This article is about the costs NEST is incurring, not to criticise those costs, but to publicise them as benchmarks to drive other provider costs down.

I had the privilege yesterday of having lunch with Richard Lockwood, NEST’s Finance Director. I was in the mood to talk costs as I spent the rest of the day at Accountex. Much as I enjoyed Accountex, the discussion with Richard was the highlight of the day.

Richard’s background is as a financial controller, Kingfisher, Home Retail and World Duty Free. He came to NEST because he knew about scale and cost control.

Obsession

The word that re-occurred throughout the meeting was “obsession”; clearly the guy is obsessed by measurement. The grand plan, as outlined by Robert Devereux to the Parliamentary Committee, is his plan, his measurement of NEST’s current debt, projections of future debt and the longer term projection of NEST self-sufficiency (2038) are his. They are based on an understanding of the unit costs of keeping records, interfacing with employers and members and investing the money. Clearly there are variables and it wasn’t until he had reasonable certainty on those variables that he could happily  publicise these projections .

The numbers were with the DWP last October and were only disclosed to Parliament some six months later. This suggests the political sensitivity surrounding them.

Measurement and accountability were themes that impressed me.

Repression

However, I remain less impressed by NEST’s arguments about its social purpose which still appeared muddled.  NEST has always declared itself to be operating in a new space where standards are set because no service has existed before. We might call this “greenfield”.

The major expense that Richard incurs is the payment of Tata- who manage NEST admin. The contract with Tata was re-negotiated in 2016 and runs to 2023. We do not know the terms of that contract but I got the impression there is not much about it that doesn’t sit at the front of Richard’s head.

The other expenses, associated with marketing NEST and investing NEST’s money are similarly not open to public scrutiny but , as our conversation had it, part of the NEST obsession with value.

Concession

Here the conflict between public service and commercial enterprise is most acute. NEST’s scale (both now but particularly projected) enable it to target economies in record keeping, administration and investment administration and money management, that should be ground-breaking.

Unlike many of their competitors, NEST do not carry the corporate overhead of legacy business nor need it share the unrewarded costs of re-using legacy systems and processes. NEST is greenfield and can – like other newly established master-trusts, take advantage of the latest technology to minimise outgoings.

This it has done; NEST is lean and mean and should have the lowest unit costs of any DC workplace pension provider. So why isn’t it publishing these costs as the aspirational benchmark for its rivals? If NEST is providing a public service, it should be helping to drive down not just its own costs but those of workplace pensions as a whole.

This also goes for investment costs which (I am sorry to say) are still undisclosed , sitting behind NDAs which NEST- unaccountably – entered into at the point it set up. It is high time that these external costs were revealed. The argument that NEST secured super-low deals with UBS, State Street and others- on the basis that it would keep the prices secret should cut no ice with anyone.

1. It is in the public interest to know what “best prices” are from these providers.
2. Without knowing what NEST is paying, we cannot assess value for money
3. NEST should be leading and not acquiescing to “common practice”.

If common practice is to keep fees hid, then we can have no progress on Vfm nor can we move towards lower fees for workplace pension provision. The annual management charge, which includes not just investment costs but marketing , governance and administrative outgoings, is no measure of NEST’s value or the money it is spending. It has no practical value in assessing value for money. To do that, NEST’s trustees must know and report on the efficiency of each aspect of NEST’s costs at something of the obsessive intensity as Richard Lockwood.

It is simply not enough for the general public to be told that all in the garden is rosy, we need to see the garden, the roses – and (where necessary) the compost. When I say “we”, I mean those people who are trying to assess what good looks like – that includes consultants, but also NEST’s competitors and the outsourced suppliers who should be benchmarking their costs against NEST’s.

Until NEST reveals what it is paying, there will be no NEST standard for us to measure investment management, investment administration, record keeping , marketing and governance costs against.

We need the same obsession that Richard Lockwood has with cost control , to be displayed in cost disclosure.

For NEST is not like other providers, as it keeps telling us, it gets its new business on a massive inertia pitch – it is the Government supplier and is hovering up employers at a rate of 1200 a day (a disclosure NEST is happy to make).

It should have nothing to hide and – since it is enjoying the munificence of a tax-payer subsidised loan, it should be putting back into the workplace pension community , the information that community needs to benchmark costs and lower them.

NEST has been in the past guilty of going it alone (most notably in not helping to create a joint industry standard for data-interfaces). PAPDIS came too late because PAPDIS and the NEST data standard should have been one standard.

The same could be said about value for money reporting. Instead of going it alone in the obsession with costs, NEST should be sharing its cost reduction measures with its rivals, to drive overall efficiencies’ through workplace pensions.

Instead Richard still mouthed the old platitudes about market practice which have prevented consumers from getting fair value as long as I have been working in pensions.

Let’s be clear. NEST must tell its suppliers that it is abandoning its NDAs and publishing its unit costs for administration and the costs it is incurring for fund management and administration. If it cannot do this, it should ask Government to step in and break the contractual terms with its suppliers that are preventing it.

Nothing less can do. There can be no concession to the commercial interests of the market when the market has failed us so long. The Asset Management Market Review, the Office of Fair Trading report and the Retail Distribution Review have pointed to market failure in financial services – some things have changed, but market failure persists.

NEST owes us £539 million of favours and that number increases to £1,218,000,000 by 2026. That is money that has been and will be spent by NEST’s members, they have to pay it back, they have a right to know that that money is well spent. I have no doubt, knowing NEST quite well, that it is well spent. What I don’t know is how well spent and those numbers become the greenfield benchmark to which other providers can aspire.

“If women were in charge, the 2008 financial crisis wouldn’t have happened”- Christine Lagarde.

 So why aren’t there more women in pensions?

I’m a 23-year-old woman who works at Quietroom, a communications consultancy. As a relative outsider to the pensions world, I was looking forward to this month’s Pension Playpen lunch, which was asking: why aren’t there more women in pensions?

I wanted to know how diversity was being talked about in an industry which seems to be run by men. So I was relieved and pleasantly surprised by an hour long discussion which was insightful, respectful, and where female voices were heard loud and clear.

Why is diversity important in the first place?

One of the ideas we kept coming back to was that diversity leads to better decisions. When people with different perspectives and backgrounds tackle a problem, they think about it for longer, and more carefully. They have to consider how it will affect people who aren’t like them.

We talked about studies which looked into how different groups handle a problem-solving task. A group of 4 friends will have a great time doing it, and report that they did brilliantly. But as it turns out, their success rate is a lot lower than the groups which had to swap a friend for a stranger. These groups may have had less fun, and a less easy ride reaching a consensus, but introducing a different perspective made for better results. Disagreement and difference leads to better decisions. Familiarity and homogeny leads to decisions which are more rash, more selfish, and replicate what’s gone before. Which brings me to the financial crisis.

‘Women have different ways of taking risks … of ruminating a bit more before they jump to conclusions’ (Christine Lagarde)

There’s good reason to think that it wouldn’t have happened with women in charge. Women tend to consider more facts when assessing risks or opportunities. Which means women tend to take less risks. And if we know anything about the financial crisis, it’s that it was the result of some short-sighted, arrogant and reckless decisions.

You might think this would bode well for women in the financial industry. In the aftermath of near financial ruin, brought on by misplaced confidence, it would probably make sense to embrace an approach which was more deliberative. More measured. Less typically ‘male’.

But it seems that the ability to take risks is a key part of getting ahead in this industry. By ‘taking risks’, I don’t mean investing massive amounts of money into mortgage-backed securities on the shaky assumption that house prices weren’t likely to decline, sparking a chain of events which led to the near collapse of world’s financial system. No, the kinds of risks we talked about were things like applying for a job even if you don’t meet all the entry requirements. One of us mentioned a study which shows that men will apply for a job if they meet 60% of the requirements, whereas women will only apply if they meet 100% of the requirements.

‘If I don’t know about something I’ll know it by tomorrow. Therefore I do know everything about everything’ (Scott from The Apprentice)

Another personal risk you might take day-to-day is speaking to someone even if there’s a chance they’re not interested in what you have to say. The women in the room shared experiences of everything from board meetings to my philosophy seminars from undergraduate days, and our suspicions were confirmed – in most settings, men tend to dominate discussions, at the expense of women who have valuable things to say.

Being averse to this kind of risk – the kind of risk we take when we choose to suggest an idea in a meeting at the risk of not being taking seriously – affects the kinds of job roles women are seen (and see themselves), as being able to do.

For example, think about the traits we typically think a good salesperson has. Confident. Persistent. Willing to do almost anything to secure the sale. Doesn’t take no for an answer. In other words, all the risk-embracing traits women are trained from birth not to exhibit.

‘Such a nasty woman’ (Donald Trump)

And who could really blame us. Look at any example of a woman who’s progressed to the dizzy heights of management, or leading a country, and once you get past the analysis of the skirt she’s wearing that day you’ll find a slurry of commentary about her character. ‘Bossy’, ‘ruthless’, ‘abrasive’, and ‘hard to work with’ are common choices to describe women who have dared to step above their station.

So it seems we can do no right. If we quietly and competently get on with our job, we don’t progress. (One of us talked about her frustration at time and time again seeing younger, less qualified men overtake her in her company). And if we do muster up the confidence to chase a promotion – and manage to be picked over men who have been referred through a boys’ club recruitment process – then we’re bloody difficult.

As we reached the end of the discussion, it was clear it had gone well. We all agreed that the time had flown by. Discussions like this, which identify the problems which are holding women back in their careers, are becoming more and more common. What we need to do now more than ever is figure out how we’re going to fix them.

Share your experiences

Having these kinds of conversations brings things that are hidden in plain sight into public scrutiny. The more they’re talked about, the quicker these practices will become unacceptable. So please join in the conversation.

Dr Beeching

George Osborne

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

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

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

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

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

It got worse

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

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

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

A very unbalanced debate

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

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

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

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

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

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

The speculative and the specious

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

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

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

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

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

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

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

Dr Beeching and his witless accomplices

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

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

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

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

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

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

Ros Altmann has since published her thoughts on transferring out of DD schemes – you can read them here; http://pensionsandsavings.com/pensions/transferring-out-of-guaranteed-employer-pensions-can-be-a-good-idea/

Rio Ferdinand

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

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

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

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

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

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

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

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

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

http://www.bbc.co.uk/iplayer/episode/b08kzclp/rio-ferdinand-being-mum-and-dad?suggid=b08kzclp

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

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

Jo Cumbo writes

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

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

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

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

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

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

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

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

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

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

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

Jo Cumbo’s article can be read in full here ; https://www.ft.com/content/465fcda4-05bd-11e7-aa5b-6bb07f5c8e12?desktop=true&segmentId=d8d3e364-5197-20eb-17cf-2437841d178a&hash=myft:notification:instant-email:content:headline:html

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

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

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

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

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

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

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

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

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

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

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

Thanks to Helen Burgraf for this fine cartoon from 2013