Whitbread – you must pay up on the Government’s pension promise

net pay anomaly whitbread.PNG

This blog calls on Whitbread to pay the incentive outstanding to many of their staff before the sale of Costa to Coca Cola. If Whitbread refuses to do so, the Pensions Regulator should block the sale. If Whitbread wants to claim back the money paid on behalf of HMRC – it should join the campaign to sort the net pay anomaly and do so on behalf of everyone who believes a pension promise is not for breaking.

Thanks to John Ralfe for bringing my attention to an article in today’s Sunday Times.

In case- like me – you don’t have a full subscription to the Times. I can explain. Quoting James Coney’s excellent article

The £3.9bn sale of Costa Coffee to Coca-Cola could hit baristas’ retirement savings.

The Pensions Regulator has been warned that thousands of low-paid staff at Costa owner Whitbread have lost out on hundreds of pounds in tax breaks because of the type of pension they are enrolled in.

Henry Tapper, a director of pension firm First Actuarial, believes that once Coca-Cola takes over Costa’s scheme, workers will have their losses locked in, leaving them unable to claim them back.

He believes the company and its pension trustees could face a class action by workers when they realise they have been deprived of tax breaks.

Tapper said: “At the moment, the cost of restitution for these workers is quite small. The regulator needs to intervene to ask Whitbread for a special contribution to plug the hole for its lowest-paid workers. It won’t take long for a top-quality lawyer to realise that they could put forward a class action to get compensation.”

When the Sunday Times writes an article, especially when its published in its business section, that article is read. The Sunday Times has more clout than Henry Tapper by some way! The article continues.

As part of the sale of Costa to Coca-Cola, the Pensions Regulator is monitoring what happens to the Whitbread defined-benefit scheme, which has a deficit of about £320m. Whitbread has pledged to use cash from the sale to reduce the black hole.

Defined-contribution schemes are usually waved through in takeovers because it is impossible for the funds to have a deficit. However, a problem has arisen with so-called net pay schemes, which deduct pension contributions before tax is deducted. With these, workers earning more than the auto-enrolment threshold of £10,000, but less than the £11,850 personal allowance, miss out on government tax relief top-ups because they do not pay income tax.

About 1.2m workers in the UK are thought to be affected by this loophole.

The Pensions Regulator said it provided assistance to companies to help them decide which pension to pick for employees. “It is for employers to choose a pension scheme that is suitable for their staff,” it said, “including giving consideration to tax relief.”

Whitbread said it could not comment on the Costa scheme after the sale to Coca-Cola, “as we are currently in a pensions consultation with those employees”.

There is nothing new in this story. If John had wanted to, he could have dismissed several blogs on here, most notably my blog on September 1st, Whitbread, treat your Baristas fairly

He could also have read my blog “Can a DC plan be in deficit“,  He could have read my earlier pieces on this which date back to July 2015 and specifically my piece on Whitbread’s net-pay issues which I wrote almost exactly three years ago.

The Pensions Regulator has read the blog, I have spoken with it about the blog, they have dismissed it. Which is why I am pleased that the Sunday Times has picked up on this matter.

Treating baristas fairly.

The cost to the pension pot of not getting the Government Incentive is around £34 this year, it goes up to £64 next year. Most baristas don’t know they’re being short-changed- why would they? I wonder if the pension consultation with staff concerned has picked up on this issue, I’ve never met a Costa employee who knew about it.

If you go to the Whitbread Pension website, the issue doesn’t appear as a frequently asked question. Whatever the search  term I used – I could find no mention of the issue.

tax relief 3tax relief 2

tax relief 1

Try it  yourself

Sadly Costa baristas don’t read my blog, but some of them read the Sunday Times and some of them have enough nouse to come together and demand they get the extra money paid into their pension accounts before it is too late. Costa can’t pay the money to their pensions if they are no longer in Costa’s employ.

Meanwhile, the Pensions Regulator – which has a statutory duty of care to protect the members of all pension schemes, whether the mighty Whitbread Defined Benefit plan or the humble Whitbread workplace pension – should take note.

It is not good enough to dismiss the “net pay scandal” as an anomaly. If short-changing baristas is swept under the table, the issue will reappear, as the GMP equalisation issue reappeared, several years down the line.

At a recent payroll conference, the Pensions Regulator tried to blame small employers with impacted staff, for choosing the wrong master trust. It is true that the Pensions Regulator’s website does give some guidance on this issue, but it is buried several screens deep on its website. Most employers – like most baristas- don’t have a clue there is an issue. I am pleased to say that the delegates- mainly payroll managers – were in no mood to be berated for choosing to join the wrong scheme. If tPR thinks it can divert the problem onto small employers and master trusts it should think again.

After all, the largest employer operating net pay schemes – and the employer with the biggest liability in Britain – is the UK Government.

Why action on Costa is needed now.

It is going to cost the pensions industry £15bn to sort out GMP equalisation, it will cost a whole lot more to sort out the “net pay anomaly” – unless something is done about it now.

Now is the time to do something about it. HMRC are doing something about the anomalies surrounding tax-relief for Scottish people with local income tax issues, they can do something about the net-pay anomaly now.

If they do, it will sort out the problems for those auto-enrolled into workplace pensions going forward. As for the problems of the past, for many – the damage has been done, it is very hard to see how those denied their incentives will be compensated through their pensions, this leaves companies vulnerable- as I say in my article – to class actions from impacted employees.

When there is a corporate event – and the sale of Costa by Whitbread to Coca Cola is a £3.9bn corporate event, then the problem crystallises. That is what is happening now.

Thankfully, the Sunday Times has picked up on my blog in time. Thankfully that is , for the Costa baristas, but – more importantly – for the 1.2m other low paid workers who are in net pay schemes and risk being short-changed.

These are people- to coin the phrase – “just getting by”. They are not the people who the pensions industry cares much about – as can be seen by John Ralfe’s comment. But collectively, they are powerful.

It is time that someone in pensions stuck up for the low paid and James Coney is doing that. He is aware that there are others. The Low Income Tax Reforms Group is another. You can read their solution to the net pay anomaly here. Now Pensions is another. There are many more campaigning for the poor including my friend Kate Upcraft and  the CIPP.

The PLSA are at last waking up to an issue that must be acutely embarrassing to them. Consultants are also embarrassed -we have heard virtually nothing from them on the anomaly thus far. In 2015 I warned them.

But I suspect  the tide is turning.

It only takes the Pensions Regulator to accept that the money owed to the low-paid auto-enrolled is real money.

It only takes HMRC to accept that the promise of 4+3+1 was made to everyone enrolled into workplace pensions – whether they paid tax or not. It only takes the Whitbread pension consultation to raise this issue with Whitbread with some hope of support from those who have a statutory objective to protect their pensions –

for things to change.

This blog calls on Whitbread to pay the incentive outstanding to many of their staff before the sale of Costa to Coca Cola. If Whitbread refuses to do so, the Pensions Regulator should block the sale. If Whitbread wants to claim back the money paid on behalf of HMRC – it should join the campaign to sort the net pay anomaly and do so on behalf of everyone who believes a pension promise is not for breaking.


Scottish tax relief

A reminder that HMRC can do it


Posted in auto-enrolment, Blogging, napf, Payroll, pensions, PLSA, Politics, Retirement, Ros Altmann | 2 Comments

Did I get “value for money” from my workplace pension

IGC review 2018 full

The IGCs and how they are doing.


Am I getting value for money from my workplace pension?

is a different question to

Did I get value for money from my workplace pension?

the difference is more than one of present and past tense.

The first question requires a subjective assessment of the processes, costs, charges and utility of the workplace pension in the eyes of the expert

The second question is a matter of fact and can be answered yes or no, with reference to a benchmark of “how others have done”.

Too early to say?

Since IGCs (and latterly trustees of DC workplace plans) have had to make a value for money statement, there has been too little time to amass sufficient data to assess whether people have indeed had value.

Of the major IGCs , only Prudential have decided to test value for money by looking at the outcomes people have actually had. The vast majority of IGCs have preferred to answer the question in the present – using some kind of balanced scorecard of the value offered to members and the money they have paid for it.

This methodology has been largely discredited by the general research carried out by NMG in 2016/17 which found that ordinary people really didn’t give a hoot for any of the attributes of a workplace pension other than its capacity to deliver results at the end of the day. This suggests that outcomes based value for money assessment knock qualitative assessments into a cocked hat.

We are now getting to a point where most workplace pensions have been auto-enrolling members for at least five years, the argument that we cannot measure outcomes because we have insufficient data is becoming weaker by the day.

Do they mean me?

Most people aren’t interested in general statements about value for money. That is why there is never any comment in the press along the lines of  “XYZ IGC Chair says XYZ has delivered value for money”. You might as well say that the sun rose this morning.

People are very interested when you tell them that based on their personal outcome , they got or didn’t get value for money from their workplace pension.

When we analysed my workplace pension – which I’ve had since 2012 – this is what we found.

agewage vfm

This told me that relative to an average experience,  I had scored 76/100. This number was not based on anything but the value of my pot against the money I had paid for it. It’s only comparator was the value I would have got , for the same contribution set, had I invested in a typical way.

I can tell myself that I had  value for money  and can remember that score of 76 which I can compare with other value for money scores from my other workplace pensions.

Do they mean me? You bet they do! This is my value for money score.

The challenge to workplace pension providers.

The question “did I get value for money” , begs a personalised answer. It is not answered by a generalised answer around whether I am getting value for money, it isn’t properly answered by a “people like you got value for money” answer. People actually want to know about themselves.

We ask people to engage with their workplace pensions, but if they ask a specific question about “how they’ve done’, we give them performance charts based on metrics that have nothing to do with them (and which are generally designed for experts).

If I submitted a subject access request to Legal and General this morning, they would give me all the information I needed to give myself an AgeWage score. I can download from my website my contribution history which shows all the money that went in and all the money taken out of my policy since I started giving money to them.

If every policyholder with a Legal and General Worksave Pension did the same, I suspect that it’s robust machinery would hold up. But the same might not be said of other workplace pension providers and certainly could not be said of older pension systems.

The challenge to workplace pension providers is that every one of their policyholders or members, could – at any time – ask for all the information that it holds on them in digital format.

Indeed an IGC or Trustee could make such a request on behalf of its policyholders or members.

While it is doubtful that the Data Protection Act would make a bulk request on behalf of members legally enforceable, the duties of a Trustee or IGC Chair include making a value for money declaration to all policyholders/members.

The fact is that we are not getting individual value for money assessments not because they can’t be done, but because right now, providers are unwilling to do the work. It could be added that the IGC/Trustee chairs have yet to have seen anyone prepared to help them get this information.

Assuming that we have landed on a methodology for doing the work, assuming that telling people how they’ve done is valuable to them and assuming the regulators see individual value for money scoring as valuable, then this expression of value for money looks likely to catch on.

If it isn’t adopted by IGCs and Trustees – it may mean individual subject access requests being made on an industrial scale. This is a challenge to workplace pension providers.

Making meaningful disclosures

These words are directed at those in fiduciary control of IGCs and DC Trustee Boards (especially master trusts and the larger single occupational schemes).

GDPR and in particular the Data Protection Act 2018, give your customers rights to see their data in a digitally readable format.

Elizabeth Denham, the information commissioner, wrote an article that make this very clear. The whole article can be read here.

Let me quote three statements;-

Organisations should know what they’ve got and where it is, what they’ve done and why. Staff must have time, resources and training for creating and filing records.’

‘Organisations also need to make sure they have the appropriate technologies going forward to ensure that digital information is properly managed in the future.

That means technologies that can help to organise and search existing digitally stored data, as well as helping with disposition. Skills in digital management of records must be stepped up to meet these needs.

Simply saying it was “too hard” or “too expensive” to provide this data will not be good enough, either for the Government or for the people.

If we are to make disclosures about value for money, then they need to be specific and outcomes based. That will mean providing benchmarked statements of value for money similar to the one I’ve pictured. Either these can be provided piecemeal through individually generated subject access requests or they can be provided wholesale, through trustees and IGCs.

I would ask you , as you lead up to your next round of statements, to consider the implications of GDPR on disclosures and ask yourselves where you stand in your duties to members to properly answer the question

“Am I getting value for money?”

but also – the more difficult question

“Did I get value for money from my workplace pension?”

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A day to remember #Armistice100

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It is 100 years since the Great War ended. It is a Sunday and my church will start the morning service 15 minutes only so we can stand in silence together and remember.

There is nothing good to remember about people dying in conflict. As Wilfred Owen put it, we remember

The pity of war, the pity war distilled

It is not just the Great War that ended 100 years ago today that we remember but we remember the sacrifice of all those who have died in conflict before and since, people who gave their lives for their country or were simply caught up in someone else’s war.

Today is also my birthday, I popped out of my mother’s tummy shortly after 11 am on the 11th November 1961. My father who helped in my delivery , reminded my mother that she did not respect the two minute silence.

I feel awkward linking my birthday with so awesome a collective memory as that we have today.

But I take some courage from knowing that I was one of the first children who grew up without war and without national service, without rationing, without the threat of invasion.

That we are now sufficiently confident of peace in Europe, that we can think of leaving the union , tells me that war is no longer an existential threat to people living in this country.

There are those in Yemen , Syria and many other places on the planet who cannot live this luxuriously.  That we do is in part –  because we remember. We are keeping our promise , mindful of the grim foreboding present in the phrase “lest we forget”.


This is the 57th time my birthday has been celebrated, it is a memorable day right now because of social media  as much as anything!

But today is about remembering the dead more than the living. My charmed life is built on the lasting peace that came out of the horrors of two great wars. For all our worries about global annihilation, we have not fired a nuclear weapon in anger since 1945.

This is a truly amazing thing. Proof of the inter-dependency of nation upon nation. Though we have and have had wars, we have learned that our capacity to work together out does our inclination to invade and subject.

Whether I will live to die a peaceful death remains to be seen, it is something devoutly to be wished for, it is what I will be praying for this morning.

I wish for myself and for others many more peaceful remembrance days.

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More fun and games in the crazy world of pension transfers

Prudence 5

It didn’t take long for the ripples from the Lloyds Bank GMP equalisation ruling  to reach the crazy land of pension transfers.  Within a few days of the Judge Morgan’s verdict we hear that thousands of people are having their pension transfers delayed while Trustees work out what to do (or in this case – what not to do).

First some thoughts on the reports in the Financial Times (thanks Jo Cumbo)

  1. No one has yet shown me a scenario where the ruling could decrease a transfer value. I stand to be corrected on this, but the issue for the trustees is not about “claw-back”.
  2. The sums involved where someone is due more pension due to the Lloyds ruling are small. We’ve estimated the maximum capital payment at around £3,000. In the context of an average CETV of £450,000, we are not talking major adjustments.
  3. Reports that the cash payment of  “trivial” pensions are also being stalled (e.g. those so small that they can just be paid out as cash) suggests some trustees are just putting out a  blanket ban on pay-outs.

Second- some more general thoughts on trustee behaviour in these cases.

It seems right that when faced with the consequences of something they don’t understand in the first place, that those in charge slam on the breaks.

Here’s glamorous Chantal Thompson of Baker and Mackenzie

 “We understand that one firm is saying that trustees should not proceed with transfers until benefits have been equalised, albeit that there is likely to be a considerable amount of work required to equalise all GMPs under a scheme,”

It’s not clear whether the “firm” is an actuarial consultant or a firm of lawyers, either way it appears to be influential.

I thought the job of the adviser – who seems to be behind this – was to help Trustees to understand the consequences of the ruling on their scheme. It should not be hard to work out that if a transfer payment is made and there’s more to come, then more can be paid to where the first lot of money went.

In which case, a simple message sent to anyone in midst of transfer saying

“we may want to pay you some more as a result of this Lloyds thing – do you want the original amount now or do you want to wait till we’ve sorted things out to get your transfer”.

When in doubt – do nowt?

No doubt the “advice” came with a risk warning that – should transfers not be halted – there was a risk to the trustees (and pass-on risk to the sponsor).

But there’s an equal and opposite risk in this, which is the risk of putting the backs up of the members you’re trying to serve.

If you ban transfers, even for a few weeks, there will be people who don’t get their transfers paid in the six months window of a transfer value, people who may have to re-start the transfer process at great expense to all concerned.

So doing nothing is not a risk-free action at all. It just smacks of ignorance-induced panic.

Common sense needs to be applied

The word “pragmatic” used to appear in First Actuarial’s promotion of itself; we’ve rather stopped using it in favour of “common sense” and other phrases like “common decency” and ever “treating our customers fairly”.

I really don’t think that people who are currently going through the quite traumatic process of taking a pension transfer, should be made to pay for the ignorance of trustees of the impact of the Lloyds Ruling on their scheme.

The risk of under payment is small and can be dealt with in a common sense way as I’ve indicated above.

As for insurers refusing to accept transfers paid without GMP’s being equalised, this is even harder to understand. Is the thought that accepting the bulk of money today with the balance to come, too hard for an insurer to administer? What is the risk to the receiving personal pension?

I know that some pretty smart people who work in pensions read this blog and perhaps someone might like to contact me to tell me why the system is grinding to a halt? Is it the actuarial equivalent of the wrong kind of snow, or is there something that I’ve missed.

While I can understand Trustees and Personal Pension Providers being cautious, surely the solution is to take advice rather than slam on the brakes!

What of transfers past?

We know that £36.8bn flew out the DB door last year, the vast majority of the money transferred contained an allowance for GMPs given up. We also know that the Lloyds ruling could cost occupational schemes a further £15bn in increased liabilities. What we don’t know is whether the liability for those who have taken transfers (and signed away all rights) , who should have had the “windfall” of GMP equalisation included in their payment.

Nor do we know if the bulk buy out of members (where members signed away nothing), lays the onus to equalise (and meet the equalisation cost) on the people who insured the buy-out or the people who paid for the insurance (the trustees). The same could be said for other consolidations.

I don’t see anyone holding up the payment of pensions in November till the impact of this question is fully absorbed. That could be the precedent for the payment of CETVs.

So I am in the camp of Charles Cowling of JLT when he tells the FT

 “Our current view is that we should continue paying transfer values on a ‘business as usual’ basis — recognising that top-ups may be necessary at a later date once GMP equalisation is sorted,”

We need to treat people fairly. If we do, many of the problems that beset advisers – whether personal or corporate, in terms of Professional Indemnity Insurance, simply go away.

Or to put it more succinctly

Morality and prudence need to work together , not compete.

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Posted in dc pensions, de-risking, pensions | Tagged , , | 1 Comment

First Actuarial celebrates its special day


First Actuarial

Once a year, everyone at First Actuarial comes together in one place to work and play for a day. This is the day.

Most of us choose where we want to work and if we don’t like it, we go and work somewhere else. I’ve been at First Actuarial nine years now and I’m not going anywhere.

It’s not done to advertise your company as a good place to work on a blog. But I feel like doing just that this morning. It’s very rare that a small company can have done so much in its fourteen years , it’s not done to boast about your company’s achievements – but though I own no share of First Actuarial, I feel that it is “my company” and one that I can be proud of.

Yesterday I spent an afternoon and an evening with Allianz , my colleague Derek Benstead and other friends of CDC. I credit the CDC consultation paper that arrived this week to the deal done between Royal Mail and CWU. Not to put too fine a point of it, Hilary Salt, my boss – was at the heart of that deal. First Actuarial are making a difference.

I spent some time with Mike (the Bazooka) Otsuka. First Actuarial advise the university unions and it was with their advice that  helped the USS stay open.  First Actuarial has been a key influencer in the debate over the future of USS and by extension many other defined benefit schemes.

Each month we publish our FAB Index, which tells a very different picture about the state of pension solvency than the doom-ridden analyses of many of our competitors. Many of the schemes we advise use a best estimates approach to scheme funding and though there is plenty of prudence built into our valuations, we have moved the dial for many trustees and employers who see the advantages of long-term investing over a flightpath to buy-out.

But we are pragmatic and when employers and trustees decide that they are looking to offload their pension obligations to an insurer, we help our clients to prepare for and execute the deal. While we have strong convictions, we are not dogmatic. Our pragmatism arises from those who founded the company, all knowing what it’s like to own and run their own business.

It is this entrepreneurial spirit which is what I value most about First Actuarial. It not only allows me to work with those who own the company on business decisions but allows those Founders to share in the entrepreneurial work I do with Pension PlayPen and now AgeWage.

My job at First Actuarial is to help develop its business. I am allowed to write my own job description and execute independently. From time to time that means that we are out of step – when this happens we have frank discussions which get quickly resolved and we move on.

I cannot think of any other professional practice that is so accommodating towards their employees as First Actuarial. It really is a pleasure to work for our Founders and with nearly 300 other souls who by and large – feel as I do.

This year, by dint of others merging, us doing what we do as usual and thanks to a fair number of new clients coming to us , we are listed among the top ten consultancies in the UK. That’s quite an achievement for a firm that started from scratch in 2004. Credit to the 9 Founders who started out and who still run the shop

Why I’m writing this….

I’m not paid to write this, I write this because today is our special day and I hope that as well as my regular readers, some of my colleagues who don’t normally read my blog, will read this.

I hope that you, whether you work for First Actuarial or another organisation – or yourself – or if you don’t work – find some inspiration from these few words. It really is a great pleasure to work for First Actuarial, I’d like to think that First Actuarial feel the same about me. Can you say the same?

If you can, then you should thank your lucky stars. If you can’t then either you should set about changing the way you work, and if you can’t do that – maybe you should think about where you work!

Working for the wrong company is soul destroying, if you can’t properly say your as proud of your employment as I am of mine – do something about it!

Hilary Salt

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

This week – we hope to be able to talk about the “benefit of pensions” again!

This is a blog about the economic utility of pension management. It’s written because the first thing that hit me this morning was this almost confessional comment from George Norval, Group Pensions Manager at Berensden.

Is the DB Pensions Manager a dying breed due to industry trends?

My average peer is 15-20 years my Senior… it seems that “Pensions Management” is becoming stagnant as Large Employers bet on “age” rather than what an individual bring to the table    .  “Age” aka years in the industry don’t always get the job done, if you always do what you always have done you will always get the same outcomes… passion, drive, a can do attitude, rolling up your sleeves at times, charisma and great relationships gets the job done…. is it time the Industry look past “age” and more about added value and the dynamic new blood can bring to even bigger PLC’s out there, so much talent out there get put on the back burner when they are the real movers and shakers (MORE than capable to manage large and complex Scheme very well) that will reinvigorate much needed energy into our Industry … the top end loop seem to have become stale … just my two pence worth; not a criticism …more so an observation… having worked for major corporations over my 20 year career I’ve “seen” most prob. more in my career than my Avg. Peer yet my “age profile” may not reference that … is it time for new perspective in our Industry?

I live with a Pensions Manager, who became Pension Director at what was then Britain’s largest pension scheme (BT)  when she was 32. I remember meeting her with her colleague who was 20 years her senior – but her subordinate. I made the double mistake of assuming he was the boss because he was older and male. I have not been allowed to forget that!

Stella joined BT in 1997. Would BT appoint a 32 year old woman with only a consultancy background today? I suspect not. Would a 32 year old consultant put herself forward for the job – very unlikely. The fact is that DB pension management has atrophied as DB pension schemes have atrophied. Take a look at this diagram

life cycle open

What happens when you close collective benefit schemes is that pension managers become risk managers rather than benefit managers; that’s because pensions are seen in terms of liability management and not of reward.

The economic utility of pension management is at a stage of the cycle that so devalues the role of a pensions management that no millennial but a supreme optimist, would want to do the job – with a hope of making a career out of it.

Hope for the pension minded!

Last Wednesday I had a drink with Jon Millidge, the Reward Director of Royal Mail. With him was RM’s DB pension manager, Douglas Hamilton. Speaking with them I heard the phrase “what’s happening at Royal Mail is bl**dy brilliant”. What they were referring to wasn’t the state of RM’s share price, challenging the existential threat of Amazon and the internet or even staying strike free. What was being referred to was the pension scheme.

For the first time in a decade, I hear a Reward Director refer to an open collective scheme as “brilliant”.

The enthusiasm with which Royal Mail’s senior management have taken to CDC is something to behold. They talk of it as a way of rewarding posties who have given there careers for relatively low wages but a decent wage in retirement. That equation seemed busted and the CWU and other unions were prepared to go on strike to keep it in place.

That Royal Mail and their 140,000+ workforce are looking at pensions positively says a lot – not just for its pensions management but its unions and for the far-sighted attitude that led to them challenging the conventional wisdom and re-establishing a collective pension scheme – albeit without guarantees.

This week – let’s hope they get their reward

This week is when we hope that the anticipated DWP consultation on CDC will get itself over the line. There have been many headwinds, many created by the pension industry concerned that CDC challenges their consensus.  That consensus has led to posts like the one I started this blog with.

The dynamic new blood will return to pensions when pensions return to doing what they say on the packet. A pension is a reward granted to someone out of a lifetime of earnings – some of which is re-allocated to a wage in retirement.

A pension is not a big pot of money which can be drawn down with absolute freedom. Good as a big pot of money is – it is not a pension!

Pensions management is just that, the allocation of capital to paying people a wage for life. I hope that on Tuesday November 6th, we will hear how the pensions industry moves from the “closed scheme problem” to a new bright future. If I didn’t believe that this could be the case, I wouldn’t have been a Friend of CDC all this time! Hopefully George and the many dynamic would-be pension managers that he talks of, will be rewarded by a pension option that focusses on benefits rather than risk.


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Why we will miss The Pensions Advisory Service!


TPAS – taking the “scary” out of pensions!

By the end of this year, the Pensions Advisory Service will be no more, subsumed into the Single Guidance Body. By the end of spring, their vibrant “third world” offices in Belgrave Road will be empty.

Whether the goodwill that TPAS has built up can be transferred to the new organisation is open to doubt. What Michelle Cracknell and her team have built up has been quite remarkable. The word of TPAS is authorative and personal, it’s guidance but instructive guidance that has led many of us down the right path. TPAS has resolved disputes and soothed the savaged brow of many a baffled saver, many a baffled pensioner too.

What I ask of Government

I have written before that bringing together a failing institution (the Money Advice Service) with a successful one (TPAS) should be a processing of levelling up. Instead we see a levelling down. In its initial vision , Simon Kirby – the former Treasury Minister and Richard Harrington the last (in every sense of the word) Pension Minister, laid out its task.

Back in 2016, when the plan for the SGB was announced, Simon Kirby, said:

We want to help people take charge of their finances, and make the financial decisions that are right for them. This new body will ensure that help is readily available for people who need to access debt advice, information on their pensions or guidance on other money matters.

And the (full) Minister for Pensions, Richard Harrington, said:

We want to ensure that everyone has access to high quality and impartial financial guidance, to help them make the most of their hard earned savings

This new single body will be a place people can go for free, impartial financial guidance, and I look forward to hearing people’s views on our proposals.

Specifically – as far as pensions are concerned this means “guidance and information on matters relating to occupational or personal pensions, accessing defined contribution pots, and planning for retirement”.

You can hear the painful discussions about these statements, the arguments over the semantics of “advice and guidance”. There are the nods to the consumer and our “hard earned savings” and a nod to IFA in “impartial financial guidance” but there really is nothing – nor has there been anything since – that suggests anything other than a re-arranging of the deckchairs on the Titanic.

The Titanic is the failed monolith at Holborn Circus, the Money Advice Service. The Government’s intention is to lash TPAS to the sinking wreck in the hope of salvage, the fear is that the bigger ship will drag TPAS down with it.

I cannot ask of Government that it reverses its decision, but I do ask of the new Chair and CEO of the Single Guidance Body, that they understand that TPAS worked and MAS didn’t. If they understand this, they will respect the work that TPAS does , the culture it has created and respect the vision TPAS had for expanding its work.

What I ask of the pension industry

Firstly I hope that the outgoing CEO of TPAS will be recognised as she leaves service at the end of the year. I don’t know what the going rate is for gongs, but now looks a good time to nominate her for any honours going. The benches of the House of Lords have been cruelly denuded of pension talent this year. We can but hope.

Secondly, I hope that we will learn from what TPAS has and is doing. It is necessarily constrained – both financially and in terms of its terms of reference. There is much that can be done commercially that TPAS couldn’t do, but what TPAS could do is to demonstrate that it  always acted in the public’s interest. The phrase “independent” really does apply to TPAS.

I see there scope for the work of TPAS to be taken forward with the help of technology so that much of what it does can be replaced by digital services. I suspect that this would have been the plan at TPAS had it been given time and money.

I also see scope for the private sector to push harder at the boundary between advice and guidance. Simon Kirby vowed we would have access to information on our pensions via a pensions dashboard around the time the SGB was announced

Two years on we are still nowhere near having a pensions dashboard. The likelihood of that happening when needed recedes by the day. For people do not even have a proper way to find their pensions, let alone work out how they’ve done and what they can do with them, is ludicrous.

Here’s how things have detoriated.

dashboard timeline


But instead of addressing the simple issue originally discussed the various bodies who have sat on the various working committees have connived to make such hard work of giving people what they want , that we are now bogged down in the most obscure of pension arguments.

Dashboard timeline 2

Thirdly,  I ask of the pensions industry is to stop making such hard work of it. Leave ordinary people alone so that they can see their savings pot in one place, work out if they’re any good and take action so they can spend the money as suits them.

I say the same of guidance, we need to cut through all the complexity and get back to the questions people really want answering – how much have I got, how’s it doing and what should I do with it.

We will miss the Pensions Advisory Service because it always kept its eye on the ball and – despite having the expertise to deal with the most common of issues – it was always able to help people toward answering those simple questions.

I mean….

Dashboard timeline 3

The answer to that question is – DON’T!


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

“Do we need a dashboard- or just a pension finding service?” – Pension PlayPen lunch – Monday 5th Nov


Expect fireworks at the Pension Play Pen lunch on Monday.

The derisory £5m budget dished out by the Treasury to fund the dashboard suggests we won’t get much more than a damp squib.


But maybe the Treasury are right! Maybe we don’t need a dashboard but just a way to find our pensions.

Maybe people need just enough to get them started – access to their state pension rights and a list of who’s got their workplace pension money, their private savings and their DB pension rights.

Maybe we’ve made such heavy weather of the dashboard that the world has moved on?

What do you think?

If you are interested in dashboards, financial awareness or just getting people good quality lives in retirement, you should come to next week’s (Monday 5th November) Pension Play Pen lunch.

Where and when?

The lunch will be in the Partners Room of the Counting House pub at 50 Cornhill London https://www.the-counting-house.com/

It’s 12 for 12.30 and everyone is welcome.

It costs around £15 a head – you can pay cash or by card or other payments, Receipts are available.

Hope to see you there!

counting house 5

The Counting House

Posted in Bankers, pensions | Tagged , , , , , | 4 Comments

Investment for beginners?

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Perhaps because I’m paying him to, my 20 year old is paying some attention to where his pension is being invested. I say “is”, but our first contribution to his workplace pension is awaiting his opt-in. Meanwhile he’s asking – so what’s happening to my money once I sign up?

To answer this question I pointed him to NEST’s Fund factsheets. Although the lad’s been to university, he remarked that following  this link was “scary”.

Despite the non-intimidating invitation (above) a NEST factsheet is not likely to make much sense to more than a handful of NEST’s 7,000,000 members.

Here for instance is NEST CIO explaining what’s been going on in the last quarter.

fawcettThisis not the stuff of everyday reading. What are “strong fundamentals”, what’s a “monetary policy tightening cycle” . What does “normalise interest rates” mean. This is not a commentary designed to be read by NEST members, it is aimed directly at people like Mark Fawcett who do factsheets for a living.

The impression that a 20 year old gets when reading this stuff is “get the f*ck off my land”.

Ownership of the “investment piece” is definitely not in the hands of the beneficiary but the investor and Mark’s language makes it clear that it’s him and his chums who will be talking with each other.

Factsheets are universally written like this, to use the awful word , stray readers are being “normalised” to the language of the experts.

How green is my pension?

The DC funds of NEST and (as announced yesterday WTW’s master-trust “Lifesight”, are increasingly invested in a responsible way with an eye to environmental, social and governance best practice. We might well asked why we have to include the word “increasingly”, but that’s because they are the exception not the rule.

Despite lots of noise, L&G have still not adopted its own Future World fund into its default. Despite having been CIO at B&CE and  People’s Pension for well over a year, the People’s Pension default shows no sign of green.

fawcett 2.PNGNEST’s recent announcement that it is going to increasingly “go green” in its investment strategy, translates into this statement in Mark Fawcett’s commentary.

This is great for finding out what Mark’s team are up to , but it is totally disconnected from the member’s purchasing experience. If my son wants to purchase fund management from NEST, should he be investing in the NEST commodities fund -if so – how does he do that? Or is that fund part of the foundation or accumulation phase of the NEST default. Or is it part of the NEST Ethical Fund? There are no answers to these questions in the Commentary and (short of phoning the NEST investment team up and asking) I know no way of finding this information out.

It is only when my son scrolls down the PDF to the individual fund fact sheets themselves, that he gets any answer to the question “where is my fund invested”. Each fund factsheet lists (as it has to do), the top holdings of the fund. The small print tells you that these holdings are “equities” and that 40% of the fund is invested in other assets such as “dynamic risk management” – whatever that is!

Apple, Amazon and other household names are on the list but there’s no comment on what makes them any more or less ethical, nothing here that a 20 year old engaged investor can get his teeth into.

Once again, there is a sense that this factsheet has been written for other investment professionals, the 7,000,000 ordinary members of NEST should “get off their f*cking land”.

Which is a shame, because Fawcett is getting it right with his fund management, NEST is producing the goods – year after year and has already got a magnificent story to tell.

We are (almost) all “beginners”.

Turn on your phone and go to its app store, you won’t find a NEST app that will tell you what you are invested in if you are in the default. There is no signposting to investors who might want to explore ways to get their money more responsibly invested. There’s no information or links that helps people understand the complicated terms in the factsheets (Sordino ratio” anyone). The assumption is that you either are in the club or need to go away and get your CFA exams).

But life and investment aren’t and shouldn’t be like that.

A very large proportion of NEST investors (possibly a majority according to recent Ignition House research) , do not know that they are invested. They know nothing more about how NEST their money is managed than how their bank deposits are managed.

They assume that their workplace pension should be invested responsibly and are shocked when they hear that it might not be!

People are used to be quoted interest rates when they give money to other people, they get that giving other people money means that you should get back more than you put in. The idea of investing and taking risk for more reward is totally new to many if not most of the 10m new savers who are – like my son – joining workplace pensions.

We are almost all beginners, but when we try to find out about what is happening to our money, we are treated as expert investors!

Surely there is space in the market for an organisation to take all the guff out of these investment commentaries and explain what is going on to people in a way they can understand. If the Government and its own pension can’t do this, then we need sane and sensible experts like Romi Samova to do it for them.

People like my 20 year old son will soon become disillusioned by the journey they are taking to answer the question “where is my money invested”. They want straight answers to a straight question and they find the investment commentaries, the factsheets and the ivory towers of those who write them, a big turn-off.

99% of people in NEST – don’t stray from the default. I would suggest that 99% of that 99% have never found out anything about where their money is invested – even if they looked.

Reading NEST’s investment commentaries makes me more determined than ever to help ordinary people get to know their workplace pensions.

I don’t need to be an investment expert to do that – and it wouldn’t help if I was!




Posted in accountants, actuaries, advice gap, NEST, pensions | Tagged , , , | 6 Comments

At work and after – how independent do we want to be?

This seems to me very sound. Jo Cumbo rightly reports the gender pension  gap in retirement while Jo Grady concludes that pensions reflect pay and the pay gap is lifelong.

It’s not as simple as all that – as Andrew Warwick-Thompson points out
AWT 6 But it’s still pretty simple….! Women are dependent on men for equal lifestyles. The question in my mind is whether that is a satisfactory state of affairs.

The State Pension should be a leveller.

The idea of a first pillar state pension – the Old Age Pension as some of us still call it, is that it pays a minimum wage to everyone and it’s based on citizenship. You get it if you are the CEO of a FTSE 100 company, you get it if you’ve been out of work all your life. You should get the same as a man or a woman.

Having spent a few days dancing on the head of a pin over GMP equalisation, I am all too aware that fairness is a very imprecise concept. To be “totally fair” is a very costly business (as companies will find out when the GMP equalisation bill hits the mat).

WASPI is not about fairness, but about promises and what was understood by them. Even if the WASPI women got all they desired , the fundamental inequalities between women and men’s retirement income would remain. For though the idea of a first pillar pension is based on a flat pension for all, in practice it still has elements of earnings related pensions within it and many women chose to opt-out of some pension accrual because – as woman – they could.

The State Pension should be a leveller, going forward it will be, but the inequalities of the past cannot be simplified, either in GMP or in the State Pension.

Society’s debt to those who do not earn

The problem with money is that it only rewards certain forms of economic activity. We cannot earn money for bringing up children or caring for our parents or for doing voluntary work – that’s because these endeavours are not rewarded with a wage.

The state pension is supposed to reward these endeavours by giving people credit for paid work they did not do while doing other unpaid things. And of course it provides a safety net for those who were unable to find paid work and ended up without much endeavour at all. Strictly speaking people who opted out of work on a voluntary basis should not be rewarded by a single state pension but we let that inequality through as we do many others, that’s a societal thing.

In place of self-sufficiency, society has created a concept of limited dependency. Women are expected to be dependent on men to a degree as part of the life-long commitment of marriage. Marriage’s break down and divorce settlements are supposed to replace dependency with a financial payment to recreate self-sufficiency for both parties. The State Pension is supposed to do that to.dependent 2

Self sufficiency or limited dependency?

So long as we do not reward mothers for mothering and carers for caring, we accept the concept of limited dependency. Far more women are dependent on men than the other way round. Increasingly women will be dependent on women – especially where gay relationships include children.

There is a lag between the changes in which we choose to live our lives and the change in the compensation between one group and another. That is because the concept of limited dependency lives on within structures like pensions even after other areas of society have moved to self-sufficiency.

Much of the vehement argument about inequality needs to be understood in the context of this lag.

I am a little old-fashioned in believing, as a man, that I have a responsibility to those who have dependency on me. I own  that I have both a social and personal responsibility for my family’s welfare. Socially, were I not to meet my commitments , I would be deemed irresponsible; personally, were I to let loved ones down by not meeting my financial promises, I would feel guilt and a lack of self-worth.

I know many women who have assumed exactly the same responsibilities, now being the main bread-winners in the family.

But there is still a lag in the gender pay gap and so long as we don’t reward motherhood and caring, then I suspect that there will continue to be a pension gap too – not least because all private pension provision is earnings related.

So we go forward with a system that accepts inequality in terms of pay and rations on the basis of personal and social responsibility to make sure those who are not supported by direct wage in retirement, get that support in other ways.

The  question is whether this fudged way of doing things is acceptable, or whether we seek to equalise in a more fundamental way. This is the question for all gender pay discussions but it is a question for pensions too.

It’s one I currently have no answer to. I may be groping towards a terms of reference to think about it more clearly. I’m pretty sure, it will take a longer lifetime than mine before this issues finds resolution.


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The Treasury could make muppets of us all!


With something like 50m as a target customer base, the Treasury’s announcement that they will be allocating £5m to the Pensions Dashboard , suggests it is worth around 10p per tax-payer next year. My maths might be deficient , we might hypothecate 20p from each tax-payer but the grant to the DWP is still meaningless.

All we can read from Phillip Hammond’s statement is that the Treasury still wants a dashboard but that they don’t see an argument for paying for it. This is a long way from where we started back in 2016 and shows the folly of cutting the dashboard from its umbilical – the source of its funding. The Treasury no longer owns it, the Treasury no longer funds it.

And of course we are no longer talking of the Pension Dashboard in anything other than conceptual terms. Whatever is built will be multiple and people will be able to see their pensions in a number of different ways. This was the original conception and was part of a wider Treasury strategy to increase digital innovation in the private sector. The move towards Open Pensions is being resisted by a small cadre of pension providers who wish for the dashboard to be centralised and Government controlled. I find it extraordinary that this is considered a good idea.

Infact I’m quite encouraged by the Treasury’s position on this. If Phil Hammond can entice the mouse our of the skirting board for £5m of crumbly cheese, then the mouse will have to scavenge and compete in the kitchen. A big lump of money would be gorged like a big chunk of Gouda, the mouse would be fat before we got a dashboard.

So get on with it DWP, listen to what the paymaster is saying, there is a will for the dashboard to happen but no money for it – the money and the scavenging must happen within the pensions industry.

Talking of which, I’m busy raising money for AgeWage and know very well how asking for it , focusses the mind on what the value proposition is. My focus with my start-up has to be 100% on the consumer – without a product the consumer uses, all financial justifications fall away.

What is critical is that we understand what the dashboard will be used for and what it can hope to achieve. The Government has plenty of data on what the problem is, TPAS, the Money Advice Service and Pension Wise have been keeping records of the thousands of conversations we are having , explaining where we feel ourselves in need of help, guidance and advice.

I’ve had the chance to discuss this data with those who nobly work in these organisations, because social media lets me. This data drives my understanding of what the dashboard can do and should deliver.

Currently we are stuck. We have multiple pots and no idea what value we are getting from or what we are paying for them.

A dashboard should not just find these pots but allow us to interrogate them for the secrets within the fund values. We should be able to know the internal rate of return of each pot, how much we’ve paid for that return and how much value for that money we’ve had.agewage vfm

If we know what we have, know how it’s done for us, we can then perhaps move on to the trickier question of how to organise our money to spend it.

We are the Treasury’s muppets – and they hope we stay that way



Ah – but that’s the thing neither  the Treasury or the providers really need us thinking about!

Providers want and need us to hang on to our pension savings so that they can extract  the last penny of value from us – before either we or our pots run out.

The Treasury is spending 10-20p on each of us, in the hope of our spending our money as suits the Treasury, as fast and as stupidly as possible

The Office for Budget Responsibility’s fiscal outlook, published alongside Monday’s Budget, reveals a significant upgrade in the estimate pension freedoms tax take for 2018/19.

Page 113 of the OBR report  says the Treasury will net an extra £400million in tax as a result of people paying tax on their retirement withdrawals.

Based on the Spring Budget 2017 costings– which factored in a tax take of £900million in 2018/19 – this suggests a near 50% increase in revenue raised from the policy this year to £1.3billion, taking the total tax generated by the policy to £5.5billion.

We are as a nation, spending our savings like muppets. Perhaps this is the secret message of that £5m grant to the DWP and to providers.

“If you want your customers spending their pension pots on propping up Government finances, then sit on your hands.

If you want people to get value for their pensions money, give them the tools to cease their muppetry!

The Treasury has neatly outsourced the pension dashboard – the trouble is that the way we are going – our problem is its fiscal solution.




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

“GMP equalisation” – will the geeks inherit the earth?

admin 1

Every geek must have a tee-shirt

Few pension experts expect GMP equalisation to change people’s lives.

The Daily Express’ headline “Millions of women to share pension windfall” is plain wrong. GMP equalisation can benefit men as well as women. The Express, reckon 8,000 out of 235,000 pensioners will get a “windfall of £3,000 over their retirement, an amount worth around £10 pm. This is unlikely to be considered a “windfall” – even to the “lucky” 3%.

Ironically, the bulk of corporate costs of GMP equalisation aren’t likely to benefit the member at all.

Buried in the detail of the 250-page judgement is one important determination. The judgement determines that testing cannot be done on a blanket basis, using an actuarial formulation (known now as standard actuarial equivalence or “D1” model). This will come as a blow to many schemes (for whom D1 would have been a lot more attractive) and particularly to schemes that have outsourced the management of pensioners to third parties through buy-outs and buy-ins.

It will also come as a blow to actuarial practices that do not have administrative capabilities. LCP’s Pensions Partner Richard Mills commented on http://www.henrytapper.com

“At LCP we are strong advocates of helping clients to run their DB schemes as efficiently as possible. We are giving serious thought to the alternative actuarial equivalence method (D2) for clients who regard ease of administration as a key objective”.

D2’s been around since PA93 but virtually unused. D2 does away with GMPs altogether but it can involve people receiving less pension to begin with, unless the DWP help out with some easements. D2 looks hard for members, trustees and employers (who could be taking on some onerous responsibility for future increases).

It looks the A, B and C methodologies are going to be the choices with C the likely favourite. We could call this as an “amount” based rather than a “value” based benefit. It will be conducted by administrators (on an annual basis) rather than actuaries (on a one and done basis)

The judgment’s greater cost to schemes will be from re-engineering administrative software and testing each member annually. My estimates of “testing” start at £25 per person per year (based on administrators having to keep another two records).

The implications of moving to administrative testing will be particularly daunting to schemes that are buying out pensioners or buying in insurance. On buy-outs it looks likely that fiduciaries and employers will have to look to the legal indemnities they’ve provided insurers. As for buy-ins, the onus to pay for GMP equalisation are likely to revert to the scheme, even if impacted members are paid for by an insurer.

So, the longer-term impact of the LBG Judgment may be a boost for pensions administration. This may well change the balance of power within many pension consultancies where administration has been commoditised at the expense of higher margin activities such as investment consultancy and actuarial driven services.

This could be an unexpected benefit of the judgment. Pension administration systems have been slow to adopt the new technologies associated with the blockchain and smart ledger technology is rarely seen. If the costs of GMP equalisation testing are considered unsustainable, expect to see investment in less manually intensive processing.

Pension administrators will likely prefer to see machines learn the processes of GMP testing. Especially if this frees them to work directly with members to help them understand and manage their pension benefits.

While it is too early to predict the pace of change, the LBG judgment is certain to catalyse a long overdue investment in pension administration towards straight though processing.

The phrase “in administration” has connotations of failure. But solving problems such as the annual “equalisation testing” is a challenge that many pension administrators will relish. One administration manager I spoke with yesterday had a simple reaction to the challenge –

“Bring it on!”

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Pension admin humour Pt2

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Young people thinking about money


I’ve been asked to pontificate on how we should make pensions relevant for the young, in 750 words. My audience won’t be young and nor am I. In every sense of the word, this is a paternalistic project. If I’m not careful it will not just be paternalistic but patronising. The two words have the same Latin root (Pater=father), it’s generally considered that “patronising” is the condescending version of paternalism.

My immediate reaction is to hand the whole thing to my son, who at 20, has joined me and is researching engagement as part of AgeWage.  He’s already put me and my colleagues in our place when we have assumed how he wants information on retirement saving presented to him.agewage vfm

There is no way that people like me can get inside the head of someone less than half my age. The question is whether we can find a way of talking about later life savings at all.

I’ve written before about Iona Bain’s project NextGen – which is about promoting and encouraging the next generation in the pensions industry. Iona’s blog is required reading for anyone trying to understand how young people process information.

If people like me are to have a part in making pensions relevant to people like Iona, or indeed my son, we are going to have to empower them to write the articles, not be written to.

Sadly – the power is with my generation and the commissioning editor is asking for me – not my son- because that is the way things get done.

Next GenWhat Iona is doing, and doing well, is taking control of the message away from people like me and speaking for her generation directly..

It’s quite obvious to me, from everything that I see on my son’s phone, that the messaging for people under 30 needs to be radically different to get any impact.

What seems less clear is why what works for a 25 year old – should not equally work for a 55 year old.

In other words, shouldn’t we be putting the design of the messaging in the hands of people under 30 and let them get on with it? This may sound a little risky from a compliance point of view, but if the outcome of a compliant pension system is the exclusion of many people through poorly presented information, then perhaps there’s a bigger risk elsewhere!

“Young people are idealistic and have less barriers to save – discuss!”

One of the great surprises of auto-enrolment is that opt-out levels are so low for millennials and so high for people closest to retirement. The barriers to saving for people my age appear higher than for the impecunious twenty- some things struggling with debt, housing costs and starter-wages.

Is this because young people are so apathetic, they don’t know that they’re saving?

Or is it that they are sufficiently idealistic that they can embrace the concept of locking up money for thirty years for the future good?.

Intuitively, I say it’s the latter, though it’s been a long-time since my twenties.

Certainly the feedback from the millennials who are transferring pots to Pension Bee is that if they can save into a pension that makes sense to them, invest in funds that satisfy their idea of responsible investing and be looked after by bee-keepers who look and sound a bit like them, they will make positive decisions and transfer their pension monies to Romi Samova and her team.

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So maybe I should be spending some time talking to Romi and some time with Iona and my son, before submitting any copy.

And maybe I need to forget about telling people how to talk to young people, and let young people talk for themselves. Perhaps that’s the dividing line between being paternal and being patronising.



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Financial Economics = Scorched Earth

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John Kiff rolled his tank onto my lawn this morning.


Well he can roll it off again and take his flamethrowers with him. For in the long march back from Moscow, Kiff, Ralfe & Co are doing their best to make sure that collective pensions aren’t just suffocated, but that they never return to haunt our boardrooms again.

In the mixed up world of Financial Economics, the fact that this summer people didn’t die very often, is seen as “bad news all round”.

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If you want to read the good news that so many of us are still alive, you can do so here.

How has it come to this?

It was not so long ago that pension funds wanted employers to pay dividends, it provided them with the cash-flow to pay pensions. Thanks to financial economists, the use of equities by pension funds is frowned upon. The Pensions Regulator can castigate employers who pay their shareholders dividends because most pension funds don’t rely on dividends anymore – they don’t own any equities anymore and that’s because of FE “scorched earth”.

The flamethrowers spouting fire from the FE tanks are now being trained on CDC, which (for them) is showing alarming signs of reviving collective pension provision. Even thought CDC provides no more risk to the corporate balanced sheet than Group Personal Pensions, Stakeholder Pensions and DC master-trusts, CDC is seen by financial economists as bad news.

In the context of John Ralfe’s observation that people living longer is “bad news all round” , you can understand why FE is so skewed against any form of  pension provision not underwritten by risk free assets. The philosophy behind Financial Economics is entirely divorced from the concept of “human well-being”.

This is why it is so entirely inappropriate to be applied to pensions, because pensions are paid to people to help them enjoy the second halves of their lives. Pensions ironically help us live longer. I know this because when I was told by Nurse Rebecca that I had the body of a man six years older than my age, I legged it to the gym!

By comparison, the best thing someone who is drawing down from a capital reservoir built up in an individual DC plan is “die”. It is especially good – if you are a financial economist – to die before you get to 75. That’s because your pension pot can transfer to your next of kin as tax-efficiently as possible.

This is what I mean by “scorched earth” thinking.


The genius of John Ralfebot – whoever he or she really is – is to recognise that it is Financial Economics that has turned John Ralfe into the twitter monster he declares himself. I am quite sure that the real John Ralfe is a carefree , cricket loving, moor tramping cove – who I could happily spend a day with.

But put him in FE mode and he and Ralfebot become inseparable, Ralfebot really is John’s Doppelganger, what Yeats called his “anti-self”. Ralfebot is the ultimate expression of Financial Economics. He is all about FE

Human values will reassert themselves

The de-huminisation of pensions, as advocated by Financial Economists, fulfilled by the FE scorched earth – will not last for ever.

Common sense will prevail. People will start celebrating us living longer – fake deficits will be revealed for what they are – pension funds will return to investing in patient capital and not in short-term debt.

In the meantime, we can have a bit of fun at the Financial Economist’s expense. They really are very silly indeed!


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GMP equalisation – what a waste of time and money

waste of moneyI’m too close to the Lloyds Banking Group two year legal case against its trustees to venture opinion on the rights or wrongs of the legal decision. I simply hope that the judgement turns out to be the least worst option.

But of the business of requiring GMP equalisation I have this to say

“What a waste of time and money”

Or as Ros Altmann puts it

Contrary to press reports, the bonanza of extra pension payments will not happen, around three quarters of the 235,000 Lloyds Banking Group DB members will not receive any more from the judgement than they had before. Only a tiny number will benefit from a meaningful increase in their pension  (measured at above £5 pm).

It is not the members who are getting a bonanza payment, though some schemes will – purely by quirks in scheme design, be more effected than others.

Nor is it actuaries who will benefit from GMP equalisation. The judgement suggests that the actuarial equivalence method (D1), that everyone uses today, cannot be used going forward – in buy-outs and buy-ins, meaning that many trustees on buy-ins will be back on the hook and many buy-outs will be revisited for the legal indemnities provided by trustees to the buy-out merchants , where the law hardens,

In theory it will be administrators who will benefit from all this, as they will be required to do the testing , member by member. Since the impact of GMP equalisation is so complex, there are no hard and fast rules that can be applied so we are looking at the building of complex administrative machinery and a lot of manual processing (unless someone applies a block chain type solution – which seems highly unlikely).

The unfortunate conclusion we have to draw from yesterday’s ruling in the High Court is that there are unlikely to be any winners from this, just an awful lot of deckchairs moved from one side of the Titanic to the other.

Chelsea fans can liken GMP equalisation to the Winston Bogarde of benefits.

winston bogarde 2.jpg

Bogarde – 3 years on the bench without a game

That we should be attending to deckchairs when there are more fundamental problems with a sinking ship – is very sad indeed. But I suspect that it is the necessary consequence of a wider legal system which is attempting to equalise the states of gender that have been with us a few millennia!

I am not going down that road!

So what in practice will this mean?

First things first, pension fund administrators will have to adopt new processes and that will require investment in automation or a lot of manual work.

The estimates I have seen suggest that quite apart from the initial investment in technology to adapt systems (a multi million project for each software supplier), the extra cost of administration will be around £25 per person a year. This is a straw that may well break a few camels.

You cannot just wish away this cost as it appears to be there whether you outsource the pension problem to a third party or keep it in house. Buy-out costs will inevitably increase as those administering the buy-out – include the cost of the extra administrative burden. Past buy-outs may well be revisited and trustees who thought their job was done , may have to be woken from their slumbers.

What in practice, GMP equalisation will mean is that a few people will find themselves the random beneficiaries of a little extra pension for the rest of their lives. No one will get less pension – unless the extra cost of providing pensions breaks the camels back and schemes fall into the PPF. I think it unlikely that schemes will fall into the PPF because of GMP equalisation , but I suspect that when the post-mortems are done – the attribution of misery will include the ongoing bills for GMP equalisation.

The extra cost of benefits will impact corporate balance sheets, albeit marginally and it will be another reason that pensions will be hated in the boardroom, amongst professional shareholders and it will be another disincentive for investment in companies with large DB workforces (or at least a heritage workforce of deferred pensioners).

I can see no joy in the advent of GMP equalisation.

I am sure that the Lloyds judgement will result in a deluge of legal and actuarial briefings over the next few weeks, seminars will be arranged, canapes will be enjoyed, wine will be drunk as people bemoan the fate of their pension schemes.

Those who are winners will be informed and they will be non-plussed by the tiny windfall that they receive. Those who get no windfall may feel aggrieved , in a beggar my neighbour way – though this unlikely to be water-cooler stuff as most people who will get a windfall with have left the company.

The admin software suppliers will be kept busy as will administrators. I guess there is a kind of job security about being a pension administrator  (the pension lawyers will see to that). But it is a joyless task, to be checking GMP equivalence for the rest of your career – it is a colossal waste of administrators time – time that could be better spent.

There will be a lot of non-compliance and the Pensions Regulator will have another duty to enforce. Exactly how all this will be audited is yet to become clear but no doubt there will be whistle-blowing to be done – with all the conflicts that involve.

If I am painting a picture of unremitting misery, it is quite intentional. When it comes to GMP equalisation I have said it once and I will say it again

What a waste of time and money!

waste of money 2

Exactly that

Posted in advice gap, pensions | Tagged , , , , | 8 Comments

Pre-budget apprehension

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There is nothing like the threat of losing a tax-break to get people to value it. The Annual Allowance is under threat, so the Money Purchase Allowance, there are some still worried about higher rate tax-relief on contributions.

In my little world, raising money for AgeWage’s SEIS has seen a flurry of pre-budget interest from SEIS investors. The rules for higher rate tax payers look very generous. So I’ll be donning my bicycle clips and collecting applications from distressed millionaires this morning!

The behavioural aspects of budgets are always the same. A long build up with the Treasury planting rumours in the hope that they can test the waters of public opinion, the build up in the morning as the tension builds to a climax in the morning before. Then there’s the speech in which high level platitudes are delivered – insults returned. Finally there is the real hard work when experts read through the detail and opine on the consequences in budget newsletters, many of which will be out the same evening as the speech.

If you think about it, it is one of those little rituals of British public life that allows everyone – for a few hours – to engage about money – principally – their money.

Gone of course are the days of a penny on the pint and a shilling on a pack of fags. Duties are dwarfed by the impact of Brexit. We are now trying to balance the books against a world could be upon us in less than six months. We are living in a world of anticipation, fear and exhilaration. No one will get the Brexit that they want!

The budget can only position the ship to sail into the eye of the storm in hope that it will have re-emerged this time next year in reasonable shape. I think this calls for the nautical cliché, “battening down the hatches”.

Today’s budget is about tomorrow’s Brexit, but it must also be about our financial futures whatever our relationship with Europe.

It would be a sad waste if the Chancellor did nothing on pensions. I mean that the Chancellor ignored the “net-pay” pensions problem. I mean too that the Chancellor did not return to the tax- inequalities of the pension system which is fast becoming a “wrapper for the wealthy”.

Aligning the tax-incentives of pensions to the public good is long-overdue. Right now they are aligned to the good of the wealth management industry which is showing little signs of reciprocity. The wealthy are not giving back to the state, choosing to invest in ways that suit the wealthy not the ordinary person. Pensions are no longer a means of keeping middle England out of dependency on the public purse but a leg up for the aspirational mass-affluent and a hand-out to those at the top of the wealth ladder.

It really is time the Chancellor recommitted to a root and branch reform of the taxation of pensions to make pension saving a mass market activity whose incentives are enjoyed by all equally.

My pre-budget apprehension is not about the curtailment of allowances to the wealthy, but about the less- wealthy’ s incentive predicament being ignored again.

My worry is that auto-enrolment will in time be discredited by our failure to deal with the “net-pay anomaly”, my worry is about millions who are saving for their future who will not get pensions at all. My final apprehension is that millions who reach the stage of winding down from work in the next decade will find the process of converting pot to pension just too hard.

“Battening down the hatches” applies to the pension freedoms too




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“No dash in dashboard!” (Paul Lewis)

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I’m not sure about the provenance of his info (the link is broken) but Paul doesn’t tweet without good reason. This is important.

Thanks to FT Adviser’s pension guru,  Maria Espadihna, I can give you the proper link which confirms what Paul was reporting – the state pension is not certain to be part of the dashboard project – as considered in the upcoming (Sic) DWP feasibility report.

The tweet hints at something I’ve been thinking for some time; that the pensions dashboard is going to be no such thing – it’s going to be a “retirement savings” dashboard.

If you can exclude the state pension , you can let off the occupational DB schemes including the tax-payer sponsored schemes – the LGPS and the unfunded pension schemes.

Let’s face it , knowing what you are getting from these schemes isn’t hard, it’s a defined benefit!

Unless you decide to cut and run, taking a transfer where you can, your defined benefit pension doesn’t need a dashboard, it just needs a link – which is what the Government Gateway is. Nice as it sounds to have pensions alongside pension pots, there’s a counter argument to say that it’s thoroughly confusing. A pension pot is nothing to do with a pension – unless you decide to annuitize it – by purchasing an annuity or exchanging it for rights in a DB scheme.

So – heresy as it is to say it – I’m not that fussed if the Government keeps the state pension, its other unfunded pensions and even funded DB pensions “off-dashboard”.

Infact , I suspect that in doing so , it might put the dash back into the dashboard!

Not just a dashboard – we need a steering wheel!

I’ve said it before and I mean it. People have three fundamental concerns about their retirement savings

  1. What have I got?
  2. How has it done?
  3. What should I do?

Nobody should have too much difficulty finding a DB pension – there’s a flipping link on the DWP website that helps you do it. It isn’t hard. Here it is

But finding out what you’ve got and getting it on a single “dashboard” screen is a lot trickier, you can pay Experian to search their orphan asset register, you can rummage through your bottom drawer or you can play pension detective yourself. But it is a tough job tracking down all the bits and bobs, especially as most of the companies you worked for have by now changed names or merged, the same can be said for the insurers and third party administrators that looked after their pension arrangements. As for personal pensions – you need to be an archivist to work out who owns what!

So we need a dashboard pension finder service.

We also need some way of working out what our retirement savings have actually done for us. I say this because everyone I know who gets a pension statement with a fund value on it, asks the same question – “have I done alright?”. It’s human nature, you have given people your money for a number of years and you want to know whether you got lucky, picked a winner, got value for the money you gave them!

And finally we need to know where to go with all this money, we need the steering wheel to drive our swag off into retirement with a plan that ensures that our car doesn’t run out of petrol but takes us to some nice destinations.

Frankly this is quite enough of a headache for most of us without having to wonder about “pensions” !  Pensions are something altogether different, they are the wage in retirement things we used to get from work – or still do if we work in the public sector.

People are quite up to differentiating between what they get as a pension, and what they get as retirement saving. Some will even want to top up their pension by converting retirement savings to income for life (see above) , but the dashboard is really about the money we’ve already saved.

The dashboard cannot in itself be a holistic financial planning tool

I am sorry to dash the hopes of financial planners country-wide, but the chance of getting a single view holistic dashboard from which people can plan their financial futures is pretty well zero.  Frankly the inclusion of the State Pension (and other DB) on the dashboard is a nice to have at best or a confusion at worse. I am not upset at the prospect of the state pension not appearing on my dashboard, I am quite capable of factoring it into my financial planning so long as I can find out what it gives me and when.

Take the State Pension out and give me the tools to find my pension , see how its done and work out how to spend my money – and I’m done! Give me a dashboard and a steering wheel!

Now get on with it!

We’re supposed to have this dashboard up and running next year. Fat chance at this rate of progress. This great report due out from the DWP in March is already 7 months late and it doesn’t show any signs of appearing any time soon.

The DWP bit off more than it could chew, got bamboozled by the ABI with all kinds of nonsense about compulsion and a single state delivery mechanism and is now having to walk carefully away from those promises.

The DWP should be explicit about what it can and cannot do (with the emphasis on the latter) and now let the private sector do for pensions what they did for banking (e.g. open them up!).

Enough fannying around and leaking of this and that through the trade press. Guy and Esther should publish and be damned! In my view they will be damned a lot less, for being brave, honest and accepting that what we need is a retirement savings dashboard and a proper portal to our pensions!

agewage vfm


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Transparency isn’t tactical! Thoughts on day 2 at PLSA.


The Pension Dashboard was under discussion again at the PLSA conference in Liverpool.

I am not clear from Opperman’ s words what has held up the publication of the DWP report on its feasibility , but that report is still not with us and it was due in March.

In the meantime , the messages get more and more obscure. Here is the ABI on the need for compulsory data

Yvonne Braun of the ABI says schemes need to be compelled to share their data with the Pension Dashboard. Earlier today, the Pension Minister did not commit to compulsion. #engagement pic.twitter.com/oGFfo3iF8q

and here is the same ABI spokesperson saying that they don’t

Yvonne Braun of the ABI doesn’t believe that small pension schemes should be compelled to hand over data to the Pensions Dashboard.

— Josephine Cumbo (@JosephineCumbo) October 18, 2018

What people have a right to, under the Data Protection Act 2018, is the data that a third party has on you – and people have a right to it in machine readable format.

Which kind of trumps any special pleading from the ABI. The fact is we have a right to the information and people (like Alan Chaplin) are already testing that right and getting the information – in reasonable time.

What the dashboard does is to act an aggregator and an agent. As an aggregator it brings together data from a number of sources; as an agent – it acts for an individual at an individual’s request.

What the Government needs to do is to confer on organisations setting up a Pensions Dashboard, the power to act as an agent and the facility to make numerous data requests from a single request from an individual.

All that the Government needs to do is to address these questions. They do not need to build a dashboard, they need to make sure a dashboard works.

Transparency isn’t tactical

In a week when we learned from the PPI that £20bn is unclaimed by people with pensions assets, we also learn that we may be getting a new kind of pension statement.

single statement clear.PNG

Its simpler , clearer and more real but it is incomplete. It is incomplete because it doesn’t have the costs of the plan on the statement, you have to go somewhere else (see bottom para) and no doubt by the time you’ve waded through AlliedWidgetpenson.co.uk/costs you’ll be sufficiently bamboozled you wish you’d never bothered.

I am told that the reason we can’t be told how much our pension cost us last year, is because of the ABI, the same ABI who want everything compulsory on the dashboard unless it’s too hard for a scheme to produce.

As with the Dashboard, the plan for the Single Statement is to give people an idea of what they’ll get in the future (point 3 at the top – in green). The ABI are very keen for us to know that we won’t have as much as we need and keen for the statement to solicit greater saving. Savings are good for the ABI – they make money on savings – that’s the point.

What neither the dashboard or the illustration are very good at – is giving us an idea of how we can have this money back – the spending. In fact – when you flip the statement to the back page, you don’t get much help on spending at all.

single statement clear 2.PNG

I’m concerned about that £752 pm. In particular I worry about this statement

When you turn your Pension Plan into an income, you don’t take a lump sum, you want the same amount of money each month, and you don’t want an income for anyone else after you die”

This is not what people want at all! They want a lump sum (tax-free), they want a wage for life that keeps its value despite inflation and they want to look after their loved one.

The £752pm looks a dodgy number to me, cooked up to keep everyone smiley – but easily sussed as a “wrong-un” by savvy punters. It’s the kind of number that brings illustrations into disrepute!

While I love the simplicity of language, the only thing that I am left with is the message that I can save more into the plan. The back page feels like an ABI sales aid- not a pension illustration.

I remain hopeful

Like my friend Andy Agethangelou, I am frustrated and optimistic. I’m frustrated at the slow pace of change but optimistic that change will happen.

The ABI seem to be standing in the way of change at every step, they are the one constant.

Those like Ruston Smith and Quietroom, who produced the statement, are to be applauded – they must be pretty frustrated too.

Guy Opperman sounds pretty frustrated, but like me and Andy, he sounds hopeful too!

Transparency isn’t tactical – you either are transparent or you aren’t.

Transparency isn’t a marketing tool , to be deployed as suits an organisation

Transparency is a state of mind – AKA – honesty and integrity.

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Don’t pander to pension populism! Zurich big-wig hits out at “freedoms”

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“I have no time for populism” , was the astonishing rebuttal of top Zurich Insurance shrink Stefan Kroepfl. Kroepfl, who is global head of life business analysis – is no lightweight, nor was the discussion that ensued at this Dutch pensions conference.

Kroepfl went on to passionately endorse the principle of annuitisation and the importance for ordinary people of converting pension savings into a wage for retirement.

The mood in a roomful of Europeans, me , Malcolm Goodwin of Aviva and Joseph Liu of L&G was strongly The concept of giving people unlimited freedom in exchange for healthy tax-breaks, did not sit easily with this audience.

There was considerable interest about incentivisation. Clearly pension are still being “sold” across Europe and the c-word (commission) was heard regularly. It was good to have a discussion on how Britain has effectively banished commission, not just by the RDR but more fundamentally through the nudge mechanism of auto-enrolment. The discussion around auto-enrolment focussed on distribution and it was interesting to hear delegates from Eastern European countries talking of moving to auto-enrolment for second pillar pensions.

The problems with selling insurance and the image of insurance salesmen was a theme of the afternoon and perhaps the most interesting discussion focussed around linking the premiums we pay for health related insurance products to our health. We are of course familiar with this in practice, through firms such as Vitality, but one question got to the heart of the matter

“are you doing this because you care about your customers and are mindful of your reputation or are you doing this because you want to sell more policies?”

the answer was of course “both” but this was tested by a second question

“So why don’t you promote physical and mental well-being to those to who you provide annuities and long-term savings products”.

This thorny question of commercialism and image is a crux for this conference. There is a pleasing bluntness about its expression, here is a title of a session today

“Boosting sales through innovative products that appeal your customer”

Getting paid for giving the customer what they want is of course what business is all about, but the crux is that this is populism in its most extreme guise.

George Osborne was paid handsomely for delivering the populist agenda of pension freedoms but I wonder just how easily these freedoms sit with the British public, their advisers or those who manage the platforms from which our retirement planning is to be delivered. We are either at the start, middle or end of a global stock market correction. It is hardly a crash but it has brought out a fresh wave of nervous statements from drawdown providers on the perils of over-generous drawdown targets.

At the same time, the Prudential Regulatory Authority’s technical consultation paper about lifetime mortgages has sent the share price of annuity and lifetime mortgage provider into a tailspin (having lost 60% this year, it is one of Europe’s worst performing stocks). The reason for the loss in confidence in the insurer is market perception that it will have to bolster its capital reserves to continue writing new guarantee business.

As Citywire’s Jack Gilbert pithily puts it

Four years after Osborne’s pension freedoms nearly killed off the annuity market, the government’s regulators are on the verge of dealing it another major blow

A middle way?

There has been precious little talk at this conference about collective provision and risk sharing. I tried to introduce the subject but my words fell on arid soil and all questions turned to my comments on auto-enrolment.

I sense no appetite for risk-sharing among the European insurers, but here I may be using a select group to ignore a wider problem. I will be hearing from Allianz in a few days in a private meeting they are arranging to explain how collective DC will be distributed in Germany.

Judging by the polarity of debate at this conference, a middle way is badly needed, not just in Britain but in Europe too.



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AgeWage – a mission statement

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AgeWage is on a mission. We want you to know about the money you’ve paid for retirement. This means knowing how much you’ve saved, how much your investments have grown and knowing what you’ve paid for that investment growth.


We’re not interested in teaching you how to become an investment expert, telling you about the complexities of pension products and blinding you with actuarial science. We want to keep things very simple and tell you about what you’ve got in numbers.


Every pension pot you own has an AgeWage number we can give it. The number is a value for money score out of 100, the higher the score the better. The number is made up of what you’ve paid, how it’s grown and what’s been taken out to manage your money. Of course you can have the details as well – but from what we’ve been hearing, most of you want that simple consolidated number to begin with.


No one has ever before set out to tell people the value for money they’ve got on their pension savings. This has been because until this year, you haven’t had the right to ask for the information we need to give you that score!


AgeWage is uniquely positioned to do this work for you, our future customer. We are and will continue to be

  1. Independent – our customer is always the saver, the person who gets to spend the pot
  2. Well managed – our team of experts are widely acclaimed for their integrity, experience and dedication
  3. Transparent – we will always share with you how we are paid and by whom


Being Independent, well managed and transparent is part of our mission, we will not deviate from these three values.



We have taken the decision we will not manage your money. We will not have an AgeWage wealth management solution and we don’t want to be owned by anyone who does!


Well Managed

We have a management team comprising Chris Sier, Henry Tapper, Ritesh Singhania and Andy Walker. We have an advisory team including John Quinlivan, John Mather and Con Keating. We have the benefit of shareholders who will contribute in time to delivering our mission.



Chris and Henry in particular have campaigned for transparency – themselves and as part of other initiatives. For instance Chris has Chaired the FCA’s Institutional Disclosure Working Group and Henry is a part of the Pensions Regulators stakeholder team, delivering transparency in regulation.

What we expect to achieve.


Most people build up a lot of pension baggage through their careers, we want you to be able to take control of your money by understanding how its been managed. If you don’t like what you see, we’ll allow you to compare alternatives. If you want to spend your savings, we’ll show you alternatives and allow you to choose what’s best for you.


We’ll also help pension providers to help you. We are already working with workplace pension providers – helping them to help you. We hope to improve the efficiency of auto-enrolment providers by helping you build one big pot rather than many small ones – this helps keep their costs down, which benefits everyone. We’re also helping insurers with what are called legacy pensions make sure these are giving value for money and – if they aren’t – make sure there’s a path for you to get your money into policies which give you better value.

This is the “how”, the “who” and the “what” about AgeWage.
You’ll see a lot happening with AgeWage but you won’t see much change in our mission!

age wage simple

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Pension Tax Reform is the “art of the possible”.


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Nicky Morgan is right

Everyone knows that pension tax-relief is broken and those who try to cling on to the current system do out of vested self-interest (and I include one former pensions minister in that statement).

Wealth managers have come to view tax-relief as a “wrapper”, a convenient marketing tool to direct client’s wealth into capital tax mitigation schemes (aka SIPPs). The sector’s latest trade body even calls itself the “Tax-incentivised savings association” or TISA for short. The 10% of us wealthy enough to want wealth management now consider tax-incentivisation a right not a privilege.

Which is why I have sympathy for Nicky Morgan who is quoted in the Daily Mail  as Chair of the Treasury Select Committee .

The Treasury committee said tax relief on contributions was ‘not an effective or well-targeted way of incentivising saving into pensions. The Government may want to consider fundamental reform.’

This apocalyptic consideration has been ruled out by Philip Hammond and for good reason. His rebuttal of the Select Committee’s call is in this week’s Money Marketing

Responding to the committee today, the government has said that its consultation has shown no agreement on the path forward.

It had already consulted at the summer Budget in 2015 over whether pension tax relief reforms could strengthen incentives to save, but saw no consensus in a way to meet the key goals it set out then.

The response reads: “The government is also aware that any changes to the pensions tax relief regime could have significant impacts for pension schemes, employers and individuals. While the government keeps all taxes under review, no consensus for either incremental or more radical reform of pensions tax relief has emerged since the consultation in 2015”.

Impossible reform

Fundamental reform of the tax-relief of pension contribution impacts everything, it impacts payroll systems, HMRC coding and providers. Most of all – it upsets people and at a time when everyone is super-upset – that’s not good.

A flat rate contribution structure might be implemented and circumvented by moving higher rate tax-payers into salary sacrifice. “Scheme Pays”, might help the Treasury, but it would be a nightmare to administer at scale. Where it is employed at present (mainly to collect tax on contributions that breach the annual allowance, it is already building up administrative problems for the future.

Nicky Morgan is right to press for fundamental reform, the current system incentivised people to retain wealth in pensions wrappers, not to save. The success of auto-enrolment suggests that people would rather be nudged than incentivised (most people don’t know they’re getting tax-relief or even what tax-relief on pension contributions is).

But the Daily Mail is wrong in implying that Nicky Morgan is calling for a change in the budget, the job of a Select Committee is to guide Government in long-term strategy. It would be failing if it did not call for reform but Hammond is least likely to introduce reform in the teeth of BREXIT.

Instead, look to the capital elements of pensions for Treasury “top-slicing”. If you want to understand how fiscally exciting the Annual and Life Time Allowances are, read New Model Adviser’s excellent summary.

The AA and LTA are vulnerable for three reasons

  1. there is plenty of fat to be skimmed off  (see NMA numbers).
  2. it is easy to collect tax (using RTI) from those with money in pension “tax-wrappers” (the wrapper makes “wealth” a sitting duck).
  3. targeting the rich is considerably less politically challenging than depriving the poor.

On point 3, I hope that Philip Hammond will read the reminder we are sending him about NET PAY. The scandalous silence of the wealth industry on the deprivation of government incentives for the poor is matched (in ignominy)  by their ridiculous bleating for the rights of the rich to harbour money in tax-exempt SIPP wrappers.

When will see true reform?

Reforming pension tax-relief is the art of the possible. At present it is only possible to tinker by “salami-slicing” pension capital allowances. When the Government feels it is in calmer waters, it will no doubt look at Nicki Morgan’s suggestions. The Treasury came darn close to proper reform in 2015 but ducked it , fearing the consequences of a BREXIT vote. They got BREXIT and fundamental pension reform is “impossible”.

Don’t think that this is the end of the matter, the fundamental reform sits on the shelf – waiting for the “possible” moment.


He’s right too!


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Keating on Ralfe, CDC and morality

Last week’s Corporate Advisor’s Pensions Summit featured a debate on the merits of CDC pensions. Johan Ralfe presented the “case” against the introduction of CDC. In the main, with all the showmanship of Barnum and Bailey, this resurrected old and long-rebutted criticisms. His “magic beans” made yet another appearance. The offer of a line by line response was declined during the debate, a situation this blog will correct. The “case” such as it is, is a collection of errors of analysis and logic, and their repetition, despite frequent refutation and disproof, can only be considered a case of wilful ignorance.

The principal assertion made was that CDC is a game of pass the risk parcel; that no-one will join as they risk being the last person in the scheme. This is scaremongering. It ignores the fact that this is the position of all scheme members under traditional DC; they are permanently alone. It would be a very strange world in which members declined a remote possibility of facing difficult choices for one with certainty of those problems.

This was expanded to an outright untruth: “end to end first cohort benefits at expense of last cohort”. The risk-sharing rules within CDC are designed to, and will ensure equity, fairness among all members at all times; these are mutual support mechanisms, not subsidies. No intergenerational transfers of risk or funds occurs. We describe one set of such rules later.

These risk-sharing rules can even ensure that overgenerous awards, which may arise from trustee judgement and discretion in this process, are eliminated early.

In response to the rhetorical question: “How is equity risk premium shared?”, this “end to end” fabrication was followed by the even more bizarre:

“The current generation take the premium …; The next generation take the risk”

The equity risk premium, when earned, is captured in the performance of the asset portfolio, and in the current members’ equitable interests in that. There is no separation in time of the risk and reward, nor can there be.

The argument proceeded to develop a novel, but incorrect, theory of risk: “Can transfer risk from one person to another or one cohort (sic), but can’t make it disappear” This is some imagined law of conservation of risk; but, in general, risk is not immutable. Those risks of our own creation can certainly be eliminated by our own corrective actions, and there is much about financial markets which is of our own creation. We were then treated to a complete non-sequitur: “If risk did reduce with time so those with long horizon could take more risk, no need for CDC”. The higher returns expected from CDC asset portfolios arise not from some excess return associated with long versus short term investment, but from the fact that the funds are invested for a longer period of time, over both the accumulation and decumulation phases. Indeed, for any arbitrary return, that expected from the average decumulation phase exceeds that from the accumulation. This answers another of the questions posed: “where does this extra juice come from? Investment for a longer time. The extra return has been a feature of the findings of all academic and professional simulations, and there have been at least eight studies of CDC around the world.

The juxtaposition of factual inaccuracy and irrelevancies is quite remarkable. Take the sequence:

Longevity pooling?

Maybe, but not spelled out

Can this be achieved more easily?


Longevity pooling is a feature of all CDC designs. Life-long pensions introduce longevity risk, and this is the element that poses the greatest problem for traditional DC members, who face applying drawdown strategies and annuity purchase at retirement. It is simple, requiring no explicit action, and has been the backbone of the life insurance industry for centuries. If there were an easier path it would have been discovered long ago.

The presentation posed a number of questions; all of which have been answered many times before. But for completeness, they are answered again here:

“How are investment risks shared between different generations?” There is no sharing between generations, all current members face the common risk, and experience the common return of the collective asset pool, the pension fund.

“Who decides when target pensions are adjusted up or down?” Scheme rules will determine when pensions and the interests of members are adjusted. There should not be any discretionary element to this. In the absence of risk-sharing, the current pension payments would be cut when a deficit arises.

“How is asset allocation decided?” Asset allocation of the communal fund is determined by the trustees in the light of market prospects and the scheme’s specific situation.

“Who appoints Trustees? How are they paid?” Trustees are elected by vote of the membership. Whether they are paid or not is scheme specific, and subject to the approval of the membership.

Who regulates CDC?” This is an open question, to be answered shortly by the Department of Work and Pensions. However, it seems most likely that this will be the Pensions Regulator, rather than the FCA or some new body.

“What happens if people stop joining?” This takes us full circle back to scaremongering. CDC is not dependent upon the arrival of new members. It could run off over time, or it could be wound up immediately. This involves no loss of capital to any member. It could merge with another scheme. Members may anyway transfer the net asset value of their interest to some other qualifying pension arrangement at any time. In wind-up, CDC may revert to its traditional DC roots.

The design of a CDC scheme and the rules by which it operates are important. The start point is the award of some chosen benefit target and setting of its associated contribution. This is a matter of discretionary judgement for the scheme trustees. It should reflect their best estimate of returns achievable; it should not attempt to recover past shortfalls, nor to distribute any surplus.

The contribution made and the target benefits projected define a rate of accrual for the pensions, individually and collectively. This determines both the individual’s (equitable) interest in the scheme and fund, and the target liabilities of the scheme at all points in time. It would be totally inappropriate to value the target liabilities using gilts, the expected return on assets or any of the so-called fair value methods. This rate (with loading for administrative expense) also constitutes an explicit target rate of return for the asset portfolio.

If the trustees have been over generous in their awards, this will show rapidly as a scheme deficit which is persistent and growing; scheme rules would then intervene and cut the interests of all members. By similar token, pensions could be increased if the scheme is in surplus.

The concerns over intergenerational inequity are eliminated by the risk-sharing rules. There are many feasible designs and operations of these rules. We offer here one of the most elementary. The operation of these rules is simple. If the scheme is in deficit then, in the absence of the operation of the risk-sharing rules, the currently due pension payments will be cut by the proportion of the deficit. Simultaneously, the interests of all non-pensioner members will be cut in similar proportion. This will maintain equity among all members.

The risk sharing rules cover both the amount of total support available for pension top-up and the duration of rule operation. To avoid cuts, the most basic time limitation would be that deficits must be cured within a period which is inverse to its magnitude – a ten percent deficit within ten years, a twenty percent deficit within 5 years, and fifty prevent within two years – provided that the overall total support limit has not been reached. An overall limit to support is necessary to avoid downward asset spirals which would create inequities. The amount is scheme specific, but for a scheme with membership split 60 – 40 non-pensioner – pensioner, ten percent of the total assets is sufficient cover for all but the most extreme and unusual of market circumstances. The key to maintaining fairness among members is that along with the payment of the top-up to pensioners, the interests of all non-pensioner members are increased in similar proportion.

This alters the relative claims of non-pensioner members to pensioners. It also increases the required rate of return on the asset portfolio. The magnitude is though modest; if all ten percent were utilised the required rate of return would increase by approximately ten percent.

One positive effect of these rules is that they provide an incentive for new members to join when the scheme is in deficit. They will receive the best estimate award from the trustees and an immediate further increase from the operation of the risk-sharing support.

The asset portfolio has an investment horizon which is far longer than traditional DC, as it covers also the decumulation phase. While the traditional DC fund objective is to maximise asset values at all times (within a particular mandate limit) there is an explicit target return for the CDC portfolio. The presence of the risk-sharing rules further modifies this mandate. They lower the requirement to achieve the target return from an annual objective to achieving the target return on average over the period during which risk-sharing rules may be expected to operate. This permits truly long-term investment strategies, including those which are indirect in operation. As the fund is all there is to pay pensions, the performance of the asset portfolio is a central concern.

The degree of utilisation of the risk-sharing limit, and its related expected time to exhaustion constitute an important new risk metric for CDC schemes. It is the period within which pensions are effectively assured.

The question of communication with members was raised: would they understand that the pensions were targets, which might not be achieved? This feature can be explained in all introductory literature, and of course, it will be reinforced by the availability in near-real time of the asset value of the member’s interest together with the pension income equivalent of that, together with the original target.

Returning to the original debate, it is far from clear why these objections should be raised, beyond the venality of the fee bonanza around DC pots at retirement. The question which these objectors need to ask themselves is: what if I am wrong? If they are, and are successful in their efforts, then many pensioners will have been deprived of a good and dignified retirement. This is more than the best being the enemy of the good, it is a question of morality.

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“Legacy” is a dirty word – AgeWage would ban it!

Pension hackathon

We need a “pension hackathon” to speed up the pace of change

Not so long ago, well in the late nineties , I attended a series of meetings to ward off the impending threat of stakeholder pensions. The meetings were organised by Allied Dunbar and I attended as the “pinko” from Eagle Star who wanted members of our schemes to get a good deal.

It soon became obvious that the priorities of our joint business (we were both owned by British and American Tobacco) was to ensure we had happy shareholders – happy advisers and that the management teams – of which I was a part – remained in place.

Stakeholder pensions offered lower ongoing fees, no exit penalties, precious little to pay advisers with and a threat to our back-books – which could all too easily be “cannibalised”. The language of the day was boorish, blue from the sales people and obscure from the product teams. If we weren’t swearing at Government officials, we were arguing over measures of embedded value. In these discussions , the customer was nowhere. The management teams have now been disbanded as has Allied Dunbar and Eagle Star.

The world moved and the dinosaurs didn’t

The world we find ourselves in today is a different place. We’ve been through the Stakeholder experience, that proved a warm-up for auto-enrolment. We are now in a world of Fintech – maybe even Pentech.

The new kids on the block are the old mutuals – Royal London and Liverpool Victoria have reinvented themselves as not for profits which deliver to members what few of their rivals could. They have survived as workplace pension providers where many haven’t. Prudential has continued to thrive, but primarily as a with-profits fund. Legal & General has turned itself into a successful fund manager and has shed its old life company in all but name. Standard Aberdeen are trying to do the same.  Meanwhile the bulk of the investment from auto-enrolment is going to organisations that weren’t heard of even ten years ago, People’s Pension, NEST, NOW , Smart, BlueSky and Salvus have revived the concept of defined contribution occupational pensions.

Meanwhile, we have almost forgotten that £400bn of our savings has not moved on. It is stuck in the land of the dinosaurs , a kind of financial Jurassic Park where our money is prey to all kinds of monstrous charging structures that feed the raptors.

Why “legacy” is a dirty word.

In this new world – there are new standards of transparency. The old charging structures and ways of talking to policyholders and members are increasingly an embarrassment. They embarrass the brands of the new mutuals and they compromise their management. The legacy books also stand in the way of a positive relationship with regulators. Firms like Royal London find they have first and second class customers and that sits ill with their strategy.

In an ideal world , all legacy would be able to migrate on a “no worse terms” basis from old to new. Firms like the Prudential and Royal London and Phoenix and Scottish Widows are talking with me about how to accelerate the transition from old to new. But, however much they want to rid themselves of the past, they accept that the best for many of their policyholders may still be to come. The guaranteed annuity rates within many policies need to be honoured, as do terminal and longevity bonuses. Many with-profits policies offer guaranteed returns that are valuable in a low interest rate world.

But there is precious little help for these insurers in communicating these subtleties to their staff. There simply aren’t the advisers, or information delivery systems, in place to engage with the owners of the £400bn. As the MD of one large insurance firm told me recently,  they have no way of engaging with their customers.

Legacy is a dirty word, but it’s likely to remain in common parlance for a time to come

Speeding up the migration to good

At AgeWage, we’ve got ideas which we think can help people understand what they have and what they could have. Our ground-breaking work is helping people to see not just the value for money of what they’ve been saving into – but the value of doing new things with money.

In this we’re being supported by the FCA who are actively engaging with us on how to help ordinary people make decisions on what they’ve bought in readiness for spending it.

I’m even looking forward to going to a two day Pensions Hackathon, organised by the FCA – which will enable firms like AgeWage to engage with some of the providers I’ve mentioned. Technology can help – and we’re determined to prove it!

agewage vfm

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

Death by 10 million pots – how to solve the small pot crisis

Prisoner exchange

Prisoner Exchange should be a win-win


There are 10 million new savers into workplace pensions. If every saver changed jobs 10 time, that would mean 100 million new pension pots- unless some means of rationalising pot proliferation can be found.

The DWP estimate that by 2050 there could be 50m “abandoned” pots, by which they mean pots that no longer get an employer contribution. For members of master trusts and policyholders of contract based workplace pensions, this means the prospect of a messy job trying to bring pots together to manage cash-flow in later life. For employers there is the prospect of fielding calls from long-lost employees tracing pension rights and for the operators of workplace pensions, this means a claims process that could wipe whatever profit the small pot ever generated.

This is why we are facing a “small pot crisis” and the time to do something about it is now. Preventative action is hard to  justify as it goes against the Mr Micawber inherent in the strategy department.


Mr Micawber Something  will turn up

The idea that “something will turn up” by means of Government Action or technological advance or some radical shift in saver’s or adviser’s engagement – is speculation. It is risky to speculate.

Which is why responsible and forward thinking master trusts and the managers of workplace GPPS are looking to solve the problem now. The radical solution , put forward by Tom McPhail of Hargreaves Lansdown calls for individuals to be able to tell employers where they want their money to go. This would involve employers being able to clear pension contributions to a variety of providers. To date most employers have struggled to manage an interface with one provider and it’s unlikely that many will voluntarily adopt clearing as an employee benefit. The prospect of a Government backed clearing system, as is in place in Australia is at least a decade away.

The second idea which is jokingly referred to as “prisoner exchange” sees workplace pension providers working with each other to pass small pots between each other so that the member is offered an automatic transfer of old pot to new. Providers I have spoken to envisage this happening with a member having to intervene to prevent the transfer (effectively an opt-out). The right to transfer to the next provider would be given to the old provider as part of the enrolment process.

This has the advantage of being relatively painless for employer and member and puts the administrative onus on the providers in who’s interest it is to clear-out small pots and to accumulate big pots.

The rules governing transfers are considerably more generous to transfers without consent under an occupational trust and it is not surprising that it is the master trusts that are pushing for “prisoner exchange” and the GPP and GSIPP providers who favour clearing.

There is however a major hurdle to be cleared before any progress is made – regulation. The FCA and Pensions Regulator have objectives to protect members. The enforced aggregation of pots, whether through clearing or transfer, requires the consent, no matter how passive, of members. The alternative would be against all the principles of freedom and choice inherent in our pension and savings systems.

While the vast majority of us savers would acquiesce to pot aggregation or the pot for life system advocated by Tom McPhail, there is a vocal minority who will favour self-determination and the right to stay put or indeed to transfer to a pot of their – rather than an employer’s choosing.

These people will demand evidence that what they move to (or stay with) is worthwhile. Currently there is no way of telling whether value has been attained by the member for the money he or she has put into their workplace pension. Consequently any regulator is likely to kybosh both approaches on the basis  that the majority of transfers will be “blind” and that those who save for a lifetime in the pot of their original workplace pension provider , may find themselves at retirement with a sub-optimal outcome.

Sub- optimal outcomes and blind transfers happen, but their has to be an opt-out process to ensure they needn’t.

At AgeWage we are working on a system that allows people to see the progress of their savings in terms of what they have got and what they have paid for it. We call it value for money scoring and an example is below.  We think that the kind of information members need to feel comfortable with pot aggregation could be in place by the end of the decade and we’re working hard to make sure it is.

agewage vfm

Posted in advice gap, age wage, pensions | Tagged , , , , , , , | 2 Comments

How GDPR helps us make sense of pensions!


Adrian Boulding has written an excellent article about the new cost and charges disclosures. I will quote only the conclusion and urge you read the rest of it here.

Can we hope to obtain full investment charges data onto a pensions dashboard in a format that is understandable to the majority of savers? No!

Can we obtain disclosure to the point that an adviser can make sense of it all? Maybe.

Being realistic, however, advisers are as time-poor as their clients are demanding. So I am left with one last hope, which is that we can obtain asset management disclosure to the level that specialist adviser firms – the ones that service financial advisers, trustees and IGCs – can make sense of all this data and pass on their findings.

Adrian’s implicit admission is that people will not be able to work out the impact of costs and charges on the outcomes of their savings policies. I disagree.

Let me give you an example;

Supposing I was to look at the value of my pension policy I’ve saved into for the last few years and discover it was worth £100,000. I might be happy, I might be sad , but most likely I’d be mystified. There is no way of knowing if I’ve had a good deal from contributing the money I have.

Let’s suppose that I was given another figure – a theoretical figure – £150,000.  This is the amount I would have had from that pension policy if I hadn’t had to pay the butcher, the baker and the candlestick maker for managing my money.

I don’t think I’d have to be a genius to work out that the cost of my policy was £50,000.

Now let’s suppose that I was allowed to know the amount that was contributed to my policy over the years. Money might have arrived from my personal contributions, from what my employer paid, from HMRC as tax relief and even from the DWP (if I used the policy to contract out of SERPS/S2P. Let’s say my total contributions had been £80,000.

In a very simple analysis of what has happened to my policy, I’ve got back £20,000 more than I put in and the pensions industry has had £50,000. The value of my policy has been £20K and the money I’ve paid to get it has been £50k.

Such an analysis reflects badly on all the parties involved in the running of the policy. Anyone looking at these numbers would be hard pushed to justify the “intermediaries”  between him/her and the money getting 2.5 times the return that he/she did.

If it had been the other way round, and the individual got £50,000 value and the intermediaries got £20,000, then the equation might look right.

The trouble is , that ordinary people are not able to get this simple information in their hands. I think they should. Not only do I think they should be able to get proper information about the total costs they have incurred , but I think they should be told the total amount that has been contributed and the value those contributions have grown to today. What is more, the Government agree.

How GDPR help us

The Data Protection Act 2018 (which incorporates GDPR) gives us all the right to see the data that is held by others on us, and to see it in machine-readable format – that means in a way that a computer can process the information (data) to make sense of it.

What that means is that since May of this year, you and I can get all the data needed to see how much we’ve contributed, what has been taken by intermediaries and what we have left.  We have the right to this information, but not yet the means to make sense of it.

What I am intending to do with AgeWage, my new venture, is to get this information, make sense of it and to present back to people the value they have got for their money so they can make sense of what has happened to their savings since they made them.

Whether that makes AgeWage what Adrian calls “a specialist adviser firm”, I doubt. Whether this makes AgeWage a very valuable venture, I have no doubt. AgeWage will be the first organisation to tell people the value they have got for the money they have spent on pensions. There is a great deal of “value” in that!


agewage vfm

The single number score that tells you how you’ve done.



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

Will a “Transfer Value Comparator” work?


DB transfer activity has begun to stabilise, with far more transfers being quoted and taken every quarter compared with the position before the new freedom and choice flexibilities were introduced by the Government in 2015. Bart Huby LCP Aug 2018

LCP, one of the brightest of pension consultancies estimate the average pension transfer value at £448,000, twice the value of the average house in the UK.

Before the introduction of Pension Freedoms only 10% of CETV quotes they issued were taken up, that figure now stands at 29%.

Last year Barclays Bank’s massive pension scheme reported £4bn taken via individual transfers, they’ve accounted for an expected 20% (nearly £5m) to flow out this year.

Small wonder that LCP had to book a bigger hall to present their “Survey of DB Transfer Comparators”. A year after the Port Talbot scandal broke, transfers are still the big news.

What’s the big deal about Transfer Value Comparators (TVCs)

The FCA hope that transfer activity will not just “stabilise” but improve in quality. It is introducing a way of comparing Cash Equivalent Transfer Values with what would be given up. The joint paper between Royal London and LCP has an illustrationTVC 2

LCP estimate that for someone 10 years away from retirement, the TVC will on average show that someone only gets 57% value from the CETV, this rises to 75% the year before retirement but even then represents a loss of 25% purchasing power in taking the transfer.

The FCA want us to consider this loss as the price we pay for freedoms – or at least for the flexibility that having a big fat cash pot brings – over a wage for life.

Also presenting at the event was Steve Webb, who’d been up all night to get happy (or at least performing on Radio 5 Live). Steve showed a chart which explained what people valued from having a big fat pot and all those things were behavioural not fiscal. People like the inheritability of a pot, they like its flexibility to be spent as the owner chooses and of course they like the idea that it is their money- not an insurer’s or trustees’.

What the FCA are hoping is that people will stop and think how much they are prepared to pay for those heuristics- even 25% of £500,000 is well over £125,000.

This – they hope – is the big deal about TVCs.

Is this the right way of presenting the argument?

Steve Webb pointed out the principal risk of the FCA’s approach

“There is a serious danger- if the advisers think the bar charts are “nonsense on stilts” that they are going to struggle to deliver TVCs to clients”.

Webb pointed out that in the original FCA mock-up he’d been shown, the TVC appeared on page 30 out of 43 –  by which time the former Pension Minister had given up the will to live. He went on to say that recent versions have seen the TVC move up to page 5, but it clearly is not being treated as “headline news”.

Webb pointed out that for people who are trying to get rid of a guaranteed wage for life , presenting them with the cost of repurchasing what they have given up is hardly the most intuitive of advisory tactics.

For Steve Webb and Royal London, The TVC arrives to some scepticism, with which I have some sympathy.

Why can’t you just repurchase what you’ve given up at the same price?

The FCA have chosen to set the TVC as the full cost of buying back the pension lost, it could be put the other way round and express the amount of pension lost if the CETV were used to buy an immediate annuity.

The reason that TVCs repurchase so much less than the pensions given up is threefold

  1. Individual annuities do not enjoy the economies of scale achieved by group schemes paying pensioners from a payroll. They also involve insurance companies taking a margin. This makes them inherently more expensive to provide than scheme pensions and hence they purchase pension pound for pound than the pension they replaced
  2. The time between a pension coming into force and the CETV being taken is investable time. The TVC is calculated using a risk-free rate of return whereas the CETV is discounted against the investment return of scheme assets (on a best estimates basis. The TVC does not enjoy the investment return the Scheme Pension gets between its calculation and normal retirement.
  3. The scheme pension is itself invested and is not invested in risk-free assets, you have to put aside less to pay a scheme pension than an annuity because of the greater freedom trustees have than insurers.

Add together the greater operational efficiency, the opportunity cost of purchasing an annuity early and the long term investment disadvantage that annuities suffer against scheme pensions, you get to why TVCs are so much lower than the scheme pensions they are compared with.

Financial economists like John Ralfe will look at those three points and will say “bollocks”, but them is the rules.

We expect economies of scale, we believe in the equity risk premium.

The Transfer Value lottery.

Much of LCP’s presentation was spent explaining something I’ve touched on this blog before. The biggest factor impacting the CETV is the discount rate being used to create it.

Since the discount rate is a function of the investment strategy and the investment strategy is decided upon by the Trustees, CETVs are effectively a lottery – as far as the member is concerned.


The chart above shows how someone who’s CETV value is calculated using a discount rate generated by the scheme being invested in 80% risk-free assets will get the blue circle’d 70% TVC while the poor wretch with a scheme invested only 20% in risk-free assets will only get a 50% TVC.

The conclusion is that not all transfer values are calculated the same , but the output of the CETV – a cash amount paid into a personal pension, differs only by the size od the payment! That is a total lottery as far as the member’s concerned.

For Trustees, the equation is simple. If you think people will take any notice of TVCs, the more aggressive your investment strategy, the less likely you are to lose prospective pensioners through CETVs. Conversely, if the intention is to get rid of your scheme, the faster you “de-risk” from equities to gilts” the more transfers you can expect.

Ongoing questions for people who transfer.

Having had 24 hours to cogitate, I agree with LCP’s four questions

  • What is the Transfer Value Comparator?
  • How do transfer values differ between different schemes?
  • How does the scheme’s investment strategy impact the TVC?
  • How might TVC illustrations impact the number of members transferring?

No adviser – advising on a transfer, should ignore these questions. If I was the FCA and I wanted to know that the person who had paid for transfer advice, had understood that advice, I’d be focussing on these questions which might be rephrased for ordinary people

  1. What did you make of the Transfer Value Comparator?
  2. Did you understand how your CETV had been calculated – do you think you did well?
  3. Did you understand what your former pension scheme was investing in and how it affected your CETV
  4. Did the TVC influence your decision to transfer – and if it did – how?

Are we asking these questions too late?

My worry, and it’s clearly a worry in LCP-land too, is that in 10 years time, the vast majority of those in DB schemes will have reached pension age. By then they’ll have either taken a transfer or it will be too late to do so.

While it’s good that the FCA are still testing the water on what works, it’s bad that in the meantime there’s a risk that the TVC test won’t work and that we’ll be revisiting this subject in three years time after another Port Talbot.

The FCA could have taken a much more draconian step to reduce transfer activity and banned contingent charging. On this Royal London and LCP do not see eye to eye. I don’t see eye to eye with Steve Webb on this either.

Royal London’s position is that advisers can be trusted and mine is that the only advisers who can be trusted are those who work on an upfront fee – paid whether the transfer is taken or not.

I know that some advisers who I do trust (such as Al Rush) work on contingent charging but I cannot make the rule fit his exceptional probity.

My conclusion with regards TVCs is that they will be effective as advisers want them to be and – so long as we have advisers working on a “no CETV no fee” basis, they won’t make much difference.

Posted in advice gap, BSPS, pensions | Tagged , , , , , , | 4 Comments

Payroll are tomorrow’s Pension Experts!


I spoke at the CIPP Conference at the National Exhibition Centre at what payroll can do to help staff understand pensions and in particular – the pension freedoms.

Here are my slides

I think there are three things that hold payroll back from becoming pension experts.

  1. Pension experts who’d like to keep payroll in their box
  2. Payroll experts who lack the confidence to say it as they see it
  3. A general fear about talking about pensions without being a regulated financial advisor.

All three reasons need to be challenged.

  1. Pension Experts are few and far between and for the vast majority of the million plus employers in the UK there is no “pension expert” in-house or available for hire.Where there are pension experts, then they should be talking to and learning from payroll – payroll people should not be excluded from pension education.
  2. Payroll experts are highly qualified analysts trained in the minutia of tax and auto-enrolment compliance, they are trusted to get things right, few others in an organisation have the trust of everyone. Payroll experts are ideally suited to deliver the tough messages of pensions – they say things as they see them and they say things right.
  3. Though some pensions fall under the FCA’s remit, most don’t and even the ones that do (GPPs) can be explained in general terms. As long as people stick to giving information rather than opinion , they will stay on the right side of the guidance/advice line.

Step forward payroll!

Whether you run a bureau or lead an in-house payroll team, you should be pressing to become authoritative on workplace pensions.

Even if you have a pension team in-house , payroll people need to be stepping up to the plate and offering their expertise on tax, national insurance, salary sacrifice and all the minutia of auto-enrolment compliance.

But in most cases, it’s not just the employer who needs help, it’s staff. The presentation I gave yesterday can be downloaded from slide share by simply pressing on it  from this blog. First Actuarial aren’t precious about the IP in the presentation, if you want to present our talk-through on tax and NI, please do! If you want to use our Muppetometre, please do.

We are delighted to help employers who need our help. If you would like a chat about how we can do this (and when the clock starts ticking!) , just drop me a line at henry.h.tapper@firstactuarial.co.uk





Posted in Payroll, pensions | Tagged , , , , , , | 1 Comment

Will “DC deficits” become a thing of the past?

News of HMRC’s “change of position” with regards the “net-pay- anomaly” is welcome, and long overdue. It came in the form of a letter sent in response to a request from respected journalist Jo Cumbo of the FT.

It has been greeted with little enthusiasm by the majority of the pensions industry. This in sharp contrast to NOW pensions, who got the momentum together for the joint letter.

Commenting on reports in today’s Financial Times that HM Treasury will tackle any differences in how pensions tax relief is provided, Adrian Boulding Director of Policy at NOW: Pensions said: “We’re pleased to see the government making a firm commitment to resolving the anomaly in net pay schemes. This is an important issue which has been swept under the carpet for too long. We look forward to working with HM Treasury and HMRC to make sure all savers are treated equally.”

Here is the only public comment I can find from a UK pension consultant.

It is very good that Hymans published that research back in April, but it only tells half the story, the vast majority who are overpaying on their workplace pension contributions by up to 25% are not in multi-employer master trusts, but in single employer sponsored occupational schemes.

The deficits between what a low-earner enrolled into an employer’s occupational pension scheme is every bit as real – in terms of outcome – as the deficits of which so much is made, in our DB plans. Both will result in a material loss for members. Deficits are very real, very numerous and they reduce DC cash balances just as the PPF reduces DB pensions.

Since the low paid can now but auto-enrolled into DB schemes (including Government schemes), it is likely that a significant proportion of those losing out because of the impasse, are consulted on by Hymans Robertson, WTW, Mercer, Aon and my own First Actuarial. For DB members, it is a question of over-payment of contributions not the reduction of benefits, but the impact amounts to the same thing. The low-paid are being ripped off and the pensions industry hasn’t seemed to be giving a monkeys.

This is why this is an industry problem and not just one particular to master-trusts and why the PLSA put its name to the letter which has prompted this change of position.

News of this “change of position” came on the same day we heard that the Competition and Markets Authority are to launch a Market Study into the role of auditors in occupational pension schemes. Professional Pensions reported yesterday

Defective” company audits could mean millions of savers in pensions funds are “losing out”, says the Competition and Markets Authority (CMA) as it launches a probe of the audit sector.

I hope that the report will include the issues highlighted here and elsewhere on the failures of auditors to report on DC Deficits.

Payroll welcomes the news.

I was (and will be again today), speaking at the CIPP annual conference in Birmingham. The reaction to the news that everyone contributing to a workplace pension would be given the promised incentive, was greeted with enthusiasm. This from people who have day to day contact with the people affected, people who understand the risk to their employers (or for bureaux- customers) of being a party to a scandalous situation.

Speaking to the CIPP’s Helen Hargreaves (a co-signatory on the letter) , the reported change in position has clearly been seen as a win for common sense and natural justice.

We now need to ensure that the implementation of any change is fair to the low-paid. This is what I hope the signatories to the letter will urge the Treasury to do.

With understandable reservation…

The note of caution sounded by some related to the possibility that the change of position was part of some wider conspiracy against low-earners. This from one person who commented to me by email

Let’s hope their solution isn’t to stop tax relief for non taxpayers. Wouldn’t put this past HMRC.

This view, that HMRC are preparing to dumb down pensions generally , focusses for many, on the possibility of the Chancellor announcing in the budget a move to flat rate tax relief on personal contributions.

Though nothing is impossible, it is difficult to see how this would work. Most employers now have the capacity to disguise employee contributions as employer contributions through the use of salary sacrifice. Working out what has been sacrificed and extracting cash from the imputed amount will require a “scheme pays” type mechanism.

For such a system to be introduced will require extensive and expensive changes in processes at both HMRC and from pension and payroll providers. I do not think that such a disruptive move would carry political support from a business friendly conservative party, nor social support from a country supposedly engaged in helping out those “just getting by”.

Are pension experts embarrassed?

So I am minded to ignore the Jeremiahs and take the silence of most pension experts as the embarrassment of knowing they have done little or nothing about this problem for the many years that it has been known.

I suspect that the silence among consultants on the issue has been because they not only advise on the design and administration of the net-pay schemes that are at the heart of the problem, but they administer them too.

If the solution to the problem is “retrospective”, then the bill for restitution will be a disputed bill. Will it fall to the administrators, the advisors or rest with the trustees?  In a DC trust there is no contingency for restitution, the costs of working out fair shares and allocating monies in line with the losses incurred would be substantial.

It is more likely that the revenue will draw a line in the sand and expect any new practice to be forward looking. This will still put a great deal of strain on the software designers on whose record keeping systems most of the net-pay schemes sit, the administrators who will need to change processes, payroll who will have a job to do ensuring that any tax anomalies arising from the changes are recorded and of course employers and trustees who will have to explain all this to bemused low-earners.

Is this just too awkward?

It’s all very awkward isn’t it? It’s not the kind of dirty linen that the occupational pensions industry wants to be talked about, especially as this not a problem that impacts contract-based plans run by insurers or master trusts operating on relief at source (NEST and People’s Pension for instance).

It’s a problem that has run on too long and that needed to be addressed. The twin spurs pricking the sides of the Treasury’s intent are undoubtedly the problems surrounding Scottish Income Tax and the imminence of the Budget.

My personal guess is that the “Net-Pay- Anomaly” offers an embattled Chancellor an opportunity to give to the poor some of what he’s taking from the rich (by way of reduction of pension allowances).

If this is what Phillip Hammond does, I will not be against it. The pension taxation system is so biased against low-earners in favour of those with large pensions and pension pots, that any form of redistribution is to be welcomed.

Phillip Hammond does not need to feel awkward about being seen to solve the net-pay problem, but I’ll be making him feel very awkward indeed, if after the letter  sent to Jo Cumbo at the Financial Times, the Budget remains silent on this issue.


Better late than never

Posted in advice gap, annuity, auto-enrolment, pension playpen, pensions | Tagged , , , , , , | 2 Comments

The conflicts of interest facing pension trustees



Robin Powell of the Evidenced Based Investor, interviewed me this week. You can find the original interview here, Robin’s work is important, I hope a few readers will come to his seminar- advertised at the bottom of this piece.

One of the most exciting things about helping to campaign for greater transparency in UK asset management over the past few years has been the chance to be part of a community of highly motivated and principled people.

The likes of Chris Sier, Andy Agathangelou, Con Keating and Gina Miller have devoted huge amounts of time, and most of it totally free of charge, to improving outcomes for consumers.

Very much part of that group is the pensions consultant HENRY TAPPER. Henry is a supporter of the Transparency Task Force, of the growth in workplace pension take-up through auto-enrolment, and of the move towards collective defined contribution (or CDC) pension schemes. His blog, Pension PlayPen, is a go-to resource for everyone involved in institutional investing in Britain.

In this interview Henry discusses the current state of institutional investing and the conflicts of interest that exist within investment consultancy. He also explains why trustees have been so slow to adopt a more data-driven, evidence-based approach.


Henry Tapper, how did Pension PlayPen come about and what was your vision for it?

The Pension PlayPen was conceived as a place for pension professionals to congregate and have fun. It was at the time when the Bribery Act was coming in and many of my friends thought the days of taking corporate bribes were over. We ganged up and did our own entertainment out of our own pocket without having to trouble the corporate gift register!

The PlayPen has a big following and is now an important part of the UK pensions landscape. What’s the secret?

I’m surprised that you think that it is important — that’s very flattering! We’re still going after 11 years and Pension PlayPen has evolved into a website for helping employers choose a workplace pension, a 10,000-strong LinkedIn group and a blog with over one million reads. I think it’s about consistency, sticking to your guns and having a clear vision of what’s right!

I notice you aren’t afraid to speak your mind!

I live in a constant funk that I’ll be taken out! Seriously, I’m like rhubarb; the more you beat me up, the better I feel!

Something else we have in common is our support for the Transparency Task Force. What do you feel the TTF has achieved?

A lot of people laughed at Andy Agathangelou when he started out and he’s proved everyone wrong. Andy brings people together because he’s so positive. He’s consistent, persistent and unremittingly optimistic. That’s a pretty amazing combination! TTF is now a factor in corporate decision-making and that’s the mark of Andy’s achievement.

Human nature being what it is, though, we’re never going to see total transparency in investing, are we?

It’s back to TTF. If those who have the power to change things feel encouraged to do so, then they will. Right now, Andy’s creating the conditions for change and it’s now up to the awkward squad — me, Chris Sier, Gina and Alan Miller, yourself and others — to drive home the advantage.

As you know, I’m an advocate of low-cost index funds. Why do you think trustees still tend to prefer actively managed investments?

We need someone to blame. Choosing an active manager who performs reflects well on trustees, and if the manager fails, it’s easy to blame the manager for the trouble you’re in.

Does the continuing reliance on hedge funds surprise you?

Our governance structures are slow moving, we were slow adopters of hedge funds and we’re late to abandon them.

As you know, private equity seems to be flavour of the month, and yet PE has a big transparency issue, doesn’t it?

The Railways Pension Scheme lifted the lid on the costs incurred by private equity managers. Any fiduciary allocating to this asset class now has to explain why they’re investing in such an opaque form of investment. There’s a lot to be said for private equity, but transparent it is not.

One problem I’ve noticed is that trustee training is often provided by product manufacturers. That’s a clear conflict of interest, isn’t it?

There’s an industry in trustee training and as the question points out, it creates an agenda which points the trustee at investing in products which generate a margin reckoned to be among the highest in any industry in the UK.

The FCA is currently looking into competition in the investment consultancy sector. What’s your view on that?

Investment consultants are important to the proper functioning of occupational pensions. But they have put themselves into a conflict where they find themselves marking their own homework. The Competition & Markets Authority review must help them resolve that conflict by ensuring they are genuinely independent of the products they advise on.

Finally tell me about your latest project, AgeWage?

AgeWage is my new venture to help ordinary people find out how their pension pots have built up and whether they’ve had value for money. I’m very excited by the opportunities this gives ordinary people who struggle to understand what’s happened to their pension savings  — or how to spend them!

Thank you for your time, Henry. And keep up the great work you do on behalf of investors.

Henry Tapper is one of the delegates at our free educational seminar, Evidence-Based Investing for Trustees, in London on Wednesday 17th October, which we’re holding in conjunction with the Cheltenham-based financial planning firm RockWealth.

As well as me, the speakers are Lars Kroijer, the former hedge fund manager turned indexing advocate, and David Jones, Head of Financial Adviser Services (EMEA) at Dimensional.

The seminar runs from 0830 to 1030 at the Amba Hotel, Charing Cross, WC2N 5HX. There are still places left. If you’d like to attend, simply email Sarah Horrocks at sarah@rock-wealth.co.uk.

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

34 firms under investigation by FCA for non-disclosure of investment charges



true and fair

Alan and Gina Miller’s True and Fair Campaign

The Times are running this story as a result of a tip-off by professional charge-busters and founding members of the awkward squad SCM Direct. If you don’t know what SCM Direct is, that’s because you aren’t one of their clients, SCM Direct is the wealth management business of Alan Miller (of New Star fame) and Gina Miller (famous for just about everything but especially for “Remaining”).

Here’s the Thunderer with the evidence presented it by the Millers

The rules were first set out by the EU in April 2014, so the industry has had years to prepare, said Miller.

“It’s time for the chief executive of the FCA, Andrew Bailey, to demonstrate that he is willing to be the industry enforcer rather than the industry lapdog.”

In one case, a (Times) Money reader with lasting power of attorney over his 98-year-old father’s affairs asked the wealth manager Canaccord Genuity for the charges on his parent’s £700,000 portfolio.

In an email, an investment director at the firm said its management fee was 1.25% and a flat £30 commission per transaction would also apply. The reader asked SCM Direct to check. It emerged that the 1.25% did not include VAT, underlying fund charges or transaction costs. The overall charge was closer to 2.75%, meaning an additional £10,500 in charges were not initially highlighted.

Canaccord agreed the full charge was nearer 2.75%, but said it was asked specifically for only its own management fee and commission charges and intended to disclose the full cost to the client “ahead of an expected face-to-face meeting”.

David Esfandi, chief executive of Canaccord, said: “If there are any suggestions we have been less than transparent with our fees, we would strongly refute that.”

Research conducted by SCM Direct in May shows the Investec Click & Invest website presented its charges as ranging from 0.35% to 0.65%, depending on sums invested, and underlying fund charges averaging 0.6% (0.75% today). However, this did not include transaction costs, which add a further 30% to the fund cost.

Investec said: “We should have clearly shown the transaction fee within the average underlying fund charges. We have amended our website and apologise if this has caused confusion.”

SCM Direct also highlighted potential breaches by Coutts, Tilney Bestinvest and Wealthsimple.

Coutts said: “We already include details of the platform fees and the main fund charge at several points in the customer journey. In response to Mifid II, we have added the funds’ transaction costs to our Fee Tariff Document, which is readily available to clients. Next month, we are launching an integrated solution, including a personalised digital calculator, to further improve transparency.”

Tilney Bestinvest said wealth managers relied on fund management groups to provide accurate information. “We are currently in advanced dialogue with data vendors to enable us to secure this data and satisfy ourselves that their coverage is comprehensive.”

Toby Triebel, Wealthsimple’s chief executive Europe, said: “Both our management fee — 0.7% — and underlying portfolio charge are visible on our website, in addition to being highlighted through our help centre and magazine.”

Utter Hogwash

Even I , a seasoned watcher of corporate bull, was startled to read such utter hogwash from seemingly reputable organisations.

If you can’t t understand your charges, that is not “true and fair”. Being “in an advanced state” of complying with something you’ve known was coming for 14 years and has been law for nearly a year now is NOT GOOD ENOUGH.

The Miller’s point is a good one. If the FCA are not going to enforce its rules, it shouldn’t make them and we should live in the Wild West of fund management as practiced in numerous jurisdictions round the world (read Angie Brooks for details).

It’s not good enough to stand idly by and allow this bad practice to continue and I’m 100% behind Alan and Gina’s “True and Fair” campaign. Read about it here.

The proof of the (investment) pudding is in the spending.

You might think this article is leaning a bit too much on the Millers, after all they’ve made a fortune from investment management. I don’t doubt that they’ll continue to make a fortune by running a “clean shop”. The point that the Miller’s are making by running a successful business on “true and fair” lines is that you don’t have to be uncommercial to be honest.

I am aiming to be as successful as the Millers by setting up AgeWage to tell people “truly and fairly” how their lifetime savings products have actually done relative to the money they have paid to the financial services industry.  Value for Money is something we think is inherent in the simple equation “money-in, money out”. There can be no excuses in the final reckoning; when it comes to saving the proof of the pudding is in the spending.

We now have the tools

Working out “ongoing charges figures” (OCFs) is good and it’s what should come out of the legal requirements to disclose from MIFID II and PRIIPS. But OCFs and other percentage based measures only play to the people who understand percentages and the way compound interest works.

More important to people when they are judging things are measures that tell them what value they are getting for your money. Which is why I want to turn performance and charges into a single score that relates – not to some abstract notion – but to your understanding of what’s gone on.

Since the Data Protect Act 2018 and (to a lesser extent GDPR), we have all been able to get to the data about ourselves necessary to understand the value and the money we’ve got from our savings. AgeWage is simply a way for people to have this information brought together to tell them how their savings have done and how they are likely to do in the future.agewage vfm

In both intent and practice , AgeWage is born out of True and Fair and this blog acknowledges Alan and Gina Miller, Chris Sier, Andy Agethangelou and the other members of the awkward squad, who are gradually wresting back control from those who intermediate between us and our investments.

Posted in advice gap, age wage, pensions | Tagged , , , , , , , , , | 2 Comments

The net-pay scandal gathers momentum


Key “net pay” (or variations on the phrase) into the keyword search on this blog and you will find over 30 articles going back to early 2015.

It was Kate Upcraft who first put me on to the problem which emerged as the auto-enrolment entry band did not align with the entry level for income tax. She explained that not just the relatively few people auto-enrolled into net-pay occupational schemes then, but the huge number auto-enrolling since, could lose out on the Government promise of 4+3+1 contribution structure (with the 1 being a percentage of pensionable payroll, which earned a Government incentive. To put it bluntly, net pay schemes put 12.5% of your contributions at risk.

Of course the risk isn’t very real for the higher paid who are unlikely to get out of bed for less than £1000 pm; the risk falls on the lowest paid who often are the least advantaged in society.

I argue that those people who don’t get the ‘1’ are in contribution deficit and I’ve told the Pensions Regulator that if they are prepared to

block employers with DB plans from completing corporate transactions until DB deficits are plugged, they should do the same with DC. Whitbread’s sale of Costa to Coca-Cola is a case in point. We do not know how many Costa employers are missing part of their pension entitlement, but – knowing the nature of work at Costa, we can imagine it’s quite a few. I want an audit of DC contribution shortfalls to be carried out now and for the restitution of promised incentives to be completed before the deal is done.

This is why I am proud to be one of the signatories on the letter to the Chancellor, delivered by NOW Pensions.

Progress so far.

The Daily Mail’s This is Money has run its piece which is very comprehensive. You want a link?  Here it is .

The Daily Express has also run a good piece. Here it is

And there are various articles in the trade and political press; here they are

FT Adviser – Altmann and Webb demand tax loophole is closed

Pension Age – Industry heavyweights urge Chancellor to fix the net pay anomaly

Actuarial Post – Now Pensions signs letter to Chancellor on net pay anomaly

Professional Pensions – Govt urged to take action on net pay anomaly as experts sign letter to chancellor

Politics.co.uk – Campaigners press government for action on pension tax relief

Financial Reporter – Campaigners call for government action on pension tax relief losses

CIPP – Campaigners press government for action on pension tax relief

Money Age – NOW: Pensions co-signs letter to Chancellor to prevent AE being ‘undermined’

HenryTapper.com – NOW writes to the Chancellor on behalf of the pension unloved.

Well done the few – what of the many?

It’s all very well for the pensions industry to squeal about rich people’s problems, (Annual Allowance, Lifetime Allowance, IHT thresholds), but it’s incumbent on all of us to come to the help of those who don’t have financial advisers and aren’t valuable to pension providers.

I’m really pleased to see those who put their signatures to the NOW letter. They deserve applause.

Caroline Abrahams, Charity Director, Age UK

Baroness Ros Altmann, Chair, pensionsync

Troy Clutterbuck, CEO, NOW: Pensions

David Dalton-Brown, Director General, Tax Incentivised Savings Association (TISA)

Anne Fairpo, Chair, Low Incomes Tax Reform Group of the Chartered Institute of Taxation

Helen Hargreaves, Associate Director of Policy, Chartered Institute of Payroll Professionals (CIPP)

Paul Nowak, Deputy General Secretary, Trades Union Congress (TUC)

Nigel Peaple, Director of Policy and Research, Pensions and Lifetime Savings Association (PLSA)

Henry Tapper, First Actuarial and Pension PlayPen

Steve Webb, Director of Policy, Royal London

But where is the ABI on this?

The ABI can generally sit smugly on the right side of the debate, because the GPPs which form the bulk of their corporate pension business operates on a relief at source basis. Though some insurers run master-trusts on a net-pay basis, the ABI declined to sign the letter as they could not mobilise their membership behind it.

What possible detriment could there be to the reputations of insurers , in calling for the low-paid to be given a break? I am saddened that the ABI are not signatories, I hope that they will put their weight behind the campaign within the next three weeks.

All eyes on the budget

In three weeks, Philip Hammond will deliver the 2018 Budget. He speaks for a Government run by Theresa May who pledged, on appointment to help those just getting by.

If Theresa May is reading the Express, the Mail and the many other publications I hope will follow, she may want to nudge her Chancellor a little further. For the untold number of us Brits who participate in auto-enrolment and don’t get the break they’ve been promised are precisely the people who struggle to “just get by”.

Esther McVey and Guy Opperman should be rattling the Treasury Gates. Opperman in particular- he asked to have the title of Minister of Pensions and Financial Inclusion. If you believe in financial inclusion and are happy to take the credit for auto-enrolment , why are you excluding the newly “included” from what you promised them?

Posted in advice gap, pensions | 4 Comments

Play “Stick or twist” in the workplace pension lottery!


Stick or twist 1If you changed jobs, would you prefer to stick with your current workplace pension or join your new employer’s scheme (leaving a little pot behind you)?

It’s a tough choice, and the more you think about it, the tougher it becomes. For example, some workplace pensions – the ones that have a fixed monthly charge – are particularly tough on small pots, others – which rely on an annual management charge – are easier to leave behind. Pensions are so complicated, isn’t it easiest not to bother? After all, that’s why auto-enrolment has been a success, people didn’t bother to consider opting out!

But what’s good a small pot to you in retirement, you’ll probably want to “aggregate” it into a bigger pot at some time in the future, so why give yourself the problem? Wouldn’t it be easier to take the pension you started with to each of your future employers and hope that you got lucky first-time round?

I know there are people who say “don’t put all your eggs in one basket” but it’s not much fun having lots of tiny baskets when you are managing your retirement finances! The value of diversifying across lots of workplace pensions is at best unproven!

This is why the Pensions Minister, Guy Opperman is consulting with pension providers about operating a clearing system for auto-enrolment, just as happens in Australia. How this idea might work would be for payroll to pay not to a provider, but to a clearing house, which directed the payment to a provider selected by the member.

The member decision could be simplified into the binary choice I gave you at the top of the article and a default could be used “if you don’t choose to use your current pension, you’ll be auto-enrolled into the new plan”. This is rather easier than defaulting into the “current plan” as that assumes that the current plan is still available to the new member and it mightn’t be able to receive contributions from a former employee.stick or twist two

There are then two obstacles to offering the choice to members, the first is the technology, (the extra cost of clearing) and the second is the nagging doubt it puts in people’s minds -“have I made the right choice?”

Of the two, the second is the hardest. When Stakeholder Pensions were introduced back in 2001, the idea was that because there were no exit penalties, people would be able to take one stakeholder pension to another as easily as we exchange pound notes for loaves of bread. It didn’t turn out to be the case as regulations were introduced requiring people to take advice before moving money.

The reason for advice was it was thought that not all Stakeholder Pensions were created equal and that people could do financial “self-harm” if an adviser was not involved. In practice, advisers learned that they could take hansom commissions in helping people switch money, a practice that was banned from 2013. We now have the awkward situation where people cannot move their own money from pot to pot, but advisers can’t be rewarded by commission for doing so. As people are reluctant to pay advisers fees, the pots tend to stay where they are and the result’s the DWP estimate there will be 50m abandoned pots by 2050.

These pots are expensive for providers to administer. They not only have to keep a record, but ultimately, they have to manage a claim on the pot – which wipes the lifetime value of pot management to the provider. One providers told me he wanted to manage an army of well-drilled soldiers, not a “prisoner of war camp”. The analogy is apt, small pots are captives like prisoners, another provider talked to me of bulking the transfer of small pots as “prisoner exchange”.

In order for us to move on from the problems that are building up for providers and consumers, we need to find a way for small pots to be transferred without detriment to member. This means either reducing the cost of advice to zero or going back to the original premise, that once you’ve sufficiently regulated stakeholder or workplace pensions, moving from one to another doesn’t require advice at all.

In the long term, we need a system that allows us to easily “twist” and move our pots from one provider to another, or “stick” with one workplace provider for our savings careers. Tackling the twin obstacles of technology and advice is now high on the Government’s agenda.

stick or twist 3

Posted in auto-enrolment, pensions | Tagged , , , , , , , , | 3 Comments

Why would management fees be any cheaper for #cdc than DC?

newton blake

Blake’s view of Isaac Newton (see final paragraph)

It’s a question posed by John Ralfe- to me – on twitter. It’s a serious question and one that Jeremy Cooper, doyen of the Australian Super system is clearly interested in too.

The question cannot be simply answered with reference to academic theory. Having just read a short and very understandable academic paper on the advantages of tontines over life annuities, I am in no mood for further academic wrangling. If all CDC was about was rearranging deckchairs, then I’d be looking to the lifeboat!

What is my answer?

If the answer doesn’t lie in actuarial science or in financial economics, perhaps we should look at what creates the inefficiencies’ in DC. What cannot be denied is that people pay a vast range of fees for having their DC pot managed. Last night I was with Quietroom , watching vox-pops of people being shown the fees they were paying, most of the people were not just unaware of these fees, they were unaware that there were charges on their DC plans in the first place.

The comparator two people used was with their bank

“I might as well take my money out and put it in the bank where I know what I’m getting and I won’t get charged”

One answer to the question is “governance”, individual DC plans, especially when they move away from employer funded to individual drawdown, have very little governance. It is easy for an advisor or a non-advised drawdown provider, to charge what they like. There is no-one to stop them.

Another answer is in the nature of a “trust”. If we consider the not for profit principle that has been at the heart of collective occupational pensions for the past sixty years, you can see it as the continuation of a benevolent paternalism that has persisted much longer. It is the paternalism of Joseph Chamberlain and the 19th century industrialists who built Bourneville and Port Sunlight. It is a cultural aspect of our British way of life, it is what is expected of our bosses.

This expectation that bosses will set up trusts for the welfare of their staff – run on a not-for-profit basis, has not gone away. It is implicit in relations between unions and employers and accepted by both sides. These collective arrangements are the inspiration for multi-employer schemes, the Pensions Trust, the Social Housing Pension Scheme, B&CE’s holiday plan – the People’s pension. The concept of the state as a super-employer lives on in the national acceptance of NEST as a good thing.

The alternative to the brutality of the market, is the protection of the trust.

So – for most people – the collective solution is a natural solution. It is part of our culture in a way that the American 401k system isn’t. The Australian alternative – where the state is all powerful and decrees the way Super is managed, is no alternative to the British system of “trust”. The fact that we trust each other and our employers and the Government to provide for us collectively, is of major advantage to the British pension system.

That – since the mania for personal pensions – we have done all we can to destroy that trust in favour of financial empowerment of the individual – has not made that trust go away. The system of collective pensions is still in place, it is simply looking for an upgrade.

Five practical advantages of the collective approach to DC

These five advantages are not specific to CDC, they are advantages that spring from the collective mind set talked of above and can be implemented through trustees because of trust. Those who  don’t believe that trust exists will poo-poo these arguments, I would ask for them to show of proof that trust does not exist.

  1. The investment management agreements that can be negotiated by organisations representing billions, reduce the margins of fund managers and return that value to consumers through the not for profit mechanism – economies of scale in the purchasing of investment services
  2. The recording and documentation of records for a large group can be managed by repeatable processes (smart ledgers) which use straight through technology. The administration of collective pensions is cheaper than the administration of individual plans.
  3. The payment of pensions under a collective arrangement is considerably cheaper when everyone is being paid in the same way (a wage for life). The substitution of a rules based  pensioner payroll for an individually driven drawdown plan, cuts down on payment costs.
  4. The communication of what is going on , is – in a collective DC plan – a one to many job, rather than an agonisingly difficult process of explaining on an individual basis. The advisory costs of CDC are minimal, the costs of advising on individual plans, especially in drawdown, makes drawdown unfeasible.
  5. Finally, CDC – by dint of it being run on a not-for-profit basis , is feeding less mouths. The cost of intermediation of a one to many scheme is intrinsically less than a great number of individual plans.

Can this be proved?

I think it can and will be proved. It cannot be proved in practice till we have CDC schemes and my hypothesis that we can tap into the great goodwill of trust to make CDC happen and keep it going – is just that.

Academics will point to risks in this approach and in as much as I am relying for my arguments on concepts like goodwill, I will be deemed to be airy-fairy by some financial economists.

But if we left the world to Newton, we would have no poetry, if we left the world to the financial economists, we would have no pensions!


Good luck to those debating CDC at the Corporate Adviser Summit today.

Posted in alvin hall, CDC, pensions | Tagged , , , , , , | Leave a comment

Schools staring into a pension “abyss”



Contrary to indications that the Teachers’ Pension Scheme (TPS) employer contributions for 2019-20 would be set at 19.1%, schools have now been told  that the figure from September 2019 will be 23.6%.

The Teachers Pension Scheme, along with all other unfunded public sector schemes, is required to complete a valuation every four years. The valuation has two main purposes: to assess the scheme’s assets and liabilities – the cost of providing scheme benefits in the long-term; and to recalculate the employer cost cap to determine whether it remains within the parameters set out in 2015. The outcome of this valuation is the need to increase employer contribution rates by 4.5%. This figure is well ahead of any formal or informal prediction heard in the last 6 months.

This increase could  have a profound and damaging effect on the finances of schools and will threaten the viability of some as the cost of the increased contributions will have to be absorbed within the school’s financial plan. Schools were given no indication of the magnitude of the new contribution rates which came “out of the blue”.

Further details are outlined below. You will see that maintained schools will receive funding support in 2019-20; independent schools will not.

I’m indebted to the local government association for this information

Teacher Pension Employer Contribution Increase

 HM Treasury recently published draft directions to be used in the valuation of public service pension schemes. The Government Actuary’s Department has now completed their calculations to provide indicative results of the 2016 valuation of the Teachers’ Pension Scheme (TPS) to the Department for Education (DfE), the key results are as follows:

  • Implementation of the change to the employer contribution rate will be 1 September 2019 (rather than 1 April 2019) due to the delay in this announcement.

  • The estimated employer contribution rate will be 23.6 per cent, for the period 1 September 2019 until 31 March 2023.

  • The biggest impact on the employer contribution rate has been the change to the SCAPE discount rate that is used to assess the current cost of future benefit payments; the SCAPE rate will change from CPI + 2.8 per cent to CPI + 2.4 per cent from April 2019.

  • There will be funding from the DfE for the financial year 2019/20 to help maintained schools and academies meet the additional costs resulting from the scheme valuation, a consultation process will take place to determine final funding arrangements. Funding for 2020/21 onwards will be discussed as part of the next Spending Review round.

  • The SCAPE discount rate sits outside the employer cost cap process that was introduced for the 2015 career average TPS as this is a financial assumption. The indicative result also shows that the cost cap has been breached due to the value of member benefits having fallen. This is due to assumptions about earnings (pay increases lower than expected) and reduction in life expectancy. Discussion will take place with the TPS Scheme Advisory Board to recommend changes to the scheme design for career average section members of the TPS to align member costs to the cost cap.

Does anyone know what this will really mean?

The Financial times reports that the Treasury said the increase to 23 per cent was in the right ballpark, but not yet a final figure, and that it reflected lower long-term forecasts for the economy, which will weaken the finances of unfunded pensions in future.

The Treasury has pledged to provide the Department for Education with sufficient compensation for 2019-20 for state schools, further education colleges and independent special schools, but only to “take the change into account” in its 2019 spending review for later years.

Unions are worried, however, that the change in the contribution rate will act as a disguised spending cut after 2020.

Speaking to the Financial Times,  Kate Atkinson, a specialist adviser on pensions to the National Association of Head Teachers, said the union was “extremely concerned” about the long-term impact of the changes on school budgets.

Ms Atkinson said it was “all well and good” that the DfE had promised the anticipated increase in contributions would be “funded” for the 2019-20 financial year, although she pointed out it was unclear what the department meant by the terminology.

“It’s not entirely clear how they’ll provide the funding- . Will it be on the exact cost that each school is facing, or will it be on a pro-rata basis that will end up with some winners and some losers?”

The association was still more concerned about the position after the first year of the increases. “After that,” Ms Atkinson said, “it’s staring into the abyss.”

An unwinding of a hidden cross subsidy- or something else?

What is most worrying about GAD’s valuation is that it implies that the economy is unlikely in future to be able to support current spending plans. The NHS is absorbing its imputed increase in pension costs under the new NHS spending plans, but the relief for teachers is non-existent (private sector) and looks very temporary for the state sector.

With increases in life expectancy falling and public sector wages pretty well static since the start of austerity, we would have expected unfunded pensions to have become more rather than less affordable.

Has the true cost of our public sector pensions been disguised all these years, with the public picking up the balance of costs not collected from schools and teachers?

Or is this nothing more than a stealth tax, where the Government are over-charging for pensions to replenish its depleted coffers.

Will this precipitate calls to scrap defined benefit pensions for the public sector, as called for recently by Michael Johnson?

Those familiar with the USS JEP report – will know all about that trick.


Since this article was published, the Government has published this useful guide to SCAPE and why they feel benefits will have to rise ( justifying increased employer charges). I am unconvinced that this isn’t a civil servants way of giving him/herself a rise in reward at the tax-payer’s expense.


Posted in accountants, pensions | Tagged , , , , , , , , , | 8 Comments

Should Government play “fantasy pensions”?


fantasy pensions.jpg

What should we make of reports in the Daily Telegraph that our Pensions Minister, Guy Opperman, is meeting with pension experts to consider a system where a workplace pension could follow the employee, rather than employees joining new plans with each new job?

Kate Upcraft’s response to me was characteristically to the point.

“it would be a nightmare for employers of all sizes. Does anyone realise how time consuming it is to prepare and upload files given the industry refuses to work to one standard?”

If you are running your employer’s payroll, or a payroll bureau, then I imagine you’re not overwhelmed with the prospect of clearing contributions to an unlimited universe of workplace pensions.

Government triumphalism over the success of auto-enrolment belies the strain it has placed and continues to place on payroll.

Upcraft argues that DWP have never seen employers as key stakeholders as AE was really the first-time payroll operatives had had a major interaction with one of their policies. This certainly chimes with my experience of introducing payroll champions to Sir Steve Webb in 2013. But much has changed and the DWP’s Pensions Regulator is now almost as familiar to payroll as HMRC.

It would be easy to argue from this analysis that the pensions minister “should know better”.

But this would be to ignore evidence that the tectonic plates of technology are moving. This year we have seen the successful introduction of open banking, with faster payments now a reality. We are but a minor tremor away from open pensions which might yet make a pensions dashboard a reality in 2019. For Fintech, read Pentech, the Financial Conduct Authority is leading the world with its innovation hub.

Success of the pensions dashboard is predicated on the adoption of a set of data standards that could in time be adopted by payroll to “clear” contributions to the workplace pension of the employee’s choosing.

Certainly, this would help restore consumer confidence in pensions. The DWP estimate that unless some means is found to consolidate workplace pensions, we could be looking at nearly 50m abandoned pots by 2050. With the average worker expecting to start with 11 employers in a lifetime, “pot profusion” threatens to derail the AE Express.

While a dashboard might allow multiple pots to be viewed on a single screen, the prospect of organising some kind of retirement income from upwards of ten workplace pensions is daunting. Small wonder that Opperman’s open to the arguments of workplace pension providers.

Small wonder too, that workplace pension providers are looking to limit pot proliferation. The financial implications of managing millions of small pots and small potholders are dire. While they may not present an existential threat to NEST, NOW or People’s pension, they limit their capacity to bring down costs over time – and improve service. Some of these providers are openly touting ideas that to pension traditionalists seem as outlandish as “clearing” seems to payroll.

One of these ideas has been dubbed “prisoner exchange” and involves one workplace pension provider swapping thousands of abandoned pots with another provider. This time it is the provider – not the member – who is calling the shots, but the concept is equally fraught with risk.

If we take into account the advances in technology and the proliferation in pots, we can make more sense of Government interest in “workplace pensions following the member.

But it is still very worrying that payroll does not seem to have a seat at the Minister’s table. Organisations such as PensionSync have pioneered the technology that could make clearing possible. Indeed, PensionSync have commented on social media that a system of clearing could create a more transparent and efficient way to operate workplace pensions.

Payroll could be determining not just the shape of change but the pace of change. Pensionsync’s recent report on the (lack of) quality of the data reaching providers tells us AE compliance may not quite as comprehensive as the DWP would have us think. Payroll must impress on Government that no move to “clearing” happens, till pension providers and payroll can be sure that the single interface model is working properly.

From the feedback I am getting, even when new technology is in place, pension providers are still applying “lipstick to the pig”. Address errors on one insurer’s workplace pensions database, included data that had been imported by an API, it turned out that the API had been delivering data to an insurer’s spreadsheet which had then been used to manually key in entries onto the insurer’s system.

Some would say that you couldn’t make it up, sadly – that’s precisely what some manual updating has done. Until we have moved to straight through processing for all AE interfaces, we cannot contemplate moving to the fantasy of payroll offering universal clearing.

Posted in accountants, advice gap, Dashboard, dc pensions, pensions | Tagged , , , | 1 Comment

The Garden of pension delights!

Occasionally I should allow this blog to publish a vision of what pensions should be, rather than what they are – at least to justify it’s title! Here is my garden of pension delights , a place filled with the intoxicating air of perfect liberty


I will not talk of that demi- paradise that preceded where we are today, it is depicted in the left panel, I imagine that the right hand panel is governed by financial economists.

The five delights of my pension garden

  1. the freedom to choose or not to choose
  2. a CDC retirement default complimenting freedoms (but not replacing them)
  3. the option for employers to use CDC for auto-enrolment
  4. the option for employers to employ a clearing house for auto-enrolment
  5. a dashboard that makes sense of retirement options.

The freedom to choose or not to choose

Currently we have no choice but to choose, in short – no default way to spend our pension savings. This is not the case where our pension comes to us as a wage for life (the state pension and DB), but is the case with our DC saving.

A CDC retirement default

I would like to see a default introduced, once CDC has been properly understood and proved both in concept and practice – where a workplace pension nominated a post retirement strategy which required nothing from the member but to sit back and get the money.

Any other option – drawdown, annuity or cash-out, would demand a decision, the “wage for life” solution – using CDC principles would become the default for the millions of us who do not want to make a choice.

The option for employers to use CDC for auto-enrolment

A CDC scheme – in which an employer voluntarily chooses to participate, will have a target pension. The formula for that target might be n/80th of a percentage of notional salary but it is predicated on a money in/money out formulation. The outcome will be influenced by achieved investment returns , by changes in mortality, by all the variables of long-term pension accrual, but it is likely to be considerably more certain than the DIY individual system we use at the moment. It is also likely to be a lot more efficient as it disintermediates through the simplicity of its approach and through the economy of doing the same thing once for many thousands of people.

I would like all employers, whether on their own like Royal Mail, or in multi-employer CDC schemes to be able to switch to CDC. I don’t expect CDC schemes operating at auto-enrolment minima any time soon. The target pension for most people at current rates would look so small as to dispirit. I expect to see CDC as an employee benefit for employers who treat pensions seriously.


The option for employers to choose a clearing house for auto-enrolment

Right now, the law requires each employer to choose an authorised workplace pension for auto-enrolment. Employers can nominate more than one pension but few choose to do so, even when there is good reason (for instance net pay plans with no relief at source option).

My vision is that employers that choose to pay for the facility, could offer pension clearing to their staff using the technology we are increasingly calling “open pensions”. There are already organisations such as pensionsync that act as a hub for a number of providers. This “hub and spoke” principle could be extended over time so that all authorised workplace pensions might link to the hub using the common data standards and interfaces developed as we develop the pension dashboards.

A dashboard that makes sense of pension options

Increasingly, as they move towards retirement, people value their income from their work. This isn’t surprising, income is more vulnerable as you become less energetic. We crave a replacement income from the state, from work and from our private savings. This is why pensions matter.

Right now , dashboards are seen by Government and providers as a way of encouraging more saving, but by consumers as a way to see how much they can spend in retirement.

“Outcomes” – are almost always defined in terms of capital and it’s thought necessary to employ a financial adviser to convert capital into income. This clearly makes sense if all an individual has as choices require them to manage the nastiest hardest problem in finances. Since the old “wage for life” solution , is no longer a default (I mean annuities), the pension dashboard could become the means of comparing the risks and reward of drawdown, annuity, cash-out and CDC.

In my vision, the wage for life solution is the new default (or rather a reversion to scheme pensions as managed before mandatory indexation and the various funding regimes introduced over the past thirty years). For those who want to look beyond the default – to annuities, drawdown or cash-out, there needs to be a way to test the suitability of each. I would call this a test-drive. The dashboard could be used as a pension simulator allowing people to test-drive each option.

A garden of pension delights

There are two things that need to happen for my garden of pension delights to take seed

  1. We need to adopt the new technologies on which these solutions are based
  2. We need to have the cahoonas to innovate and adopt change

I don’t know what the timescale for the delivery of my vision is, but it’s been in gestation for the nearly ten years I’ve been running this blog!

As I’ve been typing this article, the sun has risen over the horizon as I look out towards the Isle of Wight. A small fishing boat has made its way across my line of sight and is caught in that moment when it crosses the pathway made by the sun on sea.

This picture seems this morning a symbol of what might be, the hope of a better system which illuminates afresh what we have always wanted , but failed to achieve.

fishing boat




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“Pentech” needs to lead or the dashboard won’t work


The dichotomy between old and new skool pensions has rarely been so well displayed as at Wednesday’s Pension Dashboard Summit

  • Enterprise v Start -up
  • Consumer led v business case
  • Big Government v entrepreneurs
  • ABI v open banking
  • Saving v Spending
  • Prospective v Retrospective Governance

The conference showed the chasm between those who just want to do it and those who want to follow due process.

The frustration of those who followed due process, created the pilot and watched their work grow old on the digital shelf, was very evident. It was matched by the concerns of those like Romi Samova and Chris Sier who have watched “nothing happen” since the DWP took the project over last year.

The DWP’s problem is clearly in decision making. Does this dashboard project follow conventional lines with business rationale’s feasibility studies, consultations and prototypes. Or does it follow the open-banking model where the banking industry was told by the CMA to find a way to “open banking” – and did.

In retrospect, the decision to hand over the reins to the DWP by the Treasury was a bad decision. The Treasury has championed Fintech and has clear skin in the game. It’s regulator – the FCA – has its innovation hub and its Sandbox, it also has a massive budget. By comparison, the DWP has a noble but underfunded regulator in Brighton, which – despite the success of auto-enrolment implementation, has virtually no experience of pensions.

Faster pensions

Today has seen a big step in the governance of faster payments with a consultation launched that would make banks responsible for the prevention of fraud  by making banks liable for the consequences of fraud. I have not heard of such a thing with relation to the pensions dashboard, but it is easy to see a replication of the principle.

The issue of retrospective governance of faster payments (at the core of open banking) is critical as faster payments are now part of our lives. Cash doesn’t so much burn a hole in the wallet, as get glued to its sides. I have notes in mine that have been there some time!

If the pensions dashboard means one thing to the population , it is that their pensions money becomes real and spendable. While we have faster payments, we have not yet had faster payments. Try to drawdown your pension pots and you will have mixed success!

What the ABI and other old-skool dashboard advocates haven’t recognised is that in countries which have dashboards, it is the over 50s who are the main viewers. They are preparing to rely on their retirement savings and pensions and need a high level of visibility of what they’ve got in terms of prospective income and capital.

The relentless mantra of the old-skool dashboardeers is that dashboards will improve saving. I am sure that most people, when they think of dashboards aren’t thinking of saving more – but spending more.

Dashboards for most of us mean faster pensions – whether “pension” means one big payment or a “wage in retirement”, faster pensions means access to money.

Dashboards = Faster Pensions = Better access to money in later life

Enterprise v start up

Old skool enterprise struggles to achieve the agility and energy of start ups. The Aviva digital garage is one attempt to bridge the gap. Another is L&G’s colossal funding of Smart Pensions. Old skool insurers have worked out that they are least able to deliver digital innovation of the type we’ve seen in open-banking. They turn to partnerships of open self-contained digital annexes to ensure that innovation happens without the obstruction of enterprise.

The Government should recognise this. Open Banking didn’t happen just because RBS, Lloyds, HSBC and Barclays pout their hands in their pockets. The main driver was the challenge of the challenger banks.

The DWP face a situation where it has relied on old-skool insurers to deliver digital innovation. They have come up with an old-skool website – which already looks totally out of date. The whole concept of a standalone dashboard now seems quite absurd!

A dashboard needs to embedded in something – a car, a plane – a pension plan. But to imagine embedding a dashboard that brings the state pension and other private plans (DB and DC) to where individuals are managing their money, seems quite beyond the old skool.

Meanwhile the scrapers (Yolt, Moneyhub etc.) struggle on showing us how it could be done. When we move on from individual log-ins to a single secure log-in, when every interface is a properly coded API and when 80% of the information we need is available in real time, we will have a dashboard. The prototype is an upgrade on a PowerPoint presentation.

Leaders not committees

The people who get things done in financial services these days, don’t rely on the DWP to issue a paper, they do it. Chris Sier made the IDWG happen by showing the FCA he could do it. Romi Samova is changing the way millennials save, by just doing Pensions Bee and Andrew Evans is showing that a Pentech can work within the world of occupational pensions by making Smart work.

These are to Pentech what Ann Boden and Anthony Thompson are to open banking and the wider Fintech.

The DWP should be talking more to Chris Sier, Andrew Evans and Romi Samova – and rather less to itself.

A way forward for the DWP

It’s time to let those entrepreneurs just do it. It’s time to orientate the dashboard towards the consumer by recognising that it’s about spending not saving. It’s time to drop up-front governance and regulate retrospectively. It’s time to start listening to entrepreneurs and not the ABI and it’s time the DWP started supporting the entrepreneurs who will make this work!

Posted in Dashboard, pensions | Tagged , , , , , , , | 1 Comment

Pensions dashboard – for the consumer or the industry?


chris sier



Yesterday I suggested that the Pensions Dashboard Summit being held in London was likely to be “feisty” – it was. The organisers chose to put the event under Chatham House rules, as if a debate about transparency can be held under a tarpaulin.

I am restricted in who said what, but I can say what was said. Broadly speaking the room fell into two camps. One camp, which I belong to, decided that as everyone wants a dashboard, we should “just do it”.  The other camp – more circumspectly, considered following DWP’s due process, waiting for the infamous feasibility study (still sitting in Esther McVey and Guy Opperman’s out-trays – six months late on delivery).

Perhaps the best articulation of the “just do it” camp came from one of three wise men who’d arrived from the East (well Denmark, Belgium and Holland to be precise)

These wise men were pretty scathing about our dashboard decision making process (though they may have been deferring to wider decisions in this comment.

With both the DWP and tPR at the Summit it was left to the ABI and to People’s Pension to assert the rules of due process.

As the bloke sitting beside me put it, if we wait for due process on governance, we’ll not just be retired by the time we get our dashboard- we’ll be dead.

Who was breaking ranks?

One person created the debate yesterday, Dr Chris Sier. The Chair had asked the question in his opening statement “who’s the dashboard for, the consumer or the industry”. Sier did not duck it. For him the dashboard was for the consumer and in an impassioned cry to give pensions back to the people who own them, he stated his position.

Providing data on your pension to the place where people are (a properly positioned dashboard) should not be compulsory). But the failure of someone controlling that data to provide it back to its proper owners – the consumer – would be at best immoral and at worst a breach of the Data Protection Act 2018.

For the industry or the consumer?

Chris Sier was breaking ranks in stating what is blindingly obvious to the wise men, that you do the right thing by consumers – or face the consequences.

With the wrath of exclusion, our #1 pension journalist railed against the conference from her desk in Southwark.

Jo’s misgivings were well-founded. The vast majority of the people in the room had vested interest in the provision of a commercial dashboard and it was clear why.

Why the shrill cries for compulsion?

Whenever the pension industry calls for compulsion, it’s compulsion on their terms. The ABI’s view of compulsory participation in the dashboard is that it will accelerate cash flow into insured savings products and away from what we properly call “pensions”.

Talking to the three wise men after the event , it appears that most people who consult overseas dashboards are at the end of their saving journeys. They are people who are looking to spend their retirement rights, whether State, occupational or what they call third pillar and what we call personal.

Not only is the pensions industry wrong in thinking that dashboards will increase pension saving, they are ignoring obvious, dashboards can control spending.

Dashboards can also provide diagnostics on the state of the car’s engine and tell drivers about fuel economy, past performance and whether the current car is fit for future use. None of which was much discussed yesterday.

Who owns the dashboard?

In an astonishing outburst, one delegate criticised those in the room coming to the dashboard debate for the first time for asking such questions as “what’s the dashboard for?”.

Clearly the group of 17 providers who’d answered this question as part of the dashboard pilot project thought they’d nailed it

Pensions Dashboards will enable people to view a snapshot of their pensions, online, via the portal of their choice.

Some industry experts have suggested that pension dashboards may deliver:

  • Better understanding of their likely finances in retirement, based on their current situation
  • Clearer grasp of the need for financial advice
  • Motivation to increase their pension contributions
  • And more inclination to take a proactive role in managing their retirement.

For the industry as a whole, a better informed customer should lead to:

  • reduced administration

  • increased competition on a level playing field

  • greater clarity surrounding the provision and nature of long-term savings products.

This is – I suspect a “business justification” for providers. It is not exactly a consumer charter!

And of course the agenda is very much about reinforcing the insurer’s traditional lines of distribution (this is from the consumer facing side of the dashboard prototype website)

Pensions dashboards will show you what you’ve saved so far. They’ll also show you an estimate of what that may be worth in the future.

For more information you will need to speak to the pension providers direct, to one of the free advice services, or to a financial adviser.

A financial adviser can help you plan ahead and explain what happens if you take some of your pensions as cash or income.

In my view, the prototype was designed by the industry for the industry  as a means of further fee extraction. The DWP are right to question whether compelling us to support such a project is in the public interest.

The dashboard cannot serve the 10% of people who take financial advice, it must serve the 90% of us – who don’t. Right now – the pension dashboard is owned by people who are interested in profit maximisation of their organisations and their supply chain.

This has to change.

Will Governance make a difference?

Gregg McClymont – who spoke yesterday – has a quite different view from Chris Sier’s “Just do it”. I suspect he thinks Dr Sier quite mad. I suspect that so do the ABI/IA/PLSA and all who sail with them.

You can read Gregg’s views in Financial Adviser, he would hand the Governance of the dashboard to the yet to be created Single Guidance Body (or whatever they re-brand themselves). This is likely planning to build a skyscraper on a swamp. It may never get off the ground and if it does, it will sink beneath its own weight.

The governance model for open-banking (something we heard a lot about yesterday) was light on governance and depended on “test and see”. The agility that Fintech brings is just that, a way of testing what works with ordinary people – rather than assigning a purpose to the dashboard (see above) and building to satisfy the purpose (aka provider business justification).

Establishing the McClymont Governance model would almost certainly play into the hands of the pensions industry and exclude the consumer – as Jo Cumbo saw the consumer excluded yesterday.

Governance – in the sense Gregg wants it – will sink the dashboard without trace.

Is there a governance model that works?

I’m sure there is and I’m sure it will emerge from “test and see”. To presuppose what that is, as almost everyone in the room – wanted to – would be a big mistake.

People will voice their fears about the handling of their data and a governance model should be built around the research of Experian who tell us that 72% of the public do not trust their financial data to be shared.

Experian sponsored the conference and constantly shed light on the consumer’s viewpoint. Like Chris Sier, they saw the answer in testing what worked for ordinary people. Sier’s vision, to test the dashboard hypothesis in the controlled environment of an FCA style sandbox, is the only credible governance model I saw yesterday.

If we are serious about building a dashboard for consumers we should not “just do it” we should “do that”!


Gregg McClymont

Posted in Dashboard, pensions | Tagged , , , , | 3 Comments

#pensionsdashboardsummit – it could be feisty!


feisty horse power


I’ll be off on a Boris Bike to Marble Arch in a moment to the Pension Dashboard Summit at the Arum Hotel.

From the opening session , which pitches Chris Sier together with L&G supremo Chris Clarke, this looks likely to be a lively, controversial and even fiery day.

The pensions world is divided between those who want a strong and centralised dashboard financed and run by DWP and those who want the private sector to deliver – perhaps through multiple dashboards. This polarity precludes a third option – hardly anyone thinks we don’t need a dashboard!

I’m pleased to see the conference will be chaired by Simon Kew – who is of course the lead singer in the Pension PlayPen’s house band “the racket of the lambs”. We hope that he won’t have to raise his voice to quite the extremes witnessed at the 100 club (see video below).

What the debate’s really about.

The key issue is whether we can have in “pentech” what the banks have got from “Fintech” – open pensions (alongside open banking).

Two years ago, nobody believed that Open Banking would happen. Today it is a reality. Hardly a day goes by when a new challenger teams up with a banking giant to announce a new venture. I have in my wallet, cards from Metro Bank, Revolute and Starling – I have business accounts with all three!

Open Banking means that I can see through apps like Emma and MoneyHub all my accounts on one screen. It’s handy for me to have more than one bank as I have different needs catered for from different services (FX, pensions, budgeting as well as standard banking services).

It will be the same with pensions. Most 50 year olds are looking forward to something from their workplace pension(s) , if they’re lucky – some will be in pension form , if not – they will at least get a capital reservoir to draw down as they please. On top of this – there is the prospect of a state pension – now greatly enhanced because of the triple lock.

The hope is that – in time – private pension pots will be able to be aggregated as the various bits of the state pension have been aggregated (OAP, graduated, SERPS, S2P).

But before you aggregate you need a pension finding service to put you back in touch with all the bits and pieces you started yourself- or you had started for you by your employer.

Can this pension finding service happen within the private sector- there are plenty of sponsors of this conference – who will tell you it can. The DWP has taken their word for it and intends to hand them the job (even if it holds on to the reins).

feisty horse

feisty horse

What needs to be done

Speaking with Charlotte Clark of the DWP about this earlier this month, she reminded me that handing things to the private sector is the start of the job – not its end. The real work for both the private sector and for Government starts here. Well actually it started in 2016 when Government last passed this on to the private sector (but let that lie!).

I think two things need to be done before we have “open pensions”.

Firstly , the private sector had better organise itself so that it can deliver data from A to B using a common data standard and a common application interface. In layman’s terms, the data needs to sent and received in a common way.  Romi Savova of Pension Bee is proposing a committee be set up – by the private sector to agree what this standard looks like. I totally agree, so does Chris Sier (who recently did this for the funds industry with  the IDWG).

Secondly we need to have as effective a force to make open pensions happen, as the CMA provided in making open banking happen. The Competition and Markets Authority (by all accounts) did a fab job with the banks- getting them to adopt Fintech. The DWP has a tough job meeting that standard and I’m not at all sure they think they’re up to it. But if they feel they don’t have the resource or expertise, perhaps they could get the excellent people who led the open banking project to teach them how they did it! Alternatively, just ask the CMA to repeat the dose!

These two recommendations, one for the private sector, one for Government are my next steps for the pensions dashboard.

Why this matters to me?

At a personal level, I have aggregated my DC pensions and will only have three pensions going forward -what comes out of DC (or perhaps CDC), what comes out of my DB pension and what I get from the State. It would be nice to see my future income on a single screen as I approach the sixth decade of my life!

But there are many not so fortunate as me. Many have their pension pots spread over a variety of providers – DC occupational pensions, personal pensions , stakeholder pensions, SSAS, SIPP – goodness knows what else!.

It is very important that we give people back a sense of ownership of their money.

This can best be done by helping them to find their pensions

Once we have found the pots, we should be able to help people understand how their pensions have done, whether they’ve had value for money from their contributions and whether there may be a better place for their money going forward.

Another survey was published this week by the FCA which again told us that less than one in nine of us were taking financial advice and only one in three of the people who really should be taking advice, went anywhere an adviser.

Why the pensions dashboard really matters is that until people know what they’ve got, they won’t be able to take advice – in whatever format that advice arrives. I define advice as “the provision of a definitive course of action” or “telling people what to do”.

You can’t really give advice until you know the facts. Facts in a financial sense come from data and data comes through a dashboard.

It really is as fundamental as this. If we want people to manage their pension freedom properly – we have to give them the information on which their decisions can be taken.

We need a dashboard and soon. Let’s hope this Conference moves the debate a little faster!

With so much at stake, look out for an action packed day – and some feisty moments!

Posted in age wage, Pension Freedoms, pension playpen, pensions | Tagged , , , , , , , | 1 Comment

The Gravy train is still at the station!


This is a post from an asset manager. You cannot comment on the post as Muzinich has turned off the comments facility on Linked in.comments

I am wondering what the “appropriate” response to the post is.

Should it be

  1. Muzinich are big swinging dicks -being to be able to hire a large private room in one of London’s most expensive restaraunts.
  2. Muzinich didn’t get anyone to turn up (doesn’t look max capacity to me). This joke being corporate sabotage by a disgruntled employee.
  3. Muzinich got people to turn up but didn’t want to implicate them in this “freddy-freeloader” convention.
  4. Muzinich are showing their conspicuous consumption to impress us

Do people still think that it’s a good idea to advertise corporate excess , dressed up as a seminar – in a public place? Clearly the answer is “yes”. Clearly the answer should be “no”.

Who/where were the guests?

A perusal of the Bribery Act is all most people need not to be photographed attending a posh event like this. That Muzinich has attracted a max-out suggests that they have promised anonymity and….

  1. Bloody good food . wine and service
  2. CPD
  3. Networking with people who might offer you a better job

This is known – outside of financial services circles – as a gravy train. It is about as unlikely that we can know who attended, as that we can comment on the post.

Why this conspicuous consumption?

It isn’t hard to work out who paid for this event. If you want a clue try Muzinich’s linked in profile.  

Muzinich & Co. is a privately owned, institutional-focused investment firm specializing in public and private corporate credit.

This is an American company selling stuff into the UK to consultants and institutional buyers. The consumer will never know they are investing through Muzinich , through the DB pension scheme and consultancy community””

We know who Muzinich’s customers are, but it looks like us consumers are ultimately paying the bill.

Here is a picture of the leads of Muzinich’s London office (courtesy of their website)


These are the guys who post the piss-up, “late cycle credit investing seminar” turn off the comments box and protect their customers and consultants from the likes of me.

Not a lot of diversity- huh!

This is where your money goes

This is part of the process i call fractional scamming. There are hundreds of Muzinichs out there. They hang out in 1 Lombard St and the Ned and all the other places only too pleased to receive your money.

Don’t be any doubt that it’s your money – these guys are spending. And whoever were in the room were eating and drinking away your life savings.

That Muzinich feel it appropriate to post their events on Linked in , suggests that the Bribery Act is a dead duck and that – for all the efforts of Chris Sier and Andy Agethangelou,  the gravy train is still at the station – at least for this lot,




Posted in Blogging, pensions | Tagged , , , , | 3 Comments

Are you and your savings “retirement ready”?

age wage


I’m getting fit, which is a long way off saying “I’m fit” in any sense of the words. But just getting rid of the first few pounds has put me in a much better frame of mind.

Many of us put off organising our retirement finances – just as I’ve put off going to the gym. The enormity of the task ahead is too daunting, the cost of a financial adviser (like a personal trainer) is too high and anyway, nothing’s gone wrong – yet!

But there’s always that nagging feeling that while you put things off, things get worse.

Income continuity?

If you are in your 40s and 50s, you may be thinking about how you might wind down and use your savings to supplement your earned income. If you are later in life, you may be wondering how to call it a day and budget to live on what savings you have got.

Planning a budget for a month ahead is hard enough, but when you are trying to allocate savings to events years away, it’s so hard that most of us just give up. One of the troubles is that we are used to planning with the certainty of an income in mind.

And like it or not, most people – by the time they reach their forties – have reached a plateau – their natural level of income -whatever that may be. The prospect of losing that base level of income drives most of us.

Isn’t it odd that at some arbitrary point in time, we determine that we can switch from earned income to unearned income and rely on our savings to provide us with that income continuity?

Continuity or guarantee?

Personally, it is the reasonable prospect of a steady income, which is what I look forward to. Nice as it is to have guaranteed increases in my Zurich Pension, I am prepared to give up guarantees on my DC pot, for a degree of certainty that the money I’ve saved at work and when self-employed, provides me with “income continuity”. After all no one ever guaranteed me work more than three months ahead!

For me – CDC works fine – a promise of continuity of income, not a guarantee of what that income will be. Together with the State Pension which i get at 67, I feel that my DC savings, if transferred to a CDC plan (which I intend to do), would probably allow me to pack it in if the Pension PlayPen, First Actuarial and AgeWage (my three jobs) stopped paying me.

And like the Royal Mail staff, who are waiting for what they want to come along, I have a plan B. So I feel I am “retirement ready” (though not ready for retirement). I have a plan B!

Why do I sound so confident?

A few years back, I drew up a list of all the retirement savings I’d made (including ISAs and investments in my businesses) and I decided on what I wanted to do. The ISAs I left alone- they might not be optimal, but I’d made my bed and now I would lie on it. I didn’t want to spend a lot of time worrying about my mortgage repayment fund!

As for my income, I knew I had some DB and I decided to maximise the income I could get from it , by not taking the cash sum (tax-free as it was) because it would cost me such a fall in income (the actuarial factors for swapping income for cash weren’t good for me).

I am confident in the state’s ability to pay my state pension and I got lucky – having been contracted out – I discovered I can make up the lost entitlement to state pension by working through till 64 – after which I will get a full pay-out – fully inflation protected – perhaps over inflation protected.

But the single thing I did – which makes me very confident, is that I brought all the little pots I’d built up over the years – together in one great big pot. It took me some time, some of the money couldn’t transfer without penalty till I was 55 and some of the money transferred very slowly. But it all came into my one big pot eventually.

Which means, that when I come to spending my savings, I can do it in a manageable way.

Getting retirement ready with AgeWage.

Because it was so hard for me (a so-called “pension expert”) to get all my pension pots into one big pot, I’ve decided to start a business called AgeWage, which helps ordinary people – the 94% of us who don’t choose to, or can’t afford to – take financial advice.

AgeWage will provide (through my and other people’s blogs and advice columns) – a personal fitness regime for your retirement finances.

More importantly still, it will help you to understand the historic value of your pension pots. AgeWage will do this by valuing your pots using a scoring system called the AgeWage Algorithm (AA). Each pot we look at – we’ll research by looking at all the contributions you received from your bank account, employer, national insurance rebates and tax relief.

And we’ll look at all the money that came out of your pot to pay advisers, fund managers, brokers, dealers, custodians, lawyers and of course the pension providers themselves.

What AgeWage will do for you is provide you with a single number- which is  your historic pension fitness score. We call it….

age wage simple

Just an example

And the number and screen colour will change depending on whether you can move this money without penalty. Green numbers are transferrable and red numbers aren’t. For instance if you have transfer penalties and they fall away soon, you may be better off keeping your money where it is.

What AgeWage does.

The analysis within the number is not “subjective” – it does not rely on “opinion”. It is “objective”. It is created by data. So long as the data works and the algorithm converts the value your pot has given you and compares you with the money it has cost you, that number is infact an objective “value for money” score.

Even the colour of that score is determined by an algorithm (one that picks up on oddities like exit penalties, terminal bonuses and guaranteed annuity rates).

What AgeWage doesn’t do

AgeWage won’t tell you what to do. There are literally hundreds of pension providers who will offer you ways to spend your money (or pass it on to your inheritors). At the moment these include SIPP providers, workplace pension providers , personal pension providers, annuity providers and I hope that in the future they will include CDC plans!

That choice is yours – and though AgeWage may in time help in the choice of your future way of spending your money, we won’t ever try to sell you one way over any other.

If you want advice, we may point you to good advisers – but we won’t be giving you advice.

Getting retirement ready

As I prepare for my daily battle with my weight and failing limbs, I realise that the pain I’m going through is worth it. Every extra day I live is a happy day- and a well funded day – thanks to my having a wage for life from Zurich (thanks) and from the State (thanks in anticipation). I want to protect myself from living too long, because I intend to be extremely healthy and live into extreme old age !

Financial fitness goes hand in hand with personal fitness, they are my two life goals, I have an after-life goal too – but that’s a matter of faith!

If you want to become retirement ready, keep reading my blog.

If you want to help me at AgeWage, drop me a line – we will need lots of people testing our hypothesis over time! We may even end up giving you a job!

If you want to use AgeWage, you’ll have to wait a few months while we analyse enough data to be able to make our numbers definitive.

We’re in deadly earnest,  Chris Sier and I want to get you retirement ready!

age wage

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Pensions that make you want to live longer!

Henry cheers

The way things were!

Nurse Rebecca is pleased with me. I’ve lost 19 lbs in my first month of recuperation from TapperTubby syndrome.  Regular access, reduced alcohol consumption and a cutting down on high cholesterol and high calorie food are apparently making a difference.

In one month I have, according to Nurse Rebecca, become one year younger. If I continue on this trend I should be back to being a 61 year old (fitness wise) by the time I turn 57 (November)! If I carry on to my targets – I might be 56 again!

Incentives to live

I have an incentive to live, each year I live longer is worth financially around £36,000 to me. Last month, my DB pension from my time at Zurich became £36,000 more valuable to me! I am determined to win back the six and a half years Nurse Rebecca claims I’ve lost from being overweight and under exercised.

A DB pension is an incentive to live longer.

This all became very relevant to me when I was at the Quietroom conference yesterday. I had to leave half way through, but got to heard a great talk from someone who was encouraging people like me to take tiny steps towards wellness as the Marketing Director of Weight Watchers. I nearly jumped up onto stage to testify how right she was (but I’m not using Weight Watchers).Claudia 2

Right on queue, Claudia’s watch went off  (she claimed by accident), it was telling her she’d hit one of her walking targets for the day (she should have used a podium). The reminder of success is precisely what I got from Nurse Rebecca – Kerching – a pound lost a grand gained!

But as I contemplated the good news re my DB pension, I felt a commensurate loss with regards my DC pot, which will now have to stretch further. Most young people – and many of my age – will only have DC pots and the state pension. The state pension is of course DB but we all like to think it’s our private pots that really matter.

If I’d stayed at the Quietroom gig, I could have listened to Judy Parfitt of Vitality. According to my friend John Mather, Vitality now offer you a retirement savings scheme of which the charges rise or fall depending on your fitness. You save faster , the faster you can run!

Because this scheme is DC, you’ll need more in your pot, if you approach retirement Claudia 3

A DC pot is a disincentive to live longer!


Can I have the best of both worlds?

Not yet you can’t! But I suspect that by the time I get to my mid sixties (give it a few years), you may be able to slip into a general pool of people – as a fit person – with a real chance of outliving your peers.

All that time in the gym earning you a cheap Vitality workplace pension will pay off as you put your feet up in retirement.

How- you might ask- can a DC pension do this?

The answer – in my imagination – is for me to switch the DC pot that I have built up into a CDC scheme. A CDC scheme pays a wage for life – for all of my life – not just till my normal life expectancy – or to the point when someone requires me to buy an annuity.

A CDC scheme that allows me to save as I like – that pays me a pension for as long as I live is the best of both worlds for me!

What’s more, if I can swap the job of managing my wage for life with the manager of my CDC – I might have the time and freedom – to enjoy my later years!

I suspect that a stress free retirement will be both healthy and long!


Henry Tapper

How I want to be (Again)!

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Shaking up pensions with Quietroom

quietroom shaking.PNG

Early this morning , I’ll be up the Farringdon Road with Quietroom, shaking up pensions. I’ve just looked at the agenda

If we want to get folks fired up about pensions, we need to start doing things differently.

That’s the theme for the latest event from award-winning communications experts Quietroom. It’s aimed at anyone in pensions who wants to improve engagement – and it’s all about fresh thinking.

About the Event

We’ll hear from people who’ve solved similar problems to ours in other sectors – they’ll share what they’ve learned about motivating people to change the way they eat, exercise and work.

We’ll bring some new voices into the room, people who know something we don’t and whose ideas we need to hear.

Together we’ll come up with some practical ways to get better results – for ourselves and for the people whose futures we shape.

Pension people cannot change by looking at each other, we need to look outside and compare ourselves to people who’ve been shaking it up elswewhere. The people I’ll be hearing from this morning will (I hope) give me some perspective.

shake up.PNG

This is not the first time Quietroom have done this. You can read the fruits of a previous “shake up” here.

Or – if like me – you like to listen and watch – here’s Vince introducing the last event

Well done Quietroom

Posted in dc pensions, pensions, Pensions Regulator, Popcorn Pensions | 3 Comments

“Making workplace pensions work” – the Pension Regulator’s new approach

making 2.PNG

New livery – new approach

I’ve been on the Pensions Regulator’s stakeholder panel a couple of years and this gets me a ticket to their Annual Conference. I haven’t bought the new vision in previous years, but yesterday’s event, held in County Hall, pushed the right buttons. The TPR Future Program is what a quicker more proactive and tougher regulator should do, I give it a thumbs up; though I’m far from certain it will deliver the protection it promises to members.

£34.6bn left DB plans to uncertain destinations last year, the masthead of this blog reminds us that over £3bn of that amount left BSPS – much from Port Talbot steelworkers.

You can read the document “Making workplace pensions work” here.


First my concerns

My doubts focus on the yawning gap between the FCA’s supervisory approach, focussing on providers and the tPR’s risk-based approach , focussing on schemes. Where the FCA has its focus on member outcomes, the Pensions Regulator focusses on trustees, employers and (to some extent) advisers. You might see these as complimentary, I see the gap.

I saw the gap in yesterday’s discussion of scheme consolidation. It is one thing to focus on benefits of economies of scale, it is another to ignore “member detriment”. The concept of “homogenisation” was bandied about. If you were cream – would you want to be homogenised with skimmed milk to make a more marketable product?

The first of TPR’s statutory objectives is to Protect the benefits of occupational pension schemes. Homogenisation does not sit well with that objective. Dumbing down of benefits to meet the commercial needs of superfunds , employers and to protect the PPF- cannot be achieved at the expense of member benefits. A  transfer resulting in a marginal improvement on PPF benefits (with a weaker provider covenant) , “protecting member benefits”.

Second , my applause

The re-branding of the Pensions Regulator to “TPR” will save my fingers a lot of typing. The new logo and font are simpler and more focussed. While this may seem cosmetic, it is more than that, it is worth looking good if you have an image problem. Carillion, BHS and  USS, have given tPR an image problem, something had to change – it has.

Sadly, one thing that shouldn’t have changed, the incumbent CEO- Lesley Titcomb, will change. Though we still have 6 months of Titcomb, she will be missed. TPR Chair Mark Boyle reminded me after that it is the team that counts, it’s the leader of the team that counts the most – Lesley Titcomb will be hard to replace. My applause to her.

Lesley Titcomb 10.png

I’m really pleased with the new team – nonetheless. Nicola Parish is not to be messed with, David Fairs is authoritative and personable, Liz Hickey is as good a communicator as her demanding post requires, Mark Birch is solid ( a rock in a hard place). I am pleased that Jo Hill is joining in November, she will bring a capacity to analyse and use the Pensions Regulator’s data-set, something which has not happened enough to date.

So what’s new?

The new regulatory model has emerged through the TPR Future programme, the new operating model that fulfils regulation will – according to TPR

“cover all operations- defined benefit, master trusts and other DC schemes, auto-enrolment and public service schemes”

What is new is that big schemes (the 25 biggest according to FT, 60 biggest according to NMA) will get one to one supervision – effectively their own TPR account manager, the smallest schemes (mainly the 30,000 of so EPPs and SSAS’) will get not much more than statistical oversight. Whether one to one is done purely on scale or on a risk and scale assessment is unclear – my impression was that risk was part of the selection process. Risk selection is more sensible in terms of targeting problems, though it would be hard for a risk-selected scheme to avoid being labelled in “special measures).

Regulatory focus on small schemes will be targeted on those most likely to fail their members. Here – the digital skills of Jo Hill should make a difference. The scheme returns are digital, the auto-enrolment team has long used digital RTI to identify potential failures, this is surely the way forward for TPR’s small schemes approach (whether DB or DC). TPR call this “horizon scanning”.

Here the question of consolidation becomes relevant. “Comply and explain” (if you don’t) , should be the mantra for the small schemes unit. But TPR need a clear policy on “destination”, (as Pete Glancy of Scottish Widows pointed out). It is not good enough to drive small schemes out of the frying pan into the fire.

Other “news” is the announcement of a new “test and learn” online guidance service – to help 21st Century Trustees.

Standards of what “good looks like” will be implemented. TPR acknowledged yesterday that there may in the past have been an over-emphasis on “bad” – it’s good to see the bar for good practice being more precisely set.

The Auto-Enrolment escalating penalties model, will become common in other areas of TPR enforcement

“We will drive compliance through a process of systematic and escalating interventions with those we regulate …we will intervene and take appropriate enforcement action”.

When’s this happening?

TPR say that all this change is happening now. Horizon scanning’s going on today, the “one on one” large scheme initiative will begin in October. Work in progress includes oversight of the ASDA/Sainsbury merger (and Whitbread’s sale of Costa to Coke- not mentioned yesterday). Recent successes cited include work with GKN and Melrose.

By and large, I am with TPR, it is doing a good job with DB plans going through changing sponsors. My one reservation is that tPR currently do not recognise the DC deficits, such as those in the Whitbread pension scheme resulting from low income members missing out on tax relief (AKA the Government incentive).

If the Pensions Regulator is to be taken seriously in meeting its statutory object to protect members, it must require occupational DC schemes – whether master trusts or single employer schemes (like Whitbread’s) to make good the individual DC deficits – before clearance is given on deals.

Currently TPR think I am joking – I am not. This focus on small DC pots needs to happen now.

A clean bill of health?

Well almost – I still don’t see why FCA/TPR are so distant – geographically and in tone and culture. I still think that having two regulators causes an artificial divide between retail and institutional and that that divide is pernicious both to regulation and pensions.

In the long term- I want one pensions regulator – whether based in Brighton or Stratford and I want that regulator as good at regulating macro – as TPR and as good at regulating micro – as FCA.

Till that happy day, I am pleased to see TPR making progress, but warn it against complacency. It is still not protecting members as it should and – if TPR are reading this, I will not be shutting up about the net-pay scandal or the other issues mentioned above – where member interest are in peril.

making workplace pensions work

Desktop version



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CDC guarantees nothing! If that freaks you out – CDC is not for you!

It being early on a Sunday morning, the coots playing around Lady Lucy and a wind rustling through the willows, I’m minded to turn my mind yet again to John Ralfe’s queries on CDC.



They are all fair questions – though any answers will be dismissed by the Financial Economists as #smokescreen #bollocks etc. It’s not the FE’s that I want to convince, I’d like the non-expert pension enthusiast who reads this blog to know that there are answers to these questions which make CDC a viable option for certain people and certain employers.

We don’t live in a command economy, CDC will not be imposed on anyone, there should always be an opt-out. In my opinion, there should even be an opt-out for CDC pensioners.

But to the questions

  1. I would say that CDC is more certain than DC, since DC offers the higher risk in retirement. Pooling of longevity , of market risk and of the operational expenses of paying an income for life, makes CDC more attractive to people like me – who don’t want to manage our wage in retirement. This does not mean that someone who wants to DIY isn’t better in DC – those people will avoid CDC
  2. For a CDC member transferring into CDC 5 years before drawdown – the remarks above are particularly applicable. They will find life considerably easier in retirement and – unless they like managing their own money – will see CDC as very convenient. It is of course impossible to put a percentage on the advantages of the pooling of risks, because there will be winners and losers (see below). But for most people CDC should be a very attractive way to consolidate DC savings in the years leading up to retirement.
  3. CDC need not be less attractive for someone who is 35 years away from NRA. There need not be any cross subsidy between young and old in CDC – though scheme design will play an important part in the way CDC works. I suspect that some CDC structures will try (post Brexit) to introduce age-tiering into contribution structures , while others will find other ways to balance the interests of each age group.  Again, it would be extremely foolish to put numbers to the answer without having a context.
  4. I cannot see any reason why youngsters should be happy to sponsor older people’s pensions. It happens – it may be happening now – and it can happen in reverse. We should strive for inter-generational fairness, recognising that inter-generational solidarity is what pensions are all about. Both equality and solidarity are desirable. If people are determined to account for their own shares and not participate in a pool, they could and should opt-out of CDC.
  5. It’s true to say that – using the definition of risk that FE provides, CDC is “riskier”. Most DC drawdown strategies work on a glide path towards the purchase of an annuity that provides the guarantee of an income for life. This glidepath is inexact, it has to assume things about individuals that may or may not happen, so people can find risks in the timing of the de-risking. If individuals choose not to -de-risk and stay in growth assets, they can find things going wrong quickly. This generally happens in the later stages of drawdown when people are generally less lucid in their financial thinking, but it can also happen in the early stages – due to sequential risks. CDC provides protection against all this, by pooling longevity and market risk collectively!
  6. Actuaries decide the expected returns on assets and Trustees will generally take their advice. It is possible for Trustees to decide for themselves but this very rarely happens. The business of predicting expected returns is of course an inexact science, but best estimates are generally accepted as being just that.
  7. Best estimates are constantly being refined in the light of experience. This is a function of “big data”, the bigger the data set, the more accurate the best estimate.
  8. No CDC scheme sets out to wind-up, CDC is by definition an open collective scheme which is designed to last as long as their is need for it – potentially for ever. If however the scheme has to close, then it may well be wound up. There are a number of scenarios, a benign wind-up may simply see assets and promises transferred to another scheme. In a less benign world, where something has gone wrong, then assets will have to be distributed to DC pots or a haircut on the target may be offered from another CDC scheme.
  9. Transfer values can be calculated as regulations allow. It is possible to imagine a shadow fund approach where people get a value based on the timing and incidence of contributions (based on a unit value created by the CDC fund) or it could be that a CETV is calculated in a manner similar to the way DB CETVs are calculated. With the latter method, there would need to be a means to protect the fund in adverse circumstances (similar to the operation of insufficiency reports).
  10. It might be desirable for a CDC scheme to build in protection for families – such as a Death in Service , spouses pension , dependent lump sum or a combination of all of these. This is a question for individual scheme design and not for regulators (other than the cost of any dependent benefits need to be targeted not guaranteed (unless the scheme intends to insure them – in which the cost of the insurance policy will become part of the target benefit formulation.

I appreciate that I cannot give better answers at this stage , than these. The Financial Economists will no doubt see my answers as woolly and that I have not consulted a financial model when giving them.

I am on a boat and about to spend the day with a group of people who may never have spent a day on a boat before. I imagine they are looking forward to the adventure, as I am looking forward to CDC -with a mixture of excitement and trepidation!

However, I have the benefit of some experience at boating, and I have the benefit of some experience of pensions. I firmly believe we will have a great day on the river and I firmly believe that CDC will be a great success for those who choose to use it.

But I am guaranteeing nothing!

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I was ashamed of my pension colleagues

Michael johnson

Yesterday, as a guest of CWU’s Deputy General Secretary , Terry Pullinger, I spent a morning at the Westminster City Forum’s conference on Next Steps for UK Pension Funds.

The Conference dealt with the regulation of DB pensions, consolidation and the future of CDC.

This may sound pretty thin gruel but much of the morning was lively. David Fairs, speaking in his new post as Policy Director at the Pensions Regulator, challenged the audience to think of a world where the Pensions Regulator decided the strategy of pension schemes (as well as determining how that strategy was implemented). It was (I hope) a tongue in cheek challenge, designed to get us thinking of the implications of putting his organisation in charge of DB’s future. It solicited a typically robust response both from within and without the room.

Having spent the last 25 years at KPMG, Fairs knows all too well the danger of giving any party too much say in the running of DB pensions. I was surprised that so many of the room appeared to agree with his hypothesis that we could give tPR fiduciary control.

So much for tPR scope creep – what of the DWP?

We were given an entertaining interchange between DWP’s Julian Barker and Liberal Peer Archie Kirkwood. which consisted of Kirkwood deferring to Jeannie Drake on all technical matters and Barker reassuring the audience, that (subject to the Lords behaving themselves) we would see the legislative timetable fulfilled so that the key items (DB white paper , CDC and various other matters) appearing in next year’s Queen Speech.

Kirkwood kept the show on the road with some robust chairmanship of a number of disparate voices – including the exuberant Andy Agethangelou. At one point the conference seemed to be heading for some positive conclusions but no sooner had the debate switched to “what could go right” but it veered back to how we could cut members benefits. The first part of the morning – having started well, concluded on a minor chord. The suggestion hung in the air – flatulated by Michael Johnson, that CDC could be used to dismantle what remains of open DB pensions in the UK.

As one senior civil servant remarked to me “we appear to have snatched defeat from the jaws of victory”.

A truly awful second half

I returned to the conference, after a busy 20 minutes “networking” , with some hope of some second half goals for CDC. I got nothing of the kind. Instead I got a dreary presentation from Dutch Professor Hans Van Meerten which explained how CDC had gone wrong in Holland. Sadly the audience seemed unable to understand Van Meerten’s message that the same need not happen in the UK and it was obvious that the audience were now ready for blood.

They got it from Michael Johnson. I have rarely heard a more objectionable presentation than that given by this economist and so called thinker. Johnson seems tied to the mantra of Thatcher. Driving him is his obsession with the cost of the state pensions and the desire to dumb all pensions down to the lowest common denominator. CDC, in his book is a means of deflating DB.

Because he has made his money in the City, he now feels independent. Because he works for Thatcher and Joseph’s think-tank, he considers his views carry  weight.

They do. They carry weight because they are aligned entirely with the interests of the financial services industry for whom he is a flag-bearer. He speaks for the destructive force of neo-liberal economics that has no regard for anything but the pursuit of wealth for the few at the expense of the many.

Royal Mail as a case study?

Jon Millidge and Terry Pullinger were introduced to the conference as presenting a “case study”. Royal Mail is not a case study, it is the main event.

Earlier in the week I had chaired a joyous fringe meeting at the TUC conference where Pullinger had shown us how pensions could be returned to the people who wanted their “wage for life”.

Pullinger and the Royal Mail’s Millidge found their words falling on deaf ears.

The audience, picking up on Van Meerten’s warnings, assumed that what had happened in the UK would happen here. This despite every speaker making it clear that CDC  in the UK was a variant of DC not of DB.

Questions to the panel that followed the case study included suggestions that unfunded state pensions should be funded (to show how unaffordable such folly would be). The audience luxuriated in the comfort of Michael Johnson’s oratory and decided that consigning ordinary people to auto-enrolment DC pensions was perfectly acceptable, so long as they could continue to spend morning’s doing nothing but listening to Johnson confirming their a priori right to all the money.

Staggering arrogance of an over-indulged pension elite.

By the end of the second half , I had concluded that there is no point in Royal Mail and CWU spending time talking to “the pensions industry”. The force for good that their proposition is, should not be sullied by exposure to Michael Johnson or what he stands for.

I was deeply ashamed to be part of an audience which, for the most part, had no interest in restoring public confidence in pensions. Indeed, I think that what I saw in the room was the heart of the problem, the scabrous self-indulgence of a self-perpetuating pensions oligarchy who have created themselves  the title of “experts” – but who are nothing of the kind.


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“Green pensions” consultation gets record response.

Green 4

According to my sources at DWP, the consultation on how trustees of DC occupational pensions (including master trusts) listen to members views on “matters green” got record numbers of respondents – over 3,500. Apart from the consultation on pension  following the British Steel Port Talbot fiasco, the consultation was massively popular.

Most of these consultation responses were from people who cared about the environment and saw how their pension pots were invested as their personal responsibility.

This tallies with research published by Ignition House and commissioned by the DC investment forum that found that ordinary people (e.g. the people who our pension plans are for), expected their investments to be invested responsibly – even if that meant sacrificing racy returns from irresponsible investments.

So this Government paper matters.

Clarifying and strengthening trustees’ investment duties

I’m including the ministerial foreword from Guy Opperman which is extremely well written and well worth reading. Too often we misunderstand the mood of the people who we are supposed to be working for. On this issue, I think there can be no doubt, it is time we started listening to what people want from their investments and giving it them.

I am very pleased to be publishing the Government’s response to this important consultation on Clarifying and Strengthening Trustees’ Investment Duties. I wish to thank the 89 individuals and organisations who responded to the consultation and the 3432 pension scheme members who offered their views through a questionnaire. Their input has been supportive, challenging, considered and passionate – but always invaluable.

It remains Government policy not to direct the investment decisions or strategies of trustees of pension schemes. We will never exhort or direct private sector schemes to invest in a particular way. Trustees have absolute primacy in this area. I would also like to confirm that it was not our intention to give the impression in our original consultation proposals that trustees must survey pension scheme members or must act on members’ views about how their scheme is invested. Feedback on this point was helpful and we have amended the regulations to make the position clearer.

Nevertheless, in line with the conclusions reached by the Law Commission, I do believe it is possible and appropriate for trustees to take account of members’ views in certain circumstances. I therefore wish to offer clarity to trustees that they can do so; and offer clarity to members of the circumstances in which their view might be considered.

The vast majority of respondents supported the proposed change to regulations to clarify trustees’ duty to consider financially material risks and opportunities – whether those are traditional, such as company performance, interest or exchange rates; or broader such as those resulting from environmental, social and governance considerations including climate change.

A few dissenting voices expressed scepticism about the effectiveness of this measure. But for me the situation is simple – if there is confusion that these issues are to do with personal ethics, or optional extras, or can be dealt with through the addition of a ‘environmentally friendly’ chosen fund, then we need to address that misperception by ensuring that the law is clear. This is about the hard-headed fact that – given the time horizons of pension saving – broader considerations are likely to present long-term financial risks and opportunities to the solvency of DB schemes and the value of members’ DC (and in time Collective DC) pensions.

I was glad to see a widespread consensus that all pension schemes have a role to play in the oversight of firms in which they invest and to whom they lend. We therefore have maintained our proposals on stewardship, and in one area extended them, to put trustees’ responsibilities beyond doubt. I accept that the scope for smaller schemes to make changes will be more limited, but even where the range of actions is as narrow as switching between asset managers or between funds, trustees have a crucial role to play. Choosing a manager who can demonstrate high quality engagement, who partners effectively with co-investors and who votes accordingly where they see poor or questionable practices should improve returns for all.

Similarly, we intend to continue with our proposals to require schemes of 100 or more members with DC sections to produce a report on how they implemented their investment strategy, and to publish it alongside other material. These measures again received broad support.

I recognise that we are working here with private trusts. But private trusts can learn from one another, and transparency can lead to more effective competition and better outcomes for the members to whom trustees have loyalty. It is also right that DC scheme members, who bear the investment risk, and for whom employer contributions are normally conditional on remaining invested in the employer’s chosen scheme, can compare policies and raise issues of concern. Pension schemes and their service providers receive significant contributions through tax relief, and have a key role in corporate governance, as I have explained. So it is right that they have broader public accountability.

Finally, stakeholders confirmed our view that requiring a policy on impact investing at the present time could be confusing and counter-productive. Therefore we will maintain the current position that the preparation of such a policy should be wholly voluntary for pension schemes.

Nevertheless, investing for social, environmental and economic impact remains a subject I am passionate about. I will continue to engage across and beyond Government to identify how we might remove barriers and make it easier to invest in a way that supports the sort of world we want to live in.

Guy Opperman MP Minister for Pensions and Financial Inclusion

AKA – “It’s up to us to get off our rear ends!”

I’ve no idea who these two charlies are – but I enjoyed what they were saying – read the consultation response – but if you can’t be bothered – watch this!

Posted in auto-enrolment, Dashboard, dc pensions, pensions | Leave a comment

Pots follow meerkats?


We all know the problem but it was well put in a recent NOW pensions press release.

“There has been a stratospheric rise in pension saving since the introduction of auto enrolment. The ONS data shows that active membership of private sector DC schemes has risen from 1 million in 2012 to 7.7 million in 2017. This makes very encouraging reading….

“One of the side effects of auto enrolment will be an explosion in the number of preserved pension entitlements. The ONS data shows that this is already happening with an increase from 11.2 million in 2016 to 11.6 million in 2017. This underlines the needs for the Pensions Dashboard which would help people keep track of their growing number of pension savings.”

Showing people what they have is one thing (it’s a dashboard), but giving people a steering wheel and a means to drive forward is quite another.

Pot proliferation is a threat to workplace pensions

Speaking with another prominent master trust on Friday, I realised that it’s not just the consumer that needs small pots to move on. Back in the 1990s I saw how small pots ruined the economies of scale achieved  by the Kingfisher DC plan – unable to bring charges down because of the cost of administering deferred member’ tiny pots.

I fear the same will happen with auto-enrolment workplace pension providers.  For all the economies of scale from the increased assets under management, the profitability of a master trust will be dragged back by the millions of small pots they are building up.

Even a not for profit pension scheme like People’s Pension or NEST pension can do nothing since its primary purpose is to stay in business to pay the pensions in years to come. For the “for profit” sector, we are already seeing consolidation and a drop in service standards as firms like Standard Life and Legal and General struggle to justify being in the workplace pension market to shareholders.

The proliferation of small pots poses an existential threat to workplace pension providers and must be addressed if we are to continue to have the world-class workplace pension system we enjoy today.

Government intervention may not be the answer.

As with the pension dashboard, it is unlikely we will see Government wanting to fulfil on the delivery of the solution. When Ros Altmann dumped the Steve Webb “pot follows member” initiative in 2015, it was because there weren’t enough resources in the DWP to make it happen (the same reason that CDC regs. weren’t pursued).  As with CDC, the policy went away , but not the problem. CDC has been forced back onto the Government’s agenda by demand from a large employer, it is likely that pot-follows- member may also return to the policy agenda. But it will take a major catastrophe (such as the failure of a workplace pension provider) for that to happen any time soon.

If we are to see a solution to the pot-follows- member problem, it will have to come from the private sector. If the private sector can create an initiative that captures the imagination of the public – and so Government- then DWP and Treasury engagement may follow. But the ball is in the provider’s court.

I think that sitting back and waiting for Government to legislate is not the way for workplace pensions to get consolidation. They will have to get off their backsides and make this happen for themselves. Government intervention should not be relied on, indeed Government interference would probably cause more harm than good at this stage.

What can providers do?

There is a need for workplace pension providers to work together harmoniously to solve the problem of pot proliferation. A pure pot follows member system would see the pots from one period of employment transfer to the pot of the next employer. Leakage from workplace pensions would happen only when someone chose to transfer out of workplace pensions – say to a non-workplace pension that offered attractive features.

I suspect that most workplace pension providers would – despite some leakage outside their network – become more profitable from pot- follows- member

  1. They’d see assets under management remain the same
  2. They’d see administrative costs fall

Add to this the increased engagement of ordinary people in their “one pot” pensions and you have a recipe for more voluntary contributions and greater member loyalty over time. When members start asking their next employer , who their workplace pension provider is, then we may even see employers pressing for clearing to multiple workplace pensions (the Australian system).

This will only happen if we can make the process of moving one pot to another easy and happy.

Below I give three handy tips to the CEOs of the mass market pensions. Helen, Patrick, Troy, Andy E, Emma, Andy B and Phil – are you listening?

1.  Compare the meerkat?

Workplace pensions should learn from price comparison sites how to get the mass market to take collective action. When BGL (owners of Compare the Market) wanted to incentivise people to use their site, they gave parents meerkats on completion of a transaction, BGL are now the second largest purchaser of toys in Britain (behind Macdonalds), the cost of these toys is tiny compared with the improvement in profitability. The main motivator for people buying insurance with CTM is pressure from kids – addicted to meerkat toys.

I don’t suppose that NEST will be giving away meerkats any time soon , but if they wanted to incentivise their members to transfer to them small pots from others, or incentivise members with small NEST pots – to transfer them away, it may be these kind of incentives that work better than enhanced transfer values.

2. Use popular routes to talk with members?

Yesterday, the Sun published an article about pensions that focussed on consolidation. I don’t know what the reading figures for it would be, but as it was a double paged spread, I suspect it will get more reads in a weekend than this blog will get in a years.

If NEST and Peoples and other mass- market providers want to talk to their members, they need to use the mass market press and find ways to their younger members hearts – other than newsprint! I don’t want to lecture on social media – I’m too old for that!

I’d also suggest that the mass market providers start talking with mass market comparison websites such as Compare the Market, Money Supermarket and  Go Compare – even U-switch and Confused.

Where people are used to taking online decisions, there are established journeys in people’s heads that might work for pensions  as well as for electricity supply or motor insurance.

For mass market solutions, we need mass market media and mass market transactional capabilities. Neither the pensions trade press or existing financial advisory services have the scope to perform mass -market migration of the type need for “pot follows member”.

3. Get digital?

Well I would say that wouldn’t I? It’s no secret that I want to create in AgeWage a means for ordinary people to compare what they’ve got (dashboard), point towards what they want (steering wheel) and consolidate (foot down on the throttle)!

I’m keen for people to do things but I don’t want them to do silly things. I don’t want them incurring big transfer penalties on legacy (see Pension Potty article), I don’t want people missing out on terminal bonuses and guarantees annuity rates, and I don’t want people ditching providers that could help them spend their pots wisely. So we need a responsible system of comparison.

But we can’t do a mass migration of assets – as would happen if pots did follow members without the help of digital technology. Infact the long-term solution looks likely to involve smart ledger technology (the notorious block chain). In the short-term, what is needed is an agreement between providers not to block transfers and to welcome small pots when they arrive at their door.

In this the Origo Exchange will be vital. The more use that is made of this fantastic invention the better. I urge those providers still to sign up to Origo – to do so. I will continue to promote the Pension Bee initiative to name and shame those who don’t (the Robin Hood Index).

Making it happen!

I suspect that much of what I’m talking about is actually happening and providers are talking about how to fulfil on pot follows member – without my interference.

But I’m embarking on a round of meetings over the next few weeks to see what appetite there is among workplace pension providers to pick up on my three tips

  1. Use of incentives
  2. Use of mass market integrators
  3. Use of digital technology.

I hope by Christmas, to be able to report good news- and I hope that there are a few more caring souls like David Veal – who get what we are about!

Good pension report in the Sun. There should be a website to compare pension costs and a calculator. Surprised some entrepreneur has not produced one

— David Veal (@DavidVeal12) September 9, 2018


Sun comparison.PNG

AgeWage hopes to be part of that process!

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The public debate on USS is elevated by King and Kay.

One of the joys of Ralfebot is his sense of mischief. He takes the mick out of everyone -including of course himself. The thought of John Kay or Mervyn King joining any intellectual movement that I’m in – is “looney cubed”.

It’s the other way round. I  read the work of John Kay to understand how economics work and if something I say on this blog ties in with what John Kay says on his blog, I am pleased that I’ve interpreted this great man right. As for Mervyn King, I assume he’s a good bloke as he co-wrote the article.

But it’s good that Kay and King have written about the current challenges facing collective pensions schemes as they have and this shortened version – that doesn’t need access to the Times Higher Education website is still a brilliant read.


For the second time this week, I have come across the phrase ” The best has been the enemy of the good”, the other being in a debate on CDC earlier this week. Kay uses it to explain how the reaction to Maxwell made pensions so secure that no-one could afford to keep them open.

We have never had a public debate about what is an affordable level of risk, only a private conversation between trustees , regulators and employers about what is an affordable level of contribution. The risk bar has been set so high that the Royal Mail has been forced to abandon all guarantees.

Should the USS follow suit and become a CDC?

As well as sitting at the feet of John Kay, I also sit at the feet of the philosopher Mike Otsuka and actuaries Derek Benstead and Hilary Salt.

I will allow to discuss that question but I do not think that the guarantees within the USS scheme are unaffordable, it seems to me they form part of the reward for being a UK academic and they should not be given up without the consent of those who benefit them – and not without adequate compensation.

I think there is a strong case for USS considering up-grading its DC scheme into CDC.

The alternative proposal, which the JEP may consider is moving to a lighter form of DB – which is more focussed on rewarding USS members with bigger pensions and less focussed on the guarantee of such pensions. Moving to a WinRS style of pension might allow the USS to re-embrace risk and invest for growth – rather than to protect the past.

Whether the USS will move towards the low guarantee model, the no guarantee model or continue as it is , needs to be agreed by all parties. What is clear is that it can no longer be agreed by a tryst between the three parties – regulator, employer and trustee. Members are too involved in the debate to be side- lined.

Should the members decide?

As Terry Pullinger of CWU reminds us, the validity of Royal Mail’s approach to Government to have its CDC arrangement is underpinned by the 90% of the CWU’s Royal Mail membership that insisted on it (the alternative being industrial action).

Choices as delicate as WinRS v CDC v current USS DB are unlikely to see such a clear cut vote from membership. But I am surprised that in the consultation that has been going on, there has not been a plebiscite!

And if there was a plebiscite, would it be binding? This brings in a question of benefits across generations and brings us back to John Kay’s article which concludes

Any plan to provide pensions 50 years from now involves uncertainties and therefore should involve an explicit discussion of how risks are shared among employers and employees and between generations.

Recent tinkering with USS benefits have all referenced the immediate solvency of the scheme to the sound of tins being kicked down the road. Those sounds have been heard in the trustee boardrooms of all our DB schemes. There is no explicit discussion of how risks are being shared among employers and employees between generations- anywhere!

Well there might be on the pages of John Kay’s blog, and in emulation mine. But – to use the ending of Kay’s blog

Economic models are indispensable, but as guides to thought, not substitutes for it. A model should never be treated as an oracle that emits obscure but unchallengeable verities

It is not for economists or the pension elite to decide, it is for the people to decide, and by the people, I mean both the members of USS and those who pay for the university system on which this all sits.

That is King and Kay’s point – and it’s one I am happy to endorse!

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What’s Hillsborough got to do with it? WPC, pensions and Transparency

walk alone.jpg

This was the question on the lips of several members of the public gallery as they left the Work and Pensions Select Committee evidence session which you can watch here . If you have an FT subscription you can read Jo Cumbo’s report of the event here.

In truth it had, until Frank Field brought Hillsborough into the discussion been a rather dry debate, focussing on the iniquities of asset managers in not giving up data to the LGPS and other such obscurities.

The Chair, Frank Field, who at one point seemed to have fallen asleep, roused the gloom-laden event by extolling the then Home Secretary (Theresa May), for requesting that the Yorkshire Police revealed all the data that they had. This simple request, contrasted with previous requests (specific) and had proved successful.

Field’s point, as I understood it, was that a principals led call on Financial Services Companies to reveal everything, would be more effective than a call for specific data.

This is an important point and one that – post GDPR – is of considerable relevance in the dashboard debate. We are led to believe – a data request to someone with your pension information (a fund administrator, third party record keeper or a bundled administrator) triggers a response that must fully disclose all relevant information. It should follow that a request for data (for instance on how much a fund or administrative service costs) must be disclosed.

As I’ve made clear on this blog, I am not for mandatory data provision and I don’t think that Theresa May’s stipulation carried with it the force of law. The data that it made available resulted from someone who carried authority (a Home Secretary) demanding that the right thing be done and be done for the public good.

I believe that Government can do the same with regards to the data that people need to make good financial decisions on pensions, whether those people be the fiduciaries of the Local Government Pensions Scheme or ordinary folk like you and I , trying to make sense of our pension affairs.

Revealing bad news

There is a second aspect to the revelation of data in the process as part of a process we now call “transparency”. It is this.

Necessarily, putting data in the public domain makes it open to scrutiny and will reveal that some of that data is wrong. In the case of Hillsborough, some of the information made available to the public, implicated certain people in deliberate cover-ups, sometimes downright lies.

It is inevitable, in the provision of data through a dashboard , that some of the data will reveal unpleasant truths. Whether through ignorance, weakness or deliberate fault, some data that pension providers hold – was wrongly recorded and remains wrong to this date.

What Theresa May did, in requiring all Hillsborough information to be made available, was what the GDPR did in May this year, it turned the onus of data provision on the data controller who has a principal based requirement to tell people what they hold in terms of data, whether the data be right or wrong.

If it can be proved that the data held is deliberately wrong, then the data is fraudulent, if the data arose through sloppiness or “weakness” then there is a case for civil action and if the data is recorded wrongly through ignorance (which I take may be no fault of the data recorder), then there may be no case to answer. But whatever the reason for mistakes,.people have the right to scrutinise the data that is held about their financial affairs and the pension dashboard will be part of the process that gets them there.

Can individuals make sense of so much data?

Thinking about Field’s analogy, I realised that the forensic work that went into uncovering what happened at Hillsborough is analogous to the kind or work that would be needed to work out if someone had received value from a pension provider, for the money handed to them,

Ignorance, weakness and deliberate fault , may all have been at work but in the vast majority of occasions, best endeavours will have been employed by the providers to deliver the service promised. Most football matches do not end in disaster. Despite the gloom of the meeting yesterday, most people get a reasonable result from their pension saving,

But to date, there has been no way of knowing whether people have got value for money, there has been no historic assessment either of the policies and schemes entered into, nor of the treatment of money in/ money out and what happened to the investments!

That is about to change, or at least it will change if I can fulfil the business plans for AgeWage.

What I am wanting to do.

I’m tucking this away at the end of the blog about the “Hillsborough analogy”, but you will read this again and again in weeks to come.

I believe that people are entitled to know not just what their pension pots are worth, but whether they got value for the money they paid.

In one sense I will define “money” as the amount paid into the pension pot and in another I will define it as the money taken out of the pot in charges. It is possible to compare achieved outcomes to expected outcomes by using model price tracks and model charging structures, it is possible to assess VFM at a contract level through a comparison of achieved performance and actual charges.

As well as giving people a proper assessment of what their investments have done historically, I want to give people a fair choice of options going forward. I want people to be aware of all choices available to them in the new world of “freedom of choice”. But I also want people to take their own choices, without having to sacrifice a huge amount of their savings in advisory fees. I want the choice itself to contain the word “free”, since most people will not want to pay as much to spend their money than they already have in building it up.

This is the fundamental aim of AgeWage – to allow people to keep their savings and have them paid back to them in the way that suits them. Whether this be a pure AgeWage  or as a cash-sum is an individual’s choice. It is not mine to influence other than to put information forward in a way that makes choices and their impact clear.

Was Frank Field right to mention Hillsborough?

Coming as he does from Birkenhead, Field will know how provocative any mention of what happened to Liverpool fans will be.

I was there when he made the analogy and I know he was not being flippant or provocative, he was trying to illustrate a crucial question that we all have to ask if we are to properly understand “transparency”. The truth about Hillsborough remained hidden for fifteen years, it took Big Government to get the truth in the open. The truth was demanded by a Home Secretary -not by a court of law – it was revealed out of respect for the authority of Government.

I take Field’s analogy to be about the mandating of data into a dashboard (or directly to LGPS and other institutional investors). If we pass laws that require providers to produce the information, we do no more than the GDPR has already done. There is quite enough “law” out there. If instead we rely on the intentions of Government to make information about people’s pensions available to them, then the onus passes from enforcers to delivery.

The DWP has realised this. Just as Auto-Enrolment would not have worked if we had prescribed NEST as the sole provider, so the Dashboard would not have worked if the DWP had created and managed the central data process.

The DWP looks no more likely to mandate data provision than to run the database. But it looks very likely to rely on Government’s authority, to ensure data is provided in the way people need it to make proper decisions on how to invest and ultimately spend their pension savings. In this they do of course need to know the value of the income streams coming their way from defined benefits (especially the state pension).

Frank Field was absolutely right to use the Hillsborough analogy as it brings to life both the importance of Government (Theresa May’s intervention) and the role of those holding the information (the  South Yorkshire police). Substitute Esther McVey and the financial services industry and the analogy is there.

The catastrophe of Hillsborough was violent and specific. Every football fan who has ever stood on the terraces feels the awful impact of Hillsborough. The impact ignorance, weakness and deliberate fault on our retirement finances is not violent and general. But it too can be catastrophic.

We need – both from Government and from pension providers, the kind of pact that followed May’s intervention. We need to have the information in the public that doesn’t just tell us what happened, but allows us to make plans for the future. That is the final analogy with the Hillsborough inquiry.

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Pension Dashboard – consultation pending.


Here’s Guy Opperman on the Pensions Dashboard. He’s answering questions on behalf of this new boss – Amber Rudd.

Key message – “A feasibility study and a consultation are pending.”

My understanding of the Government’s position is this. It has made a Faustian Pact with the ABI to deliver the key element of the Pension Dashboard, the “find a pension” service into the hands of the consumer friendly ABI (cough).

I also understand that the Government has made a Faustian pact with the ABI to force everyone to sign up to this service through the ABI’s “not for profit” captive FinTech – Origo – by mandating participation.

If this happens, it will represent one of the finest pieces of sustained lobbying by the ABI and friends – ever seen in pensions. It will mean that Origo who currently charge around £5 each way for pension transfers – will clean up and will clean out many schemes who don’t do things Origo’s way.

This will consolidate much of the market to insurers who will pass on the costs of the monopoly to policyholders either in higher fees or through shelving the fee reduction plans that we could otherwise expect. Everything will of course be funded by an industry levy – as transparent as mud.

I know all this because sources close to the ABI have been crowing about this stitch-up to any journalist prepared to run the story; and most of the trade press has. For example.

I will fight any such proposals

The prospect of handing a small cartel a monopoly on the dashboard service is quite the opposite of “open pensions”.

Open banking has led to faster payments and faster information on our money, it has led to easy switching of accounts – it has benefited the consumer.

This has been achieved by the adoption of new protocols (known as CMA9) and has been achieved in the face of initial opposition from the established banks. Now those banks can’t get enough of open banking and are busy signing up with the likes of Starling and Revolut to deliver better faster.

I will fight for open pensions as an extension of open banking and will fight against the centralisation of service through an Origo led Cartel.

So we’re having a consultation after the big reveal!

Good – let battle commence!

can open

ABI strategy



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A “pension free” press?

press release2

I’m not surprised by news that the PPF has referred the pre-pack of Johnston Press to the Pensions Regulator. While reassuring members that such a referral doesn’t impact their rights to be in the lifeboat, PPF are asking whether the price of a job at the press is that Johnston dumps its pension obligations on everyone else.

The PPF deficit is reported at £80m – which doesn’t represent an existential threat to a fund fast moving to self-sufficiency, it’s the principal (or lack of them) that seems to be in question.

Think about it as a member of staff with a DB pension shortly to be paid out. You leave work on a Friday with a prospective pension of £20,000 and find out when you return to work you’ll now be getting at least a 10% wage cut for the rest of your life. If you value the kind of pension on offer from Johnston press at normal levels , that’s about £70k less on your personal balance-sheet.

Put it another way, you are likely to be working the next couple of years for nothing.

How do the bosses look such staff in the face?

It used to be a “we’re all in this together” kind of thing. The trouble is, those who do the pre-packs aren’t the ones who feel the pain any more. The big winners in pre-packs are the consultants (typically from the big four accountancy firms), followed by the new management (who don’t have skin in the game when it comes to the pension).

The winners don’t lose any of their pension rights and the losers are the staff who were promised a Johnston Press pension and end up getting paid from a lifeboat – an amount rather less than the promise.

Meanwhile the new company praises the deal because it keeps everyone in a job.

How do the new bosses look the old staff in the face? I suspect with difficulty. I suspect that the PPF are asking just such a question of the Pensions Regulator.

The thread from Jo Cumbo expands to include the positions of both PPF and tPR. The Trustees and the employer at Johnston Press remain tight lipped.

Not all the members of the pension scheme will suffer the same fate, priority orders mean that those already in receipt of their pension will be less impacted while the longest standing members – who are still to draw their pensions stand to lose the most.

We’ve seen in the past , schemes wriggle out of the clutches of the PPF when those most impacted, get wind of their misfortune and negotiate a Regulatory Apportionment Agreement which allows a new scheme to be set up with limited responsibility from the new company. This is what happened at BHS and British Steel and it tends to be a very expensive way of re-plating the gold.

I very much doubt that the PPF are calling for an RAA in this situation. I hope that they are calling for a proper contribution to the deficit to be made by the company that emerged out of this weekend’s miraculous pre-pack. Because falling into the PPF should not be considered a victimless failure. There are other people involved in the PPF than PPF members, the employers who sponsor other schemes who struggle on and don’t pre-pack, pay levies to keep the PPF in its current state and those levies increase because of failures like Johnston.

The more a sponsor has to pay to keep the PPF solvent, the less it has to pay its staff. So in the end, it’s workers in other companies, including those who work for rivals of Johnston Press who end up footing the pension deficit.

I’ll say it again, how do the bosses of the Johnston press (and their advisers) look us in the face?

A pension-free press?

If the price of the newspapers we buy or the news-websites we subscribe to , includes a premium to keep the pension scheme paying pensions, then it’s a price that I personally am prepared to pay.

I’m afraid I’m in the minority, but the demise of Johnston Press (pt 1) was more than just because of pensions.

I ‘m not too interested in how Culture Secretary Jeremy Wright answered a commons question on the issue – he ducked it and you can watch him duck it here. I’m more interested in comments by the unions and shareholders (as reported in parliamentary business)

The NUJ called for “meaningful guarantees” that the new ownership was committed to journalism and publishing and not simply looking to strip assets from the publisher. This concern was echoed by Custos Group, the biggest holder of Johnston Press shares, whose CEO, Christen Ager-Hanssen, said;

Today’s pre-pack was not so much a corporate rescue as a blatant pre-planned corporate theft by bondholders, suitably aided and abetted by Johnston Press’ incompetent and double-tongued board”.

Posted in pensions, Pensions Regulator, workplace pensions | Tagged , , , | Leave a comment

The CDC consultation – my tentative response.

The Pension Plough

The point of this blog is to share my understanding of the CDC consultation issued by the DWP. Please feel free to disagree and help me along where I am lagging. Please use the template of the 25 questions at the end (but delete my answers)  if you are responding for yourselves.

I note this “CDC consultation” is entitled “Delivering collective defined contribution schemes” and is not a document on the rights and wrongs of collectives rather than individuals. 

My response is made as a 57 year old with a DC pot, hoping in time that this pot can be paid to me as a wage for the rest of my life. This perspective may prove helpful in the shaping of regulation as there are many like me.

According to recent FCA surveys, only 6% of Britains are taking financial advice at retirement. I have studied the Pension Advisory Service’s inquiries and find that around a quarter of injuries contain the word advice while only one in fifty contain a request for guidance.

The message from people of my generation – those most in need of an urgent solution to the problem of how to spend our savings, is that we need to be advised of a default retirement solution as ongoing advised solutions – such as drawdown, look too expensive while locking into annuity rates – with the prospect of 30 + years till me and my partner’s death, looks equally unattractive.

Whatever this consultation enables, it must not disable the ability of people like me to transfer in benefits in due course.

Immediate ambition of the consultation

I am very pleased with the consultation and specifically not the following statements that define what the CDC means to deliver; CDC should

Provide a savings and income in retirement option within one package that is potentially attractive to those people uncomfortable making complex financial decisions at the point of retirement


Enable the sharing of longevity risk between members, thus providing each individual member with an element of longevity protection without the cost of accessing the insurance market

This is precisely what is needed; the consultation continues

A CDC scheme

May achieve greater scale than some non-pooled schemes and be able to invest at lower cost as a result. The recent emergence of master trusts in the individual Defined Contribution (DC) space has already shown some of the benefits of scale.


(A CDC scheme) may allow the trustees to adopt an investment allocation which is tilted towards a higher proportion of higher return assets over the member’s lifetime than may be usual in an individual Defined Contribution scheme, although the emergence of the draw-down market may see trends in the individual DC space follow a similar path over time.

I have some comments on the following statements regarding delivery.

Scope for discretion

In addition, given the complexity of CDC schemes compared to individual DC schemes, we feel it is appropriate for the former to be required to appoint a scheme actuary.

The judgement on “the complexity of CDC schemes” is made from an operational perspective. From the perspective of an individual, CDC schemes shouldn’t seem complex. I would prefer the language to focus on the ambition of CDC schemes. CDC schemes aim to help people to spend as well as save, this increased ambition is why CDC schemes need an actuary.

The role of an actuary should be limited to ensuring that the mechanism of the CDC scheme is working properly. Most importantly the mechanism governing the distribution of income and adjustments to it. As the consultation points out, this mechanism should not be based on actuarial discretion but clearly defined scheme rules

To help ensure this operates in an impartial way, our view is that this adjustment should be based on a mechanism set out in scheme rules, rather than trustee discretion.

These rules – as I understand it – would be based on actuarial assumptions and these assumptions can be adjusted from time to time. This is what gives a British CDC approach, the capacity to operate without buffers.

On balance, we favour a ‘best estimate’ approach with no in-built buffers which potentially dilute decisions on benefit adjustment.

A scheme actuary acts as a weather forecaster and the tone of the document is precisely right when it outlines this role as follows

Once a CDC scheme is up and running, we will expect the annual actuarial valuation process to consider emerging risks and threats, and to look at whether these risks significantly impact on the probability of projected benefits being met to an extent that calls into question the viability of the scheme

In Section 54 of the document , I find the following statement

Clearly, actuarial assessment and estimate is central to the provision of CDC benefits.

On the face of it, making a CDC scheme “rules based” and mechanistic, reduces the role of actuarial discretion. The central thrust of the communication of how CDC works must be to explain why the expertise of an actuary is still needed. The essential message is that from time to time the assumptions embedded in the rules will need to be changed, but the rules themselves are designed to endure. This is the communication challenge in essence

Scope for decumulation only schemes?

The consultation makes clear that there are relatively few employers who will consider CDC an option immediately. It offers hope to smaller employers and a little hope to the people who need a way to convert savings to an income for life

We recognise that interest in CDC provision may expand beyond the large employers that are likely to establish and sponsor the initial tranche of CDC schemes, so we will include provision in the legislation to enable us to make provision for such additional requirements as might be needed.


We do not intend to permit decumulation-only CDC schemes at this stage, although this is something we may consider in future

This is unfortunately worded. It supposes that CDC schemes are inherently tied to the workplace. However – most people – as they approach retirement, see little link between their DC pot and their employer. The majority of their savings will be outside the workplace.

The consultation suggests that the Royal Mail scheme will allow “transfers in”, but only to those accruing benefits. 

But what of those postal workers who have left service and want to bring their retirement pots to Royal Mail, the reason for them not to take transfers into the CDC scheme is unclear.

Farcically, somebody like me, could take up a contract with Royal Mail, be enrolled into the CDC after a month’s service and then aggregate all my pensions to the CDC scheme. I could leave a month later.

I don’t think the paper properly explains the link between the payment of benefits and time at work. I don’t see any particular reason for a CDC scheme to demand that someone has to be actively accruing to transfer in pots from elsewhere, and I don’t see any practical reason why Royal Mail couldn’t admit people to its CDC scheme who aren’t employees of Royal Mail.

Scope for investment

Imposing a charge cap on CDC will come as a blow to some investment managers who might consider the provision of patient capital, an opportunity – not just for members – but for their firms. 

I can see the argument for an unconstrained approach to investment but I don’t think that it stacks up in the context of a scheme where members are expected to take the downside risk of non-performance, lack of liquidity and the failure of an investment.

I also see a strong argument for CDC schemes to be normalised as another workplace pension – suitable for large employers auto-enrolling their members.

I am pleased to see that the charge cap would include the cost of actuaries. Not only will this mean that actuarial fees will need to be disclosed to members, but it means that they will be subject to commercial pressure. They will be sharing a share of a limited budget and competing for that share

I am also pleased by the consultations intention to test charges accross the scheme rather than to particular parts of the scheme. While there will be some groups of members who will benefit more (from professional fees for instance) than others, the nature of a CDC scheme is to pool all risks – in this case costs are risks

We therefore intend that charge cap compliance as it applies to CDC schemes should be determined by one test applied to the whole of the scheme’s CDC benefits

Scope for transfers out

Transfer out will be worked out as a notional share of the fund

The member’s ‘best estimate’ share of the total fund would in effect be determined as part of each annual valuation, adapted by the scheme actuary to determine the transfer value

I am comfortable with this approach. The scheme would have discretion to establish some kind of money-purchase underpin (a nominal value for the share of the fund) or base the CETV on the present value of the target benefit (using the standard methodology applied in DB)

Scope for more

What the paper doesn’t cover- but should – is the opportunity for people to transfer benefits out of a CDC scheme – when in payment. As this is not currently possible for DB in payment, the consultation may have overlooked this point. But a CDC Scheme is not a DB scheme, there are good reasons for allowing people to transfer-out in payment, though schemes rules must be written to ensure that this does not damage the fund

These are the questions the DWP are asking. Each question is answered.

Question 1

Are there other ways in which the introduction of CDC Schemes would give rise to different impacts on individuals in relation to one of the protected characteristics?

The scope of the consultation could have been wider, it could have covered opportunities for smaller employers and for individuals not in employment that has a CDC scheme. However, the paper is about delivering something in short order and people like me – who want more now – will have to wait!

I see this as fair (but unfortunate).

Question 2

Do you agree that CDC benefits should be classified in legislation as a type of money purchase benefit?

Absolutely yes! Anything else would make the risk of CDC benefits reverting to an employer’s balance sheet too great for any employer to consider it over other existing options.

Question 3

Are there any other areas where the current money purchase requirements do not fit, are inappropriate or could cause unintended consequences?

Not as far as I am aware.

Question 4

Do you agree that the initial CDC schemes should be required to meet the conditions described above?


Question 5

Is there a minimum membership size for CDC scheme below which a scheme could not be viewed as having sufficient scale to effectively pool longevity risk to the benefit of the membership?

There probably is, but we are unlikely to ever test this. I see no reason to prescribe on size, the market will do that for Government

Question 6

Do you agree with the proposed approach to TKU for CDC schemes?

Yes. CDC requires less rather than more pensions knowledge and understanding, hopefully TKU will be more based on common sense than specialist knowledge 

Question 7

Are there any additional TKU requirements that should be placed on the trustees in CDC schemes?


Question 8

Are there any TKU requirements that should be relaxed for the trustees of CDC schemes?  

Yes – many of the issues relating to accounting for schemes on a mark to market basis, fall away.

Question 9

Which of the 2 AE tests would be more appropriate for CDC schemes, and how might either test best be modified to better fit CDC schemes?

The DC test is more appropriate. CDC should not operate with contributions below the AE threshold. Setting the test against benefits opens the door to unintended consequences.

Question 10

What issues might arise from having no in-built capital buffers in the scheme design?

Financial economists will moan that at given times, schemes may look inadequately funded on a mark to market basis. These same economists will lambast CDC for inter-generational inequalities if buffers exist. It’s a case of not being able to please all of the people all the time.

Question 11

How can schemes best communicate with members to ensure they understand the risk that their benefits could go down as well as up, even when in payment?

By being quite transparent and making this agility the strength of the scheme – not its weakness. Think bridges.

Question 12

What additional issues may arise from using a best estimate basis for valuation, and how should those issues be addressed?

Best estimates are entirely appropriate for the valuation of proposed benefits. The arguments will be around assumptions used, but this is what pension experts do. As far as ordinary people are concerned, the best estimate approach is intuitively right.

Question 13

Should we restrict CDC scheme designs to those schemes which would be sustainable without continuing employer contributions?

No – to do so would be to lock the door on decumulation only schemes. These won’t happen right now – but shouldn’t be excluded by primary legislation.

Question 14

We would welcome feedback on how best to manage risk generally going forwards.

The PPF is probably the best model to look at!

Question 15

Does the proposed CDC scheme framework, as set out in this consultation document, address concerns about risk transfer between generations? We welcome thoughts on any other measures that could also address this.

The document does a good job on this

Question 16

We would welcome thoughts on appropriate wind up triggers and how best to manage associated risks.

No doubt draconian triggers will be discussed. As a rule, a CDC scheme should only consider winding up if it is the subject of catastrophe – think football clubs.

Question 17

Are there any elements of the proposed regime that it is not appropriate to apply to CDC schemes?

Question 18

Are there any additional authorisation requirements that should be placed on CDC schemes?  

Yes – most of the DB rules and almost all the guidance on DB solvency

Question 19

Are there any other investment requirements that should be required in addition to those proposed above?


Question 20

Are there any other disclosure of information requirements that should be required in addition to those proposed above?

The important thing is to test membership knowledge and understanding, this is the TKU that really matters.

Question 21

Do you agree that CDC schemes should be administered under the requirements for money purchase benefits, but with added requirements to appoint a scheme actuary and carry out annual valuations?

Yes – they should be administered using rules based systems. Smart ledgers and other features of the blockchain will take over from centralised databases in time. We will watch with interest how the RM CDC trustees go about this.

Question 22

Do you agree that CDC benefits should be subject to a similar cap to the automatic enrolment charge cap? 

Yes – reluctantly.

Question 23

Do you agree with the proposal that charge cap compliance should be assessed on the value of the whole scheme’s assets?


Question 24

What would be an appropriate approach to handling transfers out of or into CDC pension schemes?

It should be left to the schemes discretion whether to allow transfers out in retirement, but this should not be prohibited by legislation. 

Transfers could be calculated with reference to notional asset shares or with reference to targeted benefits

Question 25

Should transfers be restricted in any way – for example, to take account of the sustainability of the fund?

They should be subject to the same kind or reductions that happen in DB schemes – if being paid with reference to prospective benefits.

Posted in pensions | 1 Comment

Been on the edge all week!


What don’t I think (about Brexit)?

It’s been a strange week or two; for some reason I’ve found myself in Westminster a lot, lobbying on behalf of scam victims, discussing the “net-pay anomaly”, listening to the Pensions Minister on open banking and open pensions and just riding my bike past on my way to meetings in Victoria and beyond.

I feel on the edge of something very big which everyone else knows about but me. The big thing is of course BREXIT and the reason everyone else knows about it (but not me) is that it scares me rigid.

What scares me is trying to think through the 500 pages of thoughtfulness that went into the draft agreement. My friend Con Keating who has read it tells me that the “City” section has eight pages devoted to it – fishing one more. He was surprised that there is so little in the agreement for the City – but -heh- you can get a lot in eight pages.

I absolutely refuse to engage.

My partner Stella has strong views, she’s a “let’s get out and bugger the consequences” type of working class girl – unreconstructed.

Most of my friends are remainers, as I should be, I was brought up a Liberal and still go to the Liberal Club. For a long time – being a Liberal was about loving being a European when everyone else didn’t.

Any reasonable middle class Englishman in his mid to late fifties ought to be a remainer – or so I’m told.

And yet I remain on the edge of politics and semi-detached from the arguments. I admire Mrs May for just getting on with it and taking the strain so that people like me can carry on riding a bike past Westminster without being hit by a rock!

What do I think?

It is almost impossible not to have to think about Briexit, whether its on the TV or on my bike or in a meeting, there’s always something thinking or shouting or discussing Brexit when you want to be getting on with something else.

I do think we are wasting colossal amounts of time discussing things that are beyond our reach. When we voted in the referendum (shamefully I can’t remember what I voted), we  voted blind and I think that most of our chatter is blind. Those 500 pages don’t mean anything to me because whatever happens, is beyond my control. This is something that is happening to me- I don’t like it – but shit happens. At least it’s not war.

I do think that those people who are taking on jobs and then resigning from them are hapless. “There are only four more Brexit Ministers to Christmas” is my favorite Brexit joke.

I do think that – May apart – there is nobody ‘seems to be’ coming out of all this with much dignity.

I don’t understand why someone who’s job it is to oversee Universal Credit and Pensions should resign from her job over our negotiations over leaving Europe. I don’t get how that helps the people who she was supposed to be helping, but there have been so many politicians who have said they want to make a difference to those on benefits, I am beginning to wonder if the “benefits” pertain only to them.

Now we have a petition of 48 people wanting to get rid of Mrs May, most of whom appear to be serial troublemakers.

What possible good would it be to sack the manager at this stage? If we are going down, let’s have the captain leave the ship last- let’s not kick her into the waves out of puerile vengeance.

If – as seems very likely – we don’t get the BREXIT we wanted, let’s remember that we spent the first two years of our negotiations arguing with each other, while the other lot got on with planning their position and building such a strong defence for it, that by the time we turned up – we’d just about lost.

I think we’re getting what we deserve, in the arm-wrestle, we’re looking very wobbly and we should be prepared to accept if not absolute defeat – partial defeat.

If you think that anyone wins out of divorce, think again. Nobody in Europe thinks they’re winning either, they didn’t want us to go.

No-one wins in a divorce, but sometimes  (and this is the argument for BREXIT) the price of staying together is too awful.

Uninformed comment?

Usually, when I sit down to write a blog- it is with a certainty of my position. I wrote this blog to try and make sense of where I stood. 767 words later and I don’t think I’m much further.

I hope that my floundering position with regards these things – finds some sympathy with you.

We are all at sea – all out of our depth- all hoping that we aren’t heading for an iceberg and we’re all rather worried for the skipper.

As I ride to or past Westminster , I have to navigate a number of concrete blocks and barriers put in to stop terrorist destroying democracy. I smile to think that those terrorists are currently redundant. We’re doing a pretty good job of destroying democracy without them.

Let’s hope that at some point – however far beyond March 29th 2019 it is, we can understand the issues of sovereignty , of trade and travel and immigration, with a degree of certainty.

I would like to comment in an informed way. I am tired of being on the outside of somebody else’s argument – especially when that argument is about me!

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

The risks of partial disclosure

Look at this photo.


Partial 2

A partial picture

You might have thought that Ruston Smith had won a CDC award for Tesco. Certainly not the case!

Now look at the full picture!


The full picture

Mark Scantlebury has won an award for Quietroom, partly for his work with Ruston on simplifying pension statements.

The full picture tells a different story!

Of course the full picture is not quite what Ruston and Quietroom’s pension illustration r gave us. Some people (not Ruston and Quietroom) , thought it was better that “ordinary people” weren’t told how much had been taken out of their pension for management fees.

Various reasons have been given for this

  1. It was too hard for insurers and pension administrators to calculate
  2. It would tarnish the image of DC pensions
  3. It would reduce savings.

In my view – all three arguments are tosh. If you tell people a lot of stuff about value – and nothing about cost, they end up walking away, feeling they’re being sold an idea without a price. Would Tesco display an item without the price?

Low income tax relief group call for an end to the net pay tax anomaly.

Here’s a photo of a meeting held in the House of Lords yesterday. The reason everyone’s looking concerned was that it had reached the toughest point. Brains were engaged, ears opened and our mental faculties extended to the max!

Partial 3

The reason? We were debating how hard we should push the questions posed by the net pay anomaly.

The arguments for full public exposure are obvious to those who know the subject.

Including those in DB (and in public DB especially) over 1m are not getting the Government saving incentive promised them on their contributions.

  • The impact on individuals is around £34 this year rising to £64 next year and more if the lower earnings threshold for tax  further diverges from the lower earnings threshold for auto-enrolment
  • Two thirds of those effected are women as women tend to take part time jobs and often earn less than £12,500 in a year.
  • The LITRC and NOW pensions have come up with a solution to fix the problem through pay-coding adjustments. Read about it here.

As Ros Altmann said, the issue is one of social justice; treating the low paid fairly, treating women fairly – keeping the promise of 3-4-1. The red is the Government promise to meet the balance of the cost of auto-enrolment after the employer had paid three and the employee three.

Forcing the employee to pay that “1” rather than the employee getting the money paid into their pot on their behalf (what happens at NEST , Peoples and with contract based plans) means that HMRC wins and ordinary people lose.

The issue that the people in the photo were struggling with was precisely the issue that forced those producing the simplified illustration to remove the line about charges

  1. Those running net pay schemes say it’s too hard to move to relief at source
  2. Full disclosure of the problem would tarnish auto-enrolment
  3. Full disclosure would reduce savings.

Why I fundamentally disagree with partial disclosure

As can be proved by the photos at the top of the picture, giving people half the picture gives people the wrong impression. When it later emerges that they’ve only been told half the story – shown half the photo – people feel conned – especially if they have been!

Secondly, it is a matter of fact that pensions cost manage to money, leaving people under the impression that they don’t is the opposite of financial education – it’s deliberately disempowering people from engaging with what they are doing. Disempower people and you can expect people to be led wherever you want them to be. This is a scammers charter.

Allowing the net-pay anomaly to run on and on simply makes the matter worse. It’s what we did for years with GMP equalisation. Now the bill for GMP equalisation is going to be horrid, not because there’s a lot of equalisation to be done – but because so much back testing needs to go on for so long.

With the net-pay anomaly, the situation is worse. When the million + people who’ve not been getting their “1” find out, then the impact on pensions confidence will be greater and the bill to put things right will be greater too.

If you want WASPI type issues, sweep the problem under the carpet – leave it to the next generation to sort out.

Why I will continue to tell it as I see it.

A tiny fraction of the population read this blog. Compared to the broadcast media and the daily papers, this blog is irrelevant. It’s relevance is that it feeds the stories that the broadcast media and daily papers publish.

Good journalists read blogs like mine because they contain the germs of stories that they can rewrite better. I’m not cross when they do – I’m delighted. I’m cross when the popular press and broadcasters don’t listen or don’t want to listen.

Thankfully we have a free press that publishes articles that criticise Government as well as praise it.

We all know that saving for retirement is a good thing and that auto-enrolment is a great way of getting people to save for retirement.

We all know that annual pension statements – especially the simple one that Ruston Smith and Quietroom have produced are good.

We all know that pensions cost money and that costs vary (as does value). Pretending that all pensions are the same is not good. The public know that some pensions do better than others – some cost more than others – the public are not stupid and if we treat them like they were – they will turn away from us.

We all know that a promise is a promise. If you promise that you will pay 1% into an auto-enrolled workplace pension  and don’t then it is you that have broken the promise.

It is not good enough for the Treasury to blame the DWP

It is not good enough for the FCA to blame TPR

If is not good enough for TPR to blame employers

It is not good enough for everyone to blame the net pay pension administrators who cannot change their systems.

If you make a promise to pay a 1% incentive to everyone, it is up to you to make sure that promise is met.  Ultimately it was the Treasury who made that promise – via HMRC.

This is HMRC’s gift and it is a gift that is not being given.

Because of Scottish Taxation changes – the bonnet is up; now is the time for HMRC to work out the annual adjustments to people’s tax-codes and ensure that the 1% incentive is given to them through pay. This is a workplace problem that should be sorted out through the Government’s workplace taxation system – PAYE – using REAL TIME INFORMATION.

While it is about it, HMRC should look to re-code those who are higher rate tax-payers, not getting a tax-assessment form and missing out on Higher rate tax relief when paying by Relief at Source (RAS).

Full disclosure for all!

As for the disclosure of cost and charges information on pensions illustration, the matter is far from over. Look forward to hearing more on this issue on these pages!

All pictures deserve to be published in full – especially pension pictures!

Posted in #WASPI, accountants, actuaries, advice gap, pensions | Tagged , , , , , , | 2 Comments

Helping people understand their pensions

agewage snip

Last night I spoke to a group of potential investors about AgeWage, they were mainly senior doctors. I thinkthey got it. I hope that you will understand our vision for more understanding of pensions.

Here are the slides

Here is what I said

I’m the son of a GP and a physiotherapist, if you were at the Middlesex in the fifties you might have known Geoff Tapper and Phil Hesketh. I’m not an actuary, or a lawyer or a born entrepreneur, but I share my parent’s strong sense of social purpose. I’d like to spend the next fifteen minutes explaining how your support for the work I and my colleagues are doing, will not only make you a great deal of money, but help a lot of people to a better later years.

When my Dad retired in 1988 it was all so easy, an NHS pension with the prospect of more to come when he was 65, my Mum depended on him and supported him as he began a second career helping deliver social services in Dorset. When he died earlier his year, she inherited part of his pension and she lives in comfort as she approaches her 90s. She has new knees and a new lease of life!

But for me it will be different. When I sat down at 54 to look at my pension affairs I found I had 11 separate pensions. 9 out of 11 were my responsibility, one was the state and the other is now paying me the wage on which I am running AgeWage.

It took me nearly 3 months to find out where my pensions and another 2 months to find out what they were worth , whether I could bring together and work out which pot I should use to provide me with income and cash in the future. I’ve worked in pensions most of my life and I’m telling you I would not have been able to do this if I hadn’t. Most people need professional advice but few take it, it would have cost me several thousand pounds in fees to have employed someone like John Mather which is why only 6% of us use financial advisers when we retire.

My pensions included guaranteed annuities, terminal bonuses and all kind of exit penalties (some of which magically fell away when I got to 55 – something I suspect few people know about!)

I would not wish my 5 month ordeal on anyone!

It’s not right that ordinary people get landed with this job without support. I’m making it my business to make sure AgeWage provides them- free of charge with a pension finder service, a rating of each pension pot and a pathway through the minefield of decisions to a point where they can manage their retirement income through cash withdrawals, annuity purchase or wealth preservation.

I won’t bother you with the mathematical detail of the algorithm or the complexity analysing individual’s contribution history and digitally benchmarking them against other people’s pensions. Suffice it to say that we will be able to show you, in real time , how the money you’ve paid to each pension has done.

We don’t give you bland assurances or shock horror stories, we give you a single number- the AgeWage number which is based on what you put in and what you can get out of your pension, Each pot is marked out of 100 and if your pot’s showing greater than 50, you’ve done alright.

To do this I need data, lots data. I am lucky to know the people who manage the companies who hold our pension data.  The numbers are crazy, if we don’t do something about it – there will be 50 million abandoned pots by 2050.

I can find many of these pots by working with the Independent Governance Committees of the insurers and the Trustees of occupational pensions and master trusts. But several of my pensions weren’t linked to work, they included the kind of pensions you might have used back in the eighties for your self-employed earnings, stakeholder pensions and the modern self-invested personal pensions. To track down and understand the DNA of pensions is a project we call the “pension genome”.

The people who run these trusts and governance committees are required to tell the millions of people for whom they are fiduciaries, the value for money of their pensions. To date this has consisted of a bland statement “our trust is providing you with value for money” – unsurprisingly this kind of statement is totally ignored.

We will empower these fiduciaries to tell members and policyholders whether they individually have been getting value for their money! We aren’t just making pensions relevant, we are making the people who govern them relevant to their beneficiaries.

The fiduciaries are introducing us to the organisations who run our pots. We are being asked to help pension providers with their biggest commercial risk, the proliferation of small pension pots which cost more to run and claim-manage then they can deliver in revenue.

Just for once, the interests of ordinary people and those who run their investments can be aligned. By bringing together pots using comparison scores, AgeWage can help individuals , fiduciaries and commercial providers to reduce costs and improve value for money

It will take us a couple of years to be ready to deal with anything that comes our way, but we’re already working out how to use the Date Protection Act 2018 and the dreaded GDPR, to get the information we need. We have promises of help from the COO of Money Supermarket and this summer we won the start-up idea of the year when we presented to the BGL Exec – BGL owns compare the market.

I am confident that the management team we have built, which includes the UK’s Fintech envoy Dr Chris Sier, will be able to help millions of people like me who approach the end of our earning years with financial foreboding.

The great thing is that we are up and running, have already got our pre-seed finance in place and are now putting together an Enterprise Investment Scheme which you can be a part of. I’m sure I don’t have to sell you on the tax advantages of EIS, but what I can give you assurance of, is that we are heading for the FCA Sandbox from which 80% of start-ups emerge and thrive.

I can tell you that having had my 57th birthday on Sunday, I am as determined as my father was when he started his second career. Within two years of starting his new career he was leader of Dorset County Council – the most powerful Liberal since Lloyd George as David Steele called him.

I am in the fortunate position to follow in his footsteps and I hope with your help that I can do this with AgeWage.

If you would like to look at AgeWage in more detail, I would be happy to help. We will launch in the next few daystar EIS investor memorandum and a shorter document that explains the ideas in this talk – in more detail.


But I wouldn’t invest on the basis of a document, and I don’t want you to invest unless you are 100% sure about our proposition, our team and our financial model. We are not a black-box like so many FinTechs , we are a group of passionate business people determined to make that difference.


So if you would like to meet with me, I will make my time and that of my team available to you. Face to Face, on the phone or answering your questions digitally , we want our investors to be in touch and stay in touch.


If this sounds the kind of organisation you would like to be a shareholder in, please let’s talk.

agewage snip

Posted in actuaries, advice gap, age wage, annuity, Australia, pensions | Tagged , , | 1 Comment

Why pensions must bank on change! We need Open Pensions not a data monopoly.

Bounding on stage like he’d just won the 3.15 at Hexham, Guy Opperman exclaimed

opperman prospect.jpg


The occasion – a Prospect discussion called “Banking on Change; the discussion “what open banking could mean for you”.

On an evening where BREXIT was whistling around Westminster like a Texas twister, we sat in a little theatre in St Ann’s gate and considered what open banking could do to foster financial inclusion.

What open banking clearly meant to those in the room was an opportunity to bring day to day financial services to people who have previously felt excluded from them. I spoke to Mick McAteer afterwards who ventured that the penetration of Monzo , Revolut and Starling into the deprived communities he knew was slim, but Opperman spoke well about how the integration of banking into the daily lives of those who carry smart phones, could be universal in time. He spoke of his own work with credit unions and of the work of Atom Bank – in which he has played a great part.

I pressed him on whether he saw the same happening in pensions and his answer was a categorical “yes”.

I don’t think Opperman is playing at his job. He asked to be Minister for Financial Inclusion as well as Minister for Pensions. But I do think he may be short on the detail of the solution – and that worries me.

Open pensions face an existential threat.

In my question to the Minister , I explained that I felt we are at a tipping point. Either we go forward, as banking went forward after being prodded by the CMA; or we go backwards into the arcane world of trade bodies that has kept pensions a closed shop these past forty years.

The issue is data, the oxygen of a digital culture.  The protagonists , those who want a new open source for data where third parties can freely apply for information under the rules of the Data Protection Act 2018. On the other hand are the trade bodies, principally the ABI – that would have data managed by a single organisation who could control and in time sell, access to it. The latter model is the very opposite of open pensions, though like a wolf in sheep’s clothing, it is the ABI’s vision for a “pension dashboard”.

Three years ago I went to a number of meetings on Open Banking where banks told us that the protocols that they were being asked to adopt – the security conventions, the interfaces and the data access requests – were simply not possible with the systems they had in place. Three years later, the protocols , conventions and interfaces are in place. The challenger banks have now become a mainstream part of banking culture and look set to re-arrange the way that larger old-fashioned banks work. Starling and Monzo will change banking for good. This is because Fintech was given its head.

Now I hear precisely the arguments from insurers and the large pension administrators about their systems. It is unimaginable they say  – for people to have access to their data via third parties. Data- they say – must flow through a single hub organised through an organisation owned by the ABI .

Think Mexican mobile phones and the damage a monopoly did to the Mexican consumer and economy. Think the monopolies owned by BT. Think of a world of banking without challenger banks. That is what we will get if the Government gives a monopoly to a single company to find our pensions.

I’m with Gregg McClymont, who comments in Pensions Expert

Some say multiple dashboards could drive competition, but there are concerns over whether multiple dashboards will affect credibility.

McClymont said: “The costs of duplication by having multiple pension-finding services are outweighed by the competition that that drives.”

And let’s make no bones about it, the dashboard is all about finding pensions, the rest – for most people – is second order. Lost pensions are the worry! How can we possibly talk of “engagement” if we don’t even know what we’ve got to engage with.

If we cannot find information on where our pensions are though open- sourced pension finders, then we will have missed the opportunity of a generation. The very concept of open-pensions is under existential threat before it is even born.

What I want from Guy Opperman , Esther McVey and the DWP

I don’t want a dashboard, I don’t want a data monopoly through Origo, I want proper open pensions as outlined at the original meetings on the dashboard by Simon Kirby.

I want proper competition , as we are getting in banking, and I want that competition to come from start-ups as well as established players. I want pensions to be challenged by organisations like AgeWage and Pensions Bee – just as I want payments to be challenged by  Faster Payments.

Chris Sier’s Clear Pensions initiative is challenging the funds industry to deliver data through an open source (well done Aon for helping).  AgeWage is challenging pension providers to deliver data on ordinary people so that people can understand what is really happening to their money.

Chris and I both need the support of Government to get our data and so far we have got it. But the door could easily be shut in our faces, if we retreat to the old ways where data is controlled by the people who manage the existing money.

What I want is open-sourced data that flows freely and securely from place to place, enabling people to understand what they own and take the best decisions on their money that they can.

I believe this can best be achieved by banking on change. That means following the lead given us by the challenger banks, by organisations like MoneyBox, MoneyHub who manage data to make our savings easier to manage.

Gregg McClymont, commenting  in Pensions Expert was spot on!

Some say multiple dashboards could drive competition, but there are concerns over whether multiple dashboards will affect credibility.

McClymont said: “The costs of duplication by having multiple pension-finding services are outweighed by the competition that that drives.”

It does not mean handing a big centralised contract to the love child of the ABI. It does not mean creating a monopoly for data access. It means encouraging competition in a free but well regulated market. It means listening to the Information Commissioner rather than the nay-sayers at the insurers and third party administrators.

Above all it means having the courage to start and finish the job of making pensions open. We cannot bank on much – but we can bank on change.

Banking on Change.jpg






Posted in advice gap, Bankers, Big Government, Blogging, pensions | Tagged , , , | Leave a comment

“Would you pay a social care premium?”

social care

This was the question Radio Five Live’s Wake up to Money asked its audience this Monday morning. 2.5% off wages for the prospect of insurance against things going really wrong with your health in later life?

The idea is being trailed by someone (presumably in Government) in advance of a Green Paper on the subject to be released by the end of the year. The idea was first mooted in Government circles in June (see here)

I guess a 2.5% pay cut in exchange for peace of mind may not sound too high a price to pay, but when the problem is so hard to get your head around, any solution that results in a real-time drop in standards of living will prove unpopular.

Unlike a pension, which has the benefit of living  better and a funeral plan which sounds a good way of sending yourself off, the prospect of an insurance that takes care of things like dementia (as well as younger problems like MS) is not a red-hot seller.

Another problem for the “pay 2.5% and forget about it” model, is that the kind of people who tune in to Wake Up to Money at 5 am on a Monday morning – aren’t the kind of people who let these things go.

So callers were making all kind of “yes if” statements. Yes- if I get to invest the money in the meantime, yes- if smokers have to pay more, yes- if I get to pick my care – and my retirement home. People who wake up to money don’t do social insurance.

The trouble with any social model is that it relies on cross- subsidies and we don’t know in advance the winners and losers. The same applies to annuities or even to collective pensions like DB or CDC. The “we’re all in this one together” argument is not very popular with those who have (or wake up to) money.

So I guess the answer from the “WU2M” listeners was  a conditional yes, with the conditions being that the system had to work for them 100% of the time.

This kind of thinking is pretty worrying, because if you extend it further – you start hypothecating all kinds of things like public spending on schools, the NHS and so on- then you start rebating taxes to those who don’t use those services so that all the money ends in the hands of the childless fitness fanatics who have worked hard all their lives and have pots of money anyway.

Which was where this debate was leading – before we got to 6am – and normal service resumed!

I have no doubt that those who believe in the purest form of capitalism, have created a lot of wealth that has been historically redistributed. I’m sure they don’t want to see higher social taxes to support the smokers and other social delinquents who haven’t displayed the discipline that they have. After all we owe them one.

But the can of social care funding has been kicked suffeciently far down the road , that either the road will run out or some big juggernaut of a financial disaster will run over the can.

The numbers being touted in the program suggest that we have to sort a solution to the social care problem – especially the problem of funding care for the people in the final years of their lives. The Green Paper will be another iteration of reports that go back before Dilnot – all saying that “do nothing” is not an option.

Doing something is harder than doing nothing; it is particularly hard if you are a weak Government, which is why a degree of social responsibility is required. Listening to those who don’t want change, or want change – but only on their terms- will lead to more social unfairness. That unfairness will happen in the short term – as austerity will continue to target the have nots.

So I think it’s time we breathed in hard and prepared for this Green Paper with an acceptance that something like a 2.5% social insurance premium for the over 40’s is needed – unconditionally.


Posted in CDC, Change, Charity, pensions | Tagged , , , | 8 Comments