensions a benefit, UBER’s change of position is welcome as is the trade union’s part in it.

But the big questions on pension inclusion remain to be answered, not least whether the 2017 proposals have the support of the Treasury. The success of auto-enrolment came at a price to the public purse, requiring huge increases in tax relief granted to the newly enrolled , increases that were not anticipated against opt-out forecasts from the DWP that happily proved too pessimistic.

But the 2017 reforms would take levels of tax-relief to new heights. Even if it fixed the net-pay problem, HMRC’s system of tax relief rewards the wealthy and does little to encourage those previously financially excluded. Moving to a system where those on high earnings only received tax-relief at basic rates or the more draconian system where tax relief was granted on the pension not the contribution (TEE), would free up the money needed to pay for auto-enrolment (2.0) – the DWP’s formulation.

I don’t think that we have a radically redistributive Government and I don’t think that we have a Chancellor who wishes to prioritize redistribution within pensions so I remain concerned about where the money to pay for the extension of auto-enrolment is going to come from.

But the debate at the TUC conference did at least show a consensus among those on Jo Cumbo’s panel that unions do see the financial inclusion of those not fully eligible for auto-enrolment as a priority. It would be good to see pressure coming from other parts of the Labour movement to support the DWP as the current timetable for roll-out of the 2017 proposals (mid decade) could well mean that they do not appear within the lifespan of this Government (which ends in 2024).

If we are serious about extending Auto Enrolment to properly cover excluded groups like low earners, the self employed and the young, then pressure needs to be put on the Treasury to show it is willing to pay the bill.

Right now there appear to be a lot of good intentions but precious little to show for them… and that goes for sorting out the net-pay anomaly too!

I should have mentioned that today’s session at the TUC is on CDC and I hope that this point will be raised there. You can book tickets for each day here https://www.eventbrite.co.uk/e/tuc-pensions-conference-fair-pensions-for-all-tickets-141667161293 It’s free but tickets do get sold out

Check out Derek Benstead’s comment
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Is now the union’s time?

Yesterday was the  first of the TUC’s pension conference and in a single session, the conference debated “investing in a just transition to a low carbon economy”. Guy Opperman spoke and was well received by Chair Paul Novak and by the 150 odd delegates who were noticeably easier about his agenda in the chat rooms than they had been openly on his previous visits to Congress House.

Opperman spoke of his work to “free up” the opportunity to invest the long-term capital sitting in workplace pensions in the just transition. He sounded and looked more at home in this environment than last week when he was urging those who managed the money to do better. Strangely for a Conservative politician, his position on the planet, on financial inclusion and social purpose seemed more at home in this environment than at the PLSA investment conference.

This was a deeply serious discussion grounded in the context of a pandemic now a year old and of lockdown – but a few days from it’s anniversary. The TUC has clearly found a place for itself in this “just transition” and the debate had none of the tub-thumping razzmatazz I associate with some of their conferences. This was more in line with the dignity of the movement my father and grandfather talked to me about. Their grounding in west country Methodism linked their Liberalism to the social agenda of the Labour Party. With a Conservative Government , a Liberal party that has lost its way and a Labour movement in deep shock,  can we turn to the Unions again for leadership?

There is certainly an agenda for change. Over the next few days, the conference will be debating

  • Extending workplace pensions coverage to those workers currently excluded
  • Ensuring more workers can benefit from collective pension schemes
  • Rethinking the balance between state and workplace pensions to tackle poverty and inequality in old age

Fair pensions for all

“Pensions” are not just a minority sport – tax wrappers for the wealthy. They make the difference between a financial future in later age of state and family dependency and  financial independence and dignity.

The TUC’s agenda is spot on and I am looking forward to attending these sessions , even though they clash with the equine investment conference in Gloucestershire.

The pandemic has accelerated parts of the economy that we once thought marginal, our towns and cities buzz with electric bikes and scooters delivering us meals from restaurants that have been thrown a lifeline by the gig economy. The Unions have fought and won rights for the Uber drivers and they can do more. Workplace pensions need to be included as a right for those doing  these important jobs. If you have an FT subscription you can read here about the fate of migrant workers trapped on British farms since Brexit, the unions need to include all groups whether urban or rural, no-one’s life or livelihood is more special than another’s,

We can vote at 18 but young workers have to wait till they are 22 to be enrolled (though they have and usually miss out on) the right to an employer contribution before then. Many are excluded from auto-enrolment because they do not earn enough and many who earn enough find much of their pay is not pensioned. Many who earn under £12,500 are denied the promised Government incentive to save because they find themselves in the wrong kind of scheme. The Unions can and I hope will, champion the reforms promised in the 2017 auto-enrolment review and due to be delivered in the time of this parliament.

Having played such a pivotal part in opening CDC to large employers, the Unions should now recognize the role of the commercial master trusts in spreading the coverage of the CDC concept. While single employer DC schemes work out how to consolidate themselves into multi-employer schemes and the contract based workplace pensions struggle to introduce investment pathways, it is these master trusts that offer the best hope of ensuring more workers enjoy pensions as well as pension pots.

Finally the Unions need to be clear about their position on redistribution of the nation’s wealth through the state pension and through the tax system. The maintenance of the triple lock well into the third decade of the century is a great achievement for Britain but we still have a poor state safety net relative to other economically developed country.  We cannot go soft on the continued improvement of the state pension as it is the way to ensure dignity in retirement for everyone – and that means everyone.

As for tax, the agenda for change has never been more open. Post pandemic, all bets must be off. We cannot allow austerity 2.0 to mean those who use public services, lost public services while those who have wealth, keep it in tax privileged savings vehicles that contribute little at a great opportunity cost to the public purse. We do need proper reform of the pension taxation system to remove the huge inequality that means the vast majority of tax-relief benefits those who least need it.

We need fair pensions for all and judging by yesterday’s session, the TUC and its unions are in a position to help deliver them.

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The money behind annuities “matters” too!

Important research into how insurers are making the money behind annuities matter

We tend to forget that a very large amount of the money yet to be paid as pensions , is backed by funds held by insurers and that money is invested, not just in gilts but in a wide variety of income producing assets capable of meeting the promises made originally by pension schemes or by the insurers themselves, at the point when an annuity is sold.

Annuity specialist Retirement Line has started to research the annuity providers it uses to get its customers annuities.  I work with Mark Ormston to better understand what is going on and Mark has supplied me with a summary of Retirement Line’s research into the ESG initiatives within the life companies. This money matters every bit as much as the money accumulating in DC pensions (which do not invest in  annuities) and DB pensions (which sometimes buy-in annuities to reduce longevity risk)

This research is the first I have seen of its kind and I hope it will be picked up by firms monitoring the progress of insurers towards their climate goals. All too often, the high-profile flagship products, GPPs and Master Trusts get all the attention. We cannot let in house funds get left behind. Well done Retirement Line for kicking this off. Let’s hope they can use their distribution clout with insurers to drive positive change.

ESG investment considerations within annuities



Are working on pinning down by year-end some more succinct public messaging on this front, however, in the meantime, they have quite a lot out in the public domain already, eg particular asset deals where they have issued press releases (e.g. green trains, wind farms, sustainability-linked commercial mortgage loans), articles they have done in Pensions Age and the Sunday Times, their green asset investment commitment that they made in 2015 (which they met well ahead of time: they now have c. £6bn of green assets across Aviva) and their wider Aviva commitment to £10bn of UK infrastructure and real estate investment which was announced by Amanda Blanc our CEO recently.

In 2020:

Galloper wind farm

Aviva supported a UK renewable energy project with a £131m loan to finance offshore transmission assets for a wind farm off the Suffolk coast. Each year, the Galloper Offshore Wind Farm’s 56 turbines generate enough green electricity to power the equivalent of more than 380,000 British homes.


Big Yellow

Aviva lent £35m to support the Big Yellow self-storage company, including a