Dear OFT….

ploughing2I see you are looking into pensions and will be completing a “market study” by August that  will focus on value for money and the size of pension pot savers end up with at retirement. I hear it will look at the following:

  • How pension providers compete with one another and how the market may develop over time.

  • Whether there is sufficient pressure on pension providers to keep charges low, and the extent to which information about charges is made available to savers.

  • Whether smaller firms face difficulties in making pension decisions in the interests of their employees.

  • Whether smaller firms receive suitable help and advice in setting up and maintaining workplace pension schemes.

  • Barriers to switching between schemes and a potential lack of ongoing employer engagement in setting up and managing pensions.

I don’t suspect that you’d be contacting me so I’ll contact you.

Pension providers compete with each other using all kinds of tricks, this morning one offered to fly me to Dublin , put me up at a swanky hotel and pay for me to watch the 6 nations. This would suggest that there is not enough pressure to keep charges low. Hope you’ll put a stop to this kind of nonsense.

I’d like to think the market will develop so that the 1.2 million companies buying pensions and the 100,000 that already have one, see their contributions benefiting members rather than salesmen.

So I’d like to discuss with you ways that we can get companies staging auto-enrolment with schemes that meet whatever the auto-enrolment qualifying test (whatever that turns out to be!).

For this to happen, employers, trustees and (as you say) savers are gong to have to know what they are paying for.

We know some of the charges – the AMC and some fund expenses but did you know that according to expert assessment between 1.08 and 1.4% pa of a typical pension fund is lost in portfolio transaction costs?

I’d like to show you what 1.4% pa undisclosed yield drag does to a saver’s pension pot – it’s the financial equivalent of smoking 20 a day and they can quit just like that!

We think small firms will have great difficulty making pension decision in the interests of their employees, especially if they don’t know the charges their employees are really paying. If they are going to make choices which make sense , they are going to need information and a clear path to follow, they are going to need help documenting what they’ve decided and help making sure they get what they think they are buying.

This is not going to happen unless things change. Advisers charge too much and their processes are too manual. We need to move to guided self-service and fast!

You may not know what I mean, let’s meet and I’ll show you a model and some costings of what can be achieved, I think you’ll be surprised.

You know most employers don’t give a flying f*** about pensions. That’s because pensions are a rip-off. They are far too expensive and advisors often make them sound complicated and dull.

Don’t listen to all the providers and advisers who say you shouldn’t concentrate on charges – they would say that- the whole shooting match is funded out of member charges and that lot have had it too cushy for too long!

I want you to kick arse not lick it!

I run a Pension Play Pen which tries to make pensions better. One of the rules is that we turn down hospitality and ask that the savings be put towards improving products and reducing charges. We want to help employees get pensions – in both senses of the word!

So when I heard what you were up to – I was glad – really glad! I do hope you’ll take my offer in the spirit it is given and invite me to talk with you about my ideas , the pension play pen’s ideas and the ideas of my company .

Yours faithfully

The Pension Plowman

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in auto-enrolment, dc pensions, First Actuarial, NEST, pensions, Retirement and tagged , , , , , , , . Bookmark the permalink.

18 Responses to Dear OFT….

  1. Mike Atkin says:

    Bloody hell Henry – you’ve almost reached my state of radicallity. More power to your elbow – someone will eventually listen to us but I’m still wandering why it would choose to change or what could make it change.
    The government will sequestrate all private pensions in the future anyway – to pay off debt and pay the public service pensions!
    I’ve been trying to understand the implications of the debt mountain – its mind boggling and the ……elephant in the room.

    • henry tapper says:

      Never underestimate our capacity to pay our bills Mike! I am not sceptical about the affordability of the future and don’t do carpe diem; financial providence has got us through the past 300 years of capitalism – the revolution still starts at closing time – and we’ll all be back at work in the morning!

  2. Henry,

    If you do get a meeting with the OFT and I hope you do. You could suggest that investment consultants are obliged to disclose the serial correlation of fund manager performance and explain why it is negligible if skill really can beat the market. The other test statistic they might wish to look at as a test for the existence of alpha is:
    Proportion of managers that achieve n consecutive years of out-performance
    In a game of luck this will be 1 / 2^n. In a game of skill it will be greater than this
    the data is only 5% have outperformed 3 years running (Michael Johnson’s paper) this is less than the critical 12.5% you would reasonably expect for an average collection of monkeys trading at random.

    It would be a lot easier all round if the government would grasp the nettle and just tell the average pension saver to go passive. They tell us about eating well and not smoking despite the fact that some healthy people die young and some smokers live to their nineties. They do this on the basis of statistical evidence. Why can’t they simply do the same for active management.

    Good luck


    • henry tapper says:

      One of the things that we’ll be doing for our clients (which is everyone in an open world) is to try and work out what’s the yield drag at NEST and NOW and to try to better understand the portfolio costs of GARS and the other active DGFs that are angling for default money.

      I agree that it would be “easier” to stick with passive but would it be better?

  3. George Kirrin says:

    Just in case OFT don’t do blogging or have spam filters which prevent them, I do hope you also send a copy to

    That way they have to consider your evidence and may even call you in before their beaks.

    yours aye, George

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