You can’t buy a sausage with a brick

James Coney, one of our best financial journalist has written a very fine article in FT Adviser on why he wants to “leave property our of pensions dashboard”.

It turns out that the Equity Release Council has been lobbying to get the un mortgaged value of your house onto your financial balance sheet, so when you see you’ve got no savings, you don’t burst into tears but nip down to your local friendly equity release specialist and liquidate your bricks and mortar.

James is against this

We are utterly obsessed with property prices. What is more, our attitude towards property has led to many people to make some very bad financial choices.

And these are just two reasons why housing wealth should not be included in the new pensions dashboard (another more obvious reason being: a property is not a pension).

It is of course impossible to stop people considering their finances in the  round. The idea that a pensions dashboard can frame our thinking on retirement planning is fanciful but that is to jump ahead of my argument.

The “bad decisions” he’s referring to are to do with over reliance on property equity and under-provision of the replacement income we need when we stop working.

The article turns on itself as it explores the relative merits of downsizing and taking a lifetime mortgage. It hints at what is a very real moral hazard, that if you are so skint in retirement that you have to mortgage your house to live properly, you are certainly not going to be able to pay the costs of long term care (other than by selling your house).

The moral hazard is that people assume the right to state care and recognise that that care is means tested. If you are planning on a state assisted later life, then you should burn your equity and your potential income. Since most equity release plans don’t ask any questions about how you spend the cash released, the opportunity for people to game the NHS and the social services funded by the DWP is obvious.

We pay far too little time thinking about how ordinary people consider housing, later life income and the threat of needing long-term care.

Self sufficiency?

The over reliance of a very large number of people on their house as their pension also misses an important historical factor. Those people who pushed their finances to the limit to buy a house and keep up the mortgage payments, often did so by not paying into a pension.

Their idea of property investment was to be independent of pensions – which many people see as a black hole into which you pour your money, never to get it back.

The tangibility of a property is pretty obvious, it is a place to live and – if rented out, is a self-sufficient asset. Property has become a free lunch – with low interest rates, high rents and a seemingly inexorable rise in property prices.

The housing shortage , which the Government continues to talk about – without building houses, keeps property prices high. The tight control of interest rates keeps away the perils of negative equity, the young are priced out of the market – but they don’t vote.

All this has the smell of a rigged and rickety market with the potential for a real fall in property prices which could have very nasty social consequences – especially for those for whom property underpins their lifestyle, retirement plans, their legacy and their long-term care insurance.

Far from offering self-sufficiency,  a property can and does give a false picture. Which is how James leaves his argument.

People who rely on housing equity or investment income from rental property to fund their pensions are playing a scary game, the risks of which are underestimated.

Or a contingent asset?

The terminology of Defined Benefit pension funding is useful here. Most people do not achieve financial self-sufficiency when they enter retirement. They have to carry on working – or they rely on their savings whether inside a pension wrapper or not.

The house is the back-stop. It acts as a “contingent asset”, something that is pledged to be used but only as a Plan B or C.

If people are having to rely on work and savings to produce income, then they are taking on a lot of risk, risks associated with health, interest rates, markets and people’s capacity to make financial plans and keep to them. There are many calls on older people’s money and most of them cannot be anticipated.

So the financial backstop of a lifetime mortgage is a tremendous advantage to someone who has not achieved self-sufficiency. It makes for a much more relaxed prospect for someone reaching the end of their working life.

Which is why I am very much for equity release, especially the responsible varieties such as Legal & General’s Lifetime mortgage. So long as property is viewed as a contingent asset and not as the answer to all life’s future property, I see it as key to the financial security of most older people.

Property equity is a contingent asset which should form an important part of financial planning for later life

Messaging and dashboards

I am concerned that the expectations of politicians and the proletariat for the dashboard are being set too high. In particular – I fear that “trust” is being commandeered by the pensions industry to justify “control”.

The current obsession with controlling the messaging will doubtless be reflected in the DWP’s consultation response due out shortly.

It is the easiest of wins for those who respond to these consultations to demand high levels of centralised governance resulting in a state dashboard and a few highly regulated portals that plug into a single pension finder service.

It is very unlikely that anyone from the pensions establishment  will have written to the DWP telling them to let the market control the messaging. Here for instance is Prospect’s report on its recent dashboard meeting with the Minister.

“All feared the potential for confusion, and some the possibility of exploitation if commercial players had too much scope to fashion the presentation or in any way edit the contents of the dashboard”.

Controlling the messaging from pension dashboards will be quite beyond Government or the pensions industry. People want access to data on their pensions and they want to take control of their savings. They will include housing in their thinking – they would be mad not to.

I hear the splashing of water around King Knut’s chair.

Should your house be on your pension dashboard?

The argument of this blog is this

1. James Coney’s article is right to raise the question
2. The interaction of housing on pension savings is perverse and underestimated
3. People who rely on house equity to be self-sufficient in old age are usually deluded
4. Housing equity is a good backstop or contingent asset and shouldn’t be ignored
5. Messaging from pensions dashboards can’t be controlled (worthless power of kings)
6. With responsible positioning housing could and should feature on dashboards.

I think, were James to read this blog – he’d ultimately come to the same conclusion , despite his title suggesting the opposite.

Jo Cumbo

In an important contribution to the debate on how members of DB plans can pay for advice on whether to transfer out, the FT’s Jo Cumbo calls for the financial advice bill – regardless of whether the answer is “yes” or “no”, to be paid by the DB scheme.

The suggestion is very helpful;  this practice is already in place for individuals to pay tax bills arising from stealth taxes on pension accrual where individuals inadvertently breach annual allowances. Schemes are getting used to docking pensions for divorce settlements and the administrative processes needed to administer the advice payments are already in place.

Royal London’s Steve Webb has now come in alongside this suggestion.

Indeed – but if contingent charging was banned we’ve also suggested in our submission that the impact could be mitigated by allowing advice costs to be debited against DB rights, in line with your column this week in @pensions_expert https://t.co/f2uDMAXR3o

— Steve Webb (@stevewebb1) February 7, 2019

This is a rare example in pensions of a news reporter making the news!

The ironies of over-information

Most of the time, prospective pensioners walk into life-changing financial decisions surrounding their defined benefit pension schemes with little or no knowledge of the decisions they are taking. An example being the taking of tax-free cash, which is now so much the default that actuaries assume it will happen in scheme funding calculations.

Many schemes are offering commutation factors that can only be justified by the tax-free outcomes, means that schemes are getting away with poor exchange rates between cash and pension – because people don’t know the questions to ask.

So it’s ironic that the conversion factors surrounding a CETV are accorded so much scrutiny that such a cumbersome vehicle as scheme pays – is actively considered.

The reason it is, is that large parts of the DB pension system are now so fragile that they risk being eroded and falling like cliffs into DC. It needs to be pointed out that there appear to be no losers in such erosion, the advisers are making money, providers are making money and pension schemes are clearing swathes of risk from corporate balance sheets. As with most “win-win-wins”, the dictum we should be reminding ourselves of is..

“If it looks too good to be true – is probably is”.

Case study – me!

When I was 55 , I looked at taking my defined benefit as a transfer to a DC scheme. I was allowed a free transfer quote, prepared at some expense to the scheme by scheme actuaries and administrators. I looked at my CETV and was able to assess whether I would be getting value for the money on offer. I gave myself advice (which I was entitled to) and did not take the money. It wasn’t hard to see that there was a good case at the time for taking the transfer , but I didn’t.

1. I didn’t trust myself to manage the money successfully
2. I didn’t trust anyone else!
3. I didn’t want to be worrying about the markets and the impact on my pension
4. I had confidence that as a pensioner, I would get my pension paid as long as I was on the planet – and that my partner would get a residual pension too.

Because I did not pay to come to these conclusions , I saved myself around £10,000 (+vat) in advisory fees or a nasty litigious time with an IFA – if I had turned down a recommendation  to transfer on a contingent charge.

I will of course have to live with my decision to get paid a pension rather than take cash, but I am sanguine about that.

If I had taken advice and had a £10,000 charge against my pension, I would have around £25 pm docked from my pension (increasing by RPI each year) for maybe 50 years.

The consequences of eroding pensions by fractional deductions through scheme pays are every bit as serious to my long-term finances as the payment up front. I imagine that in a scheme pays, the VAT I paid would be un-recoverable ( 20% of the £10,000 I was quoted).

The danger of scheme pays

The numbers above are sobering. £10,000 paid to an adviser from a scheme or from the client’s bank account is still £10,000 and that £25 pm is the equivalent of £10,000 whichever way you cut the cake.

It is effectively paying for advice on the never-never – a kind of Hire Purchase agreement of which PPI is the latest incarnation.

The danger of this approach is that it is presented to clients as so painless as to be a “no-brainer”.

“what’s the worst that can happen, I say “no” and you’re out a fiver a week?”

If a fiver a week’s the downside and the upside is half a million pounds of accessible capital, the temptation to take unnecessary advice is obvious.

Unnecessary financial advice

I don’t think you’ll find the phrase “unnecessary financial advice” in the FCA’s COBS rulebook, you certainly won’t see it as a risk in any advisory literature. The received wisdom is that regulated financial advice is necessary.

But in my case study, I firmly believe that I did not need advice about taking my transfer, all the decision points listed above were decided upon by my emotional response to the prospect of having to manage my own money.

Most people, when presented with the stark reality that now faces people who’ve transferred, is that they would have been better off in their schemes being paid a scheme pension for the rest of their days.

They didn’t need to be charged thousands of pounds to be told that. So for most people, the scheme pays route is a total red-herring and good advisers will not lead people down that route.

The danger is that less good advisers will find the each way bet of being paid by the scheme or out of the transfer value, a bet they cannot lose. The poor adviser will be able to lean on the victimless charge argument to provide unnecessary financial advice – as damaging an insurance policy as PPI – and equally useless.

Scheme pays requires full disclosure

If we are to have a non-contingent charge transfer advisory payment based on scheme pays, it must be made crystal clear by the trustees that they will be sending the client’s adviser an amount in pounds shillings and pence terms. Trustees must also make it clear that the deduction from someone’s pension as a result of this is likely to cost the member that same amount – in today’s terms and is simply the same bill expressed another way.

Advisers who work on such a system would need to be equally clear about the impact of scheme pays.

I remain to be convinced that a system of scheme pays would stop unnecessary advice. I think we need more, applying for a transfer should be like applying for planning permission on a house.

Planning permission

I stick with  previous comments in precious blogs; that this kind of advice – advice that is paid for on the never-never, should only be entered into where there is a clear reason why a prospective client might be better off not taking the scheme pension.

My argument is that the onus should be on the adviser to prove that there is a case for the client to be asking the question about transferring in the first place.

Taking a planning decision like this should be as serious a decision as applying for planning permission on a house

The submission of that case for clearance – should be something that should be carefully considered by the adviser. It should not be a cost-free process. As with a house- planning application – it should be submitted with the risk of failure being obvious upfront.

The advisory diagnosis may not always be what was hoped for,

I think AgeWage the most exciting thing I’ve done in my working life!

Watch our video and see if you agree!

Have you noticed how TV drama focusses on dying? We’re obsessed with death. Statistically the county of Midsomer should be totally depopulated by 2050, such is the carnage wrought on its citizens. We mark each celebrity , friend who dies. Our news broadcast focus on the loss of life. Our obsession with our ending overshadows the fact that we are still living and most of us are showing no sign of dying.

We spend time in the gym, we walk the hills , we diet and we avoid toxins to avoid death. Yet we still bet on our dying sooner than later.

This fact is we do not want to insure against old age because old age is not in our imagination. Everything we are doing in this massive attempt to stay young, is in denial that we will grow old.

Just 12% of newly accessed pension pots are used to buy an annuity. Part of the reason for this may be that people systematically and significantly underestimate their life expectancy. https://t.co/L6QRRrkCNq

— Paul Johnson (@PJTheEconomist) January 24, 2019

I am not surprised by the findings of the IFS. Paul Lewis comments

And also years of propaganda against one of the very few financial products that gives a genuine guarantee.

— Paul Lewis (@paullewismoney) January 25, 2019

He is partly right, but the propaganda is populist, there is a pre-existing bias in our psyche towards nostalgia and we yearn for youth rather than preparing for the future.

Death is so much more glamorous than living long. Death doesn’t just sell TV drama, it stalks our imagination, a real foe against whom we fight to be rewarded with the one thing we have no plan for – a long older life! This is so curious. It is what the Institute of Fiscal Studies calls “the annuity puzzle“.

A conspiracy against annuities?

Picking up Paul’s theme about “propaganda”, and continuing my musing on murder mysteries, I’m looking for a motive.

Why has everyone from George Osborne to the Wealth Management Industry got it in for annuities?

Research from the mid nineties on (Orzag + Orzag +Mehta) shows that annuities purchased in the UK are value for money products. They are well priced , there is a competitive market and for the certainty they offer, they provide a decent income in exchange for the capital used to purchase them. The research consistently shows that annuity providers are not ripping off their customers.

When George Osborne said that nobody need ever buy an annuity again, he raised the roof of the house of commons, we all dislike a product the point of which is to fund the part of our life we don’t want to think about.  But the product is sound, it does what it says on the tin. I wrote recently about work Legal and General have done on annuities which shows again that the problem is not with annuities, but with people’s failure to engage with the reality of the future.

I think that this unstated bias against protecting ourselves against old age is built in to much of the objections to CDC. If only 12% of us are purchasing an annuity with any of the money we have at retirement, why should 100% of us choose to club together and insure ourselves against living too long? Do we want longevity protection – 88% of us clearly don’t see this as a priority.

Do we need longevity protection? Well we are likely to hear within the next few weeks more bad news about the state of long-term healthcare and the vital need for us to do some planning to afford the implications of a long demise.

If our answer to this problem is to blow our pension pots in our sixties and seventies, then DC is presenting the next generation with a massive problem. The moral hazard is obvious, we are presenting our children with a long-term care bill that can only be met from their inheritance or for a levy on the wages of those still working. Either way our children will have to pay for our healthcare – unless we make provision today.

Mortality pooling prevents inter-generational transfers.

My conclusion is that ordinary people cannot afford annuities any more than ordinary private companies can afford Defined Benefit pensions. The cost of guaranteeing the future is too great, a lower level of certainty must be admitted or people give up altogether.

The lower level of certainty I am thinking of, is of course the unguaranteed wage for life offered by a properly managed CDC plan.

If we cannot afford “proper” pensions , we cannot afford not to insure against old age either. The annuity puzzle presents this paradox but no answer.

CDC presents an answer, albeit one that depends on a belief that over time – maintaining the funding of unguaranteed pensions depends on investing in growth assets rather bonds, keeping admin and investment costs down through economies of scale and ensuring that new people arrive into the retirement pool to replace those dropping off the perch.

This is what Royal Mail are doing with a pool of around 140,000 postal workers. It is a noble experiment that will need to be emulated by other organisations if we are to call CDC anything more than an experiment.

Without such an experiment, I see little chance of individuals changing their behaviours much, people will continue to vote against annuities nine to one and we will have as a nation no plan as to how to spend the massive sums we are saving into DC workplace pensions.

Gregg McClymont- a man of the People

Nigel Mills MP now quizzing @greggmcclymont about how People’s Pension markets itself to employers. He notes that of the 9 reasons listed on People’s Pension website why employers should consider the provider, not one is
that the members will get a better pension.

— Josephine Cumbo (@JosephineCumbo) January 23, 2019

Nigel Mills asks the right question, but it is not for Gregg McClymont or People’s pension to answer. This question needs to be aimed squarely at the Department of Work and Pensions and its Pensions Regulator.

We are now six and a half years into auto-enrolment. Ten million new savers have been included in the second “workplace” pillar of pensions. The vast majority of them can now say that they “have a pension”, though what they mean by that , I doubt many could explain.

As for People’s Pension, the 4m pots that they manage will be unlikely to turn into pensions – in the sense that most people understand “pension”. They are unlikely to turn into a “wage in retirement”, the pots will simply augment other sources of savings, albeit in a tax-advantaged way.

People’s have done exactly the job they have been asked to do.

It should be noted that the 4m people who have pension pots with People’s pension, are paying a very low amount for the management of their money (only 0.5% of the amount in the pot each year). Many  of the employers that People’s provide workplace pensions for, engaged with People’s at no cost and those that are now paying to sign up are paying a low amount.

People’s has had no Government loan yet it has been competing with NEST that yesterday announced another loan from the tax-payer, this time for NEST to meet its obligations under the Mastertrust Authorisation regulations.

People’s do not have this backstop, while NEST can boast they are well on their way to self-sufficiency, they will have got there with the help of up to £1.2 billion of our money lent to them on non-commercial terms.

It is in this context that the Work and Pensions Select Committee should consider statements to employers on People’s websites.

People’s are the real deal.

Employers value their staff, they are pleased to run pensions for their staff – but as I know from running Pension Play Pen since 2013, employers do not feel they have an obligation to provide better pensions, they have an obligation to comply with the rules, to stay solvent and to reward shareholders but they are not obliged to become pension experts.

Actually, those employers who contract with People’s Pension are probably already going the extra mile, People’s has regularly featured in the top three workplace pensions in Pension PlayPen ratings and – in terms of useability for employers – it is right at the top. Not even with all the money spent on it, has NEST bettered the People’s inter-operability ratings for company and multi-company payrolls.

A genuine not-for-profit

As Gregg McClymont likes to remind me, People’s are a not-for -profit organisation and do not have a shareholder to reward. They share this with Royal London and several other smaller master-trusts.

It does make a difference, not just in terms of the commercials, but in terms of the care that the organisation can focus on individual members. In my experience (and Pension PlayPen’s, People’s Pension have done the right thing for members, they have not fallen into the net-pay trap, they offer good member support and they are working towards a more sustainable investment default with the help of the relatively new CIO – Nico Aspinall.

People’s Pension should be getting a round of applause from W&P Select for achieving all this with no soft-loans and in the teeth of competition with a Government backed organisation that operates with the tax-payer’s safety net sitting below it.

It’s a commercial not-for -profit and like its parent B&CE – it always has been

Time to put the member first?

It’s clear that People’s are beginning to think about the peculiarities of being seen as a pension provider, without actually providing pensions. People’s don’t offer an annuity, nor does B&CE (the life insurer).

As their membership matures, helping those members to spend their money will become an increasing feature of what Peoples Pension does. It is not a wealth preservation outfit, the majority of its savers will need at the very least a top up to the state pension, at best a proper wage in retirement paid from their People’s Pot.

This will mean, at some stage, getting those 4m odd savers to take decisions. Decisions such as whether they use People’s or some other pension scheme as their big pot. People will have to have a basis to decide to move money to or from People’s pension and they will do so on the basis of their perception of who has done best for them in the past and who is likely to do best for them in the future.

That value for money estimation is not something that most people are prepared for. The decisions that lie ahead of the 4m employees who Nigel Mills is thinking about are hard and right now there is precious little advice to go round.

People’s pots

So far, to survive as a commercial not-for- profit, People’s have had to focus on the needs of their employers and not on member support.

But that strategy has to – and I’m sure – will – change.

I expect that if W&P Select to ask that question of People’s Pension in another six years, they\d get a very different answer.

The Work and Pension Select Committee is holding an inquiry into the way that pension transfer advice is charged for. This may seem an arcane subject but it’s not. As this blog has said many times, contingent charging was the lube that made the transfer market deposit up to £36.8bn into SIPPs and insured personal pensions in 2017 and over £10bn in the first quarter of 2018 alone.

The committee is calling for evidence of a link between contingent charging and the alleged mis- advice to over 50% of the estimated 200,000 people who transferred out over the past two years.

I know people who read this blog who took £1m + transfers from gold-plated de-risked DB schemes – some of which they de-risked themselves. They paid for that advice with their own money – and paid the VAT too – both of them. Why? Because they didn’t want to lock into some crappy advisory deal (one of them used that phrase), when they could manage their money better themselves.

That’s heroic stuff – those people make their money managing other people’s money, why shouldn’t they manage it themselves – one paid £10k + VAT and the other £8k +VAT – the VAT would not be recoverable.

Compare this pair with the people who transferred on average £400k from BSPS, they were not getting such good CETVs (typically 25 rather than 40 times the payment forsaken) but they paid nothing to get their money out – their fund paid it for them. They transferred out on a system called contingent charging which lubed the process and made it all “oh so easy”.

The W&P Select is calling for evidence. I can’t evidence myself. I refused to transfer my DB pension – I refused to take tax free cash – I am a Zurich Pensioner and I have no gilts!

My evidence is simple. If you can do better than a DB pension scheme, pay to have your head examined and pay the VAT – you may be right but the chances are you are deluded and a good adviser like Phil Billingham or Al Rush will tell you so.

If you have no cash but a big fat pension – like most of the people who were approached by Active Wealth, you should not be allowed to be seduced by a no win no fee transfer deal – promoted with a sausage and chips dinner. If you can’t pay the advisory charge (and the VAT) – you can’t have all your money in a CETV.

I know that Al Rush disagrees and points to special circumstances like single people with reduced life expectancy and a need for cash now. I have no doubt that there are people like this and no doubt that some have no money to pay for an upfront fee. But they are exceptional and I have no worry for exceptions to be dealt with via an exceptional process by exceptional advisers like Al.

There should be a process for quick release in dire circumstances and it’s the kind of process that could run through FOS, FSCS or even SFGB – a hardship committee could be set up.

But the exceptions cannot drive the process. Read my recent blog where I called on Government to take positive steps to reshape the transfer market.

Bring it on

I welcome this initiative by the Work and Pensions Select Committee who I know read what I write (from time to time!).

Here is their call for evidence – I will of course be sending this blog and those like it.

To help the FCA with its next steps, we want to hear from anyone who has been affected by this issue.  Have you, or someone you know, received taken advice about a defined benefit pension transfer? Did you have a good or a bad experience? Do you think this was driven by the financial adviser’s charging structure? If so, please tell us your story by Thursday 31 January 2019.

If you do not have personal experience of this issue, but have views on banning contingent charging, the Committee still wants to hear from you. In particular, relating to the following questions:

• Does contingent charging increase the likelihood of unsuitable advice?
• What would be the impact of a ban on contingent charging on consumers and firms and how could any negative effects be minimised?
• Are there any alternative solutions that would remove conflicts of interest but avoid any possible negative impacts of an outright ban on contingent charging?

 

My Mum doing good stuff

Although she doesn’t read my blogs, my Mum inspires many of them.

On Wednesday she had her second new knee in six months and is now an 86 year old bionic woman.

Thanks to the NHS, she has not just new knees but the incentive to go out and do what she has been doing longer than I can remember – be the rock that she is.

She lost her husband last year and she had been his rock, her social circle in Shaftesbury are in slow decline and cling to her for everything from a free taxi service to a listening ear when they are lonely. Her family adore her – for good reason – she is our rock.

The good news is that she was out of bed and walking around (just a little) yesterday. Her aim is to be ready to ramble in April – when  we expect to see her “knees up mother Tapps”.

Cleaning her house

Another generation

The generation that preceded mine, lived through the war, my mother was evacuated to America and saw boats in her convoy perish, she was spared and saw life beyond the confines of Welwyn Garden City and Hitchen where she was born and schooled. It has always amazed me that she never talks about her years as a child away from her mother and father, except with gratitude for the family that looked after her.

We are losing that generation that lived through the war and we should not let them pass on without thanking them for the stoicism that they’ve displayed when young and the magnanimity with which they pass on the lessons that those tough times taught them

Bernard Rhodes

In May , I am going to be talking with Bernard Rhodes at First Actuarial’s client conference. Bernard, like my Mum lived through the war years – he was evacuated to the East End of London from Europe and had it even tougher. If you are a First Actuarial client – you’ll be able to hear the man who founded the Clash, talk about how the war shaped him – and punk!

But a generation with more to do

You do not go through the pain of integrating your 86 year old body with two new knees unless you are optimistic about your life ahead.

My mother started her new life this morning , as she does every morning – I’ve never come accross anyone so darned optimistic. I think that – like Bernard – her fortitude was born out of struggling through those early years.

My Mum’s not giving up, she’s starting over – with new knees. Today or tomorrow she will be coming home to Shaftesbury, to the house she has lived in since 1960 – to be looked after by Rupert and Gregory – my two brothers – and by Albert- my youngest brother who lives not far away.

Mum and Olly

Also my son Olly – of whom my mother is most proud.

In my thoughts

Knees up Mother Tapps!

I am proud of my mother and father. I am particularly proud today of my mother. I’m also proud of my brothers for filling the vacuum in my mother’s life – after my father died.

How we look after our older friends, defines us.

I work in pensions, there is a social responsibility in what I do, to make the lives of those who like my mother – have every expectation of living to 100, to do so with the means to enjoy those later years.

At 86 – my mother is starting out again – with new knees – intent on doing good things and leading a good life. May that be a lesson to me and to anyone else who holds him or herself out as a pensions expert!

At Sherborne Abbey this Christmas

The Government is minded to tender a single contract to run a pension finder service. This is a regressive strategy which we need to say NO to.

Giving control of the pension dashboard’s central piece of architecture to a single organisation or even a consortium, will not be in the public’s interest. It risks one entity controlling not just the price of the service, but what the service delivers. It risks outage of the service with no back-up and it denies potential competitors the chance to innovate.

The only reason why Government would grant a monopoly to the provider of the pension finder service were there to be no demand for competition. There is demand for competition and there are plenty of competitors to the current front-runner for the pension finder contract.

Not only is there demand for competition, potential competitors but there are clear advantages to Government in not granting a monopoly. Just as at the start of auto-enrolment – when the DWP fervently wanted NEST to be given a monopoly as the workplace pensions, so today. The reason NEST was not given a monopoly was so that insurers and master trusts and even SIPP providers could compete for workplace business and create a dynamic innovative market. That is exactly what we’ve got.

One of the glories of the UK pension system is its diversity. Public and private pension schemes still provide defined benefits. We have a vibrant market for personal savings, a well developed wealth management industry. The large insurers operate master trusts and GPPs that compete with NEST and the non-insured master trusts, many of which are run by consultants.

To suppose that a single pension finder service will harmonise the competing forces is naive. There is no such harmony today nor is there likely to be tomorrow. Despite the opportunity to do so, most third party administrators have not signed up to the Origo transfer hub, they are showing no signs of wanting to be bullied into line for a single pension finder service.

There are local sensitivities at play which make the arguments for a single pension finder service untenable.

A better way of doing things

There is an alternative approach to the pension finder service which I am promoting. I call it the “tech-sprint” approach and it allows any competitor for the job of finding pensions to set out in a race for success.  A tech-sprint would do away with the need for a central tender and would replace it by a genuine competition to get total coverage of the UK pension genome in the shortest possible time.

Let me make this a little less abstract. Let’s say that one particular data service has strong connections with insurers, then that data service provider naturally plugs into the APIs at the insurers, encouraging their adoption using its particular knowledge of that sector.

Another service provider is familiar to third party administrators and does a similar job in that sector

A third service provider works best with SIPP providers and the IFA community.

Each provider builds up expertise in its sector and is given the all important verification certificate to collect information that finds pensions and that later can deliver the more complex information that will populate dashboards.

An inquiry from a consumer may be initiated with a pension finder who is expert with insurers but may be passed on to other pension finder services. All the data is fed initially into one dashboard operated by the Single Financial Guidance Body. Once the concept has been proven , the commercial dashboards can use this diverse infrastructure in the same way.

One critical advantage of this approach is that it gives the weakest links in the dashboard project – those with the poor data and poor systems , the chance to work with pension finders who are sympathetic and can help.

Another advantage is that it keeps the threat of cartel-pricing at bay. A monopoly can too easily create a cartel (a rigged-market). It is human nature, if you’ve got a monopoly to sit back and stop pushing. Indeed my experience of these central tenders is that they are so exhausting – they leave all parties – winners and losers – disincentivise to push for better going forward.

An example of this was the procurement process that happened for the dashboard prototype in 2017. The winner excluded all the losers and then sat on the prototype which has gone nowhere.  We are in danger of delivering exactly the same thing again in 2019.

The pensions dashboard is exciting – it captures the public’s imagination, it’s potentially a fantastic win for everybody. But to properly deliver it needs to be adopted by all providers as quickly as possible (ok we can let SIPP and EPPs opt-out if they choose).

But the timeframes envisaged by the industry are ludicrously long. Even if SFGB’s dashboard is up and running by the end of 2019, pension finder won’t be fully functional for 2-3 years after. We all know what happens to these timelines, we’ve already seen it happen with the feasibility study, just look at the delivery of CrossRail.

Where things get delivered to time is when they are powered by private sector innovation and competition. Look how the private sector found ways to auto-enrol 10m new savers through 1m new employers.

I am not having a go at those who want a single pension finder service, I thoroughly understand where they are and where they are coming from. I’ve had good meetings with Origo and suspect that it will be top dog  where multiple pension finder services are in play. But I can’t support Origo, or any other single pension finder.

The biggest danger is that we will sleep-walk into a monopoly; which is why you’ll be hearing a lot more noise from me and my mates on this!

My first blog was in January 2009.

Has there ever been such a start to the year. Freezing temperatures and frozen bank accounts. May I start my blogging career by wishing anyone who reads this a little warmth!

It was only a headline as I hadn’t learned you had to add text.

10 years on and with well over a million reads, it’s time to take a step back and work out what my blog is actually about.

The masthead says it’s the blog of the Pension PlayPen and it’s about restoring confidence in pensions. The Pension PlayPen was something I devised with Marianne Elliot (now MD of Redington) back in 2007 and was conceived as an online club for people who wanted to pay their own way in corporate entertainment.

In the meantime, the Pension PlayPen has become a means for companies to choose workplace pensions, has entered into t tripartite arrangement with Sage (along with First Actuarial) and has built into a linked in group of some 10,000 of us – interested in making pensions better.

I’m asking myself two questions, whether independently of Pension PlayPen , people have the prospect of better pensions now , than they did ten years ago. I don’t think there is anyone asking that question in academic circles – perhaps one for a PHD or maybe best left to the PPI. The second question , which is one to ask myself, is whether the blog and the activity behind it, has restored any confidence – made things any better.

What has got better?

There are a whole lot more savers today than there were at Christmas 2008 – auto-enrolment has seen to that. The current AE saving rate isn’t great- still not much more than the contributions we made to SERPS. The rate will go up in April when most of us will pay 4% – about 1m of us will bay 5% because they have low earnings and won’t get the promised tax incentives. Clearly that kind of economic injustice is acceptable in 2018, which shows that while coverage is better, the taxation on pension contributions remains the same – pretty shabby.

We have a genuine alternative to annuities for those who don’t have the money for income drawdown. A great number of the blogs I wrote in the first five years were about the fate of people who were buying into annuities at artificially depressed rates. I contributed to several radio and TV programs which insisted on calling this an annuity rip-off – it wasn’t. The large annuity providers opened their books and showed that margins on guaranteed annuities weren’t high (in fact value for money on annuities was good). The damage came from negative real yields which people were buying into as the default.

The major change in taxation did not come (as expected) on contributions, but on claim. We can now spend our retirement savings as we like and we have a strengthened Government guidance system to help us do this wisely.  The apparatus that was put in place over the period to give people help – is bing merged in the new year into the Single Financial Guidance Body. The major task for SFGB- other than integrating the disparate parts of Pension Wise – will be to deliver a pensions dashboard to people’s expectations.

The change in taxation and the introduction of auto-enrolment have both been policy successes. The delivery of the Pensions Dashboard has so far been an unmitigated disaster, though we now have a chance to turn things around.

One area where we have seen genuine improvement is in pensions governance. The Office of Fair Trading Report into workplace pensions published in 2014 painted a picture of poor governance among insurers, if they had looked harder – they’d have seen poor governance among occupational DC schemes – including master trusts.

Over the past five years we have seen a number of initiatives that have improved governance

• The establishment of IGCs and GAAs to oversee the behaviour of insurers and the managers of SIPPs active in providing workplace pensions
• The extension of the Master Trust Assurance Framework into what now looks like a proper governance framework for occupational DC schemes.
• The work of the IPB in getting to grips with legacy charges
• The consultations on cost transparency leading to the delivery of reporting templates by the IDWG
• The CMA study into the working of investment consultants

What has deteriorated?

Apart from calling for an alternative to the annuity trap, a change in contributory tax relief and promoting auto-enrolment, this blog has also been concerned with the state of defined benefit pensions. I come from a DC background, I was self-employed for my first 10 years as a financial adviser and the hansom pension I get from Zurich is a fluke.

I have held since I took out my first savings policy when I was 17, that long-term saving is best. I cashed in that policy to pay for the deposit on my first flat when I was 25. When I started this year I had around £800,000 in retirement savings, around half a million in pensions- I finish the year down around £200,000 but still cheerful. Because I have the security of a DB pension in payment and the prospect of a state pension in only ten years, I am comfortable to ride out the financial storm of 2018.

I would not be so comfortable if I’d taken a transfer value, as I thought of doing before taking my pension in November 2017. I could have added to the £36.8bn transferred out of DC. DB schemes have deteriorated in the past ten years. Whether through employer sponsored “de-risking” or through member initiated transfers, much of the benefit has been exchanged for what Steve Webb used to call “sexy-cash”. I don’t think there is anything sexy about what is happening to defined benefit schemes and I see problems piling up down the road for the transfers taken in the past three years. The majority of those transfers should not have happened. There has been a sustained failure by the Regulators to get to grips with defined benefit pensions, the current plans to slice and dice benefits so that we can have super funds – looks a pretty feeble response to the demise of our once proud pensions industry.

Where there is hope is in the prospect that we may be able to convert some of our DC saving into non-guaranteed scheme pensions through a mechanism we call CDC. Though the first CDC scheme will actually replace both a DC and DB scheme (Royal Mail), I see hope for savers down the line – especially if schemes can be set up to exchange DC savings for CDC scheme pensions. While these scheme pensions won’t be as secure as annuities or defined benefit pensions, they’ll be a lot more secure than DC drawdown.

Right now the deterioration of DB schemes (other than in the public sector) has not given rise to the expected innovation for DC savers – certainly in how they spend their savings.

In conclusion

Despite attempts (thanks Aon) to turn off the Tapp, no-one has been able to shut me up  and I’m not done with blogging yet.

But I will be moving my AgeWage related blogs to my new website www.agewage.com – which is going to be much more about helping people with pension problems (we call it our digital TPAS).

In terms of changing the world, I’d like to think that this blog has supported what I have been doing at First Actuarial, Pension PlayPen and latterly at AgeWage. I hope that it may have nudged some policyholders and regulators into better places – especially regards the taxation of DC claims (freedoms), the impending legislative changes on CDC, the coverage of AE and the improvements in DC governance.

We can look back and see genuine improvements – the abolition of active member discounts, the adoption of the 0.75% charge cap on workplace pensions and the introduction of the RDR have all given consumers a better deal from their pension savings.

But there are still big holes in pensions policy. The central questions of the FAMR and the Retirement Outcomes Review remain unanswered. The SFGB will not fill the gap in advice that leaves 94% of us unadvised on what to do with our pension savings.

We have no answer to the disqualification of over 1m people from promised savings incentives due to the “net-pay anomaly”. We still have a system of contingent charging for transfers which results in advisers being incentivised to say “yes” to pension transfers that shouldn’t happen.

Defined Benefit schemes continue to close and to set their sights on buy-out (or the PPF) when they should be staying open. The system of best estimate based funding promoted by First Actuarial is largely ignored in favour of gilts plus valuations marking liabilities to market and creating phoney pension deficits.

In conclusion there is still much to do – and far too little done. We have an opportunity in 2019 to nail pension dashboards and deliver better information to people sorely in need of proper help in sorting out their pension arrangements.

We have the opportunity over the next ten years to stem the tide of closing defined benefit schemes and we can start re-building collective pension schemes from the money invested into DC workplace plans through auto-enrolment and properly funded  employer schemes. We can stem transfers by banning contingent charging and we can start building on the great work done by TPAS in the past ten years in providing proper mass-market pension advice.

All this is yet to come. Keep reading – and I’ll keep writing.

I guess I’m spoiled for choice.  When I go back to work on 27th December, I can choose to go to a First Actuarial office, work in an IOD workspace, check in with Regus or use one of the two WeWork offices I have a card for.

Which will I choose? WeWork has commissioned an independent piece of research on the economic impact it has had. These are my personal thoughts which happen to coincide with the conclusions of the research.

WeWork is making a difference to the way I work and the way my businesses work.

On grounds of convenience – WeWork, situated adjacent to Boris Bike stands within 5 minutes cycle of home and 2 minutes from the gym, WeWork Moorgate and Devonshire Square do the trick

On grounds of cost – WeWork – I am currently paying around £450 pm to host meetings – get high-speed broadband and have a desk in the heart of a city. The comparable costs of setting up my own office or renting workspace from Regus are off the scale.

On grounds of service – people who arrive to meet me at WeWorks inevitably have a smile on their face, that is because WeWork staff treat me and my guests as VIPs – and they do that to all the 300 or so companies with whom I share space.

On grounds of fun – the people I work with are hugely productive. We are a boot-strapping start up and we live in WeWork not just during the day, but well into the evening and early in the morning, that’s because it’s more fun to be at work than be at home. Oh and we work week-ends to – because we can!

Olly and Ritesh in WeWork

On grounds of pets – WeWork encourages people to bring (well-behaved) animals to work. I bring my son. Many people bring dogs, cats – tortoises and rabbits. Why not?

WeWork is an experience like no other. It allows me to share my skills with thousands of people who need to get to know AE and pensions, I get help from other start ups and a few established companies about GDPR, wrapping Christmas presents and raising money. I go to talks in the evening and lunchtime, I have breakfast with people I don’t know and I drink beer with them when I know them.

This immersive experience does not restrict me wearing a suit to work when I need to, nor doses it stop turning up in my gym kit (before not after).

I just read this article that suggests WeWork is over valued compared to other property companies (like Regus). I can’t comment on the numbers, but I have this to say. The valuations of organisations like WeWork are ultimately driven by customer experience. My experience of WeWork is good, better than Regus – much better than IOD – much much better than sitting in an old school single office environment.

On the 7th Floor of WeWork Moorgate (where I work) is Citibank. If I move to the new WeWork offices in Wilson Street , I will work alongside Microsoft developers. These large organisations see that they can attract and keep brilliant graduates by offering them a workspace that works for them.

We Work differently these days, we work from laptops and phones with data that sits not on physical servers but in the cloud. We meet people for coffee or drink beer with them.

We want to enjoy our work and feel good about our workspaces. The people I work with do just that – but they do it much more easily at WeWorks than elsewhere.

I think the valuation of WeWorks is based on people like me turning away from traditional workplaces and for replications of those workplaces (as Regus offers). People like me – and there are many 50+ workers in both our City offices – are voting with their feet.

It’s just nice

I went to Sherborne yesterday on a steam train.

I decided to spend the long journey home reading the People of the Abyss by Jack London – an account of London’s time with “vagrants” in London at the turn of the 20th Century. It is harrowing and desperate stuff, few of the people he lived with were likely to live long and London is constantly referring to his capacity to go back to “white clean sheets” – while vagrants had no hope of immediate or future comfort.

We still have people in the abyss of despair, living day to day to avoid death. I walk past them on the streets of the City, they bed down on my doorstep, I watch the callous behaviour we meet out to them on my TV. The problem is not abstract – it’s a real crisis every Christmas.

A couple of years back I spent a few days with today’s vagrants – who suffer a little less for Crisis at Christmas’ work.  Many of the people I saw were so outside the mainstream that they were not drawing the benefits they were entitled to. These included the state pension. The abyss is deep and for some it is hard for people to find the help to get what they are entitled to.

120 years ago , policemen used to roam London at night moving vagrants on so they could not sleep. They had to sleep during the day because they did not sleep at night. So the vagrants could not work and were excluded from hope.

We all have a responsibility for stopping people falling into the abyss. The abyss will not go away, it is the hopelessness that we call despair. Many of the people I see are in that abyss and we can only make their lives a little better by being kind to them.

But we can and must stop people giving up hope and dignity and entering into that state of hopelessness from which it is so hard to get out.

A beautiful and contemplative day

For me yesterday was beautiful, sad and tender. My mother heard that she can have a second knee operation which gives her the hope of rambling the Dorset hills again.

I sat on the other side of the aisle from a young man who was taking someone I assumed to be his grandfather out for a day on the train. It turned out the old man was just someone the young man was doing a favour to. What a fantastic act of kindness.

Reading Jack London’s “the People of the Abyss”, thinking of how my 86 year old mother will not give up hope and watching the unlikely couple across the aisle from me made me want to do my job even more.

How this touches pensions

As some of you may have read, I’ve been writing answers to readers questions in the Times. Most of the readers don’t have rich people’s problems. The one I have this week is from a lady who has £3,000 in retirement savings and is 59. I nearly wrote “only £3,000”, but that wouldn’t be right. This lady wants to start voluntary saving now.

The £100 a month she can save can be magicked to £125 by the Government incentive even if she doesn’t pay tax. She is self-employed and poor but she can invest in the NEST default which is an investment fit for a king. She can use the money she has saved in a bank account to pay off what’s left of her mortgage and boost what she can save for the future. She will have a house and a state pension in 7 years and she’ll have made the most of the little she has.

When people turn their minds to it, they can make a little go a long way. The problem is that many people like this lady, don’t have the hope to do something about their finances and get dragged into a financial abyss.

We live at a time when we talk about financial inclusion, demand people take financial advice and exclude 94% of the population from the kind of robust support they need to plan their finances. The financial exclusion practiced today is unintentional but very real.

When I wrote my response to the Times, I felt the hand of an unseen compliance officer telling me not to provide her with a definitive course of action, but if I can’t – who can?

Jack London didn’t take no for an answer, he went to the People of the Abyss and he heard what they were saying and he wrote about it and people read what he was saying.

Jack London was one brick in a road that led to a welfare state that means that the kind of horror he wrote about is much rarer than today

But people still die on the streets and they are usually old and financially excluded from what we enjoy. That can’t be right – we have to find a way to make homelessness a thing of the past. We have to help people manage their finances to include them in the benefits us lucky ones enjoy.

As this is a private response, I want to talk about how CDC could help me (and people like me – who I know are struggling with how to spend their pension pot).

I am very supportive of CDC schemes and pleased that the Government are trying to help Royal Mail establish a CDC scheme for its staff. The needs of the 140,000 postal workers are primary, but the legislation must consider the millions of UK workers, saving primarily into DC pots, for whom CDC could be equally welcome.

To illustrate the needs of these people, I will talk about my own situation- the choices I have taken to date and the decisions I am deferring in the hope that I can exchange my DC pot for a CDC pension in due course.

We need a default way to spend our retirement savings.

My response is made as a 57 year old man 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.

During the calendar year 2018, my DC pot fell in value by 14%. On one day in December my pot fell by 3.5%. Because I have not crystallised any of my DC savings, these are paper losses. However, many of the people who I have met through helping the Port Talbot steelworkers are now reliant on their DC pots for income, many have stopped work and are using their pots – transferred from the British Steel Pension Scheme – to drawdown the income they no longer get from work. Most are too young to receive a state pension.

in 2017 – nearly £37bn was transferred from DB schemes to private pots. If people wanted to buy back the guaranteed income they have given up using current annuity rates, they would find their pots woefully short. Collective schemes are more effecient at providing pensions than individual annuities. Those who have transferred out of DB pots have given up a lifetime benefit – often without proper consideration of what they have lost.

When I reached 55, I had the chance to draw my DB pension or to take a transfer. I chose to draw my pension and did not take commutation. During the calendar year 2018, my DB pension increased according to scheme rules, I have an inflation protected wage in retirement, paid as long as I live and beyond – to my partner.

Had I taken advice that I was given and transferred my DB pension into my DC pension pot, I would be now sitting on a paper loss of a further £200,000.

I know the value of a wage in retirement. I see pensioners who have regular income from a pension.  But I also see those who have given up DB pensions and I see people who have never had a DB pension. A recent study by Demos for Legal and General shows that people with certain income in retirement are happier and better able to take financial decisions.

I expect, as I grow older – and I have a life expectancy of around 30 years – to value my pension more each year.

As for my DC pot, I will almost certainly take my tax free cash entitlement but I am expectant that at some future point, I will be able to either purchase an annuity or transfer my money into a CDC pension. I do not want the responsibility of providing myself with a wage for life from my pension savings.

From the quotations I am being shown from people who are looking to transfer, I can see that an annuity will be too expensive a way to provide me an income. Were I in a position to choose between an annuity and a scheme pension from a CDC scheme, I would almost certainly choose a wage in retirement from a CDC scheme.

I say this as a “pensions expert”, but you do not have to be a pensions expert to know that income drawdown from an invested pot is perilous and swapping pot for annuity is expensive.

Despite having pension freedoms, people are baffled by the choices they face at retirement. The options of annuity and drawdown are often replaced by “cash-out”, where people – frustrated by the complex problems they are presented with simply put their pension money in a bank account – and pay a great deal of tax in the process.

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

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. 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

and

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.

and

(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 annu