A race to the top?


So often, we talk of a race to the bottom- as it pensions can only get worse. But can we race to the top, yesterday and this morning I’ve spent some time thinking about the ambition of one insurer looking at how it can change pensions for the better by 2018.

It is  difficult when you work within a global financial institution, to instigate genuine change, but that’s what Zurich’s Gary Shaughnessy is setting out to do.

Gary is the ex-Fidelity boss of the financial conglomerate that owns Eagle Star, Allied Dunbar and Sterling Assurance (and a lot more besides).

Last week he put his head above the parapet (see report here)

This is what he told his audience

“As an industry, it is crucial that we build a system that advises, communicates and engages with people up with a focus on outcomes.”

To those not in the financial services industry, the idea that an industry could focus on anything other than outcomes might seem a bit bizarre and it would be easy to poke fun at Zurich who have as many skeletons in their cupboards as any insurer.

If however , Gary is genuinely trying to set up a  system that aims at “truth and reconciliation” with its customers, then we should engage. So far, Zurich’s initiative amounts to a bulletin board on which various articles, videos and the like http://www.futurehistorynow.com features some familiar faces saying nice things.

Here’s Gary

I hope that Zurich will invite people with a slightly more challenging approach to submit content and that this site can be a two way street.

So here’s my feedback having spent some time engaging with the site.


We are in the midst of a consultation in this country on Defined Ambition. This debate is being carried out on sites such as the Pension Play Pen linked in group and http://www.mallowstreet.com as well as via the traditional routes of formal submissions to Government. My inbox is crammed full of mails from colleagues and friends within the industry who are asking how we can make the “big step-change” from a failing annuity system to something that – as Gary puts it “focusses on member outcomes”.

Zurich don’t really do annuities;- you can still buy one but Zurich are doing everything they can to get you to search the market and (if you insist on buying the default) defaulting you to an L&G annuity. While I am sure that L&G pay Zurich for the business, Zurich effectively say goodbye to the customer at the point of annuitisation- not really what Zurich wants – nor maybe what the customer needs..

But what if instead, Zurich opened another door. What if it offered a transfer option to the Zurich Master Trust, an occupational pension scheme. What if the Zurich Master Trust decided to pay out scheme pensions to its membership , along the lines of Dutch collective DC schemes?

From Zurich’s point of view, they keep assets under their management for the duration of the member’s life- and perhaps the lifetime of the member’s partner or spouse.

The member would remain invested in a fund that was managed not just for him or her, but for people retiring in years to come and people already retired. This fund would not be managed to an end point- the death of the member (which is how an annuity is managed) but managed to provide an income for the member for as long as that income is needed and an income for the surviving members.

This is not such a radical idea, it is the idea behind defined benefit schemes which were never envisaged as closing. It’s been around for a long time , though it has been mothballed over the past 25 years while we obsessed with individual annuities and the closure of the extant DB pension system we had worked hard to create.

The idea has the merit of improving member outcomes. The numbers in the RSA report “Towards tomorrow’s Investor” are stark. This way of providing pensions gives members approximately 50% more than the annuity approach. It does so by avoiding the expensive business of providing individual annuities- increasingly medically underwritten; it does so by cutting out the need for advice; but most of all it does so by pooling assets and pooling risk – social insurance.

Zurich is ideally placed to build CDC into its master trust, if it wants to focus on member outcomes, let it focus here.

It need not worry about alienating its existing stakeholders. The advisers it works with will continue to manage the wealth of those who can afford to have private pension arrangements. Zurich will continue to manage wealth platforms for their more affluent clients and manage the individual drawdown pots , the SIPPs and the corporate wrap platform which forms such an effective part of its strategy.

But beyond the section of society that we refer to as “mass affluent” are many millions of ordinary people who are currently in need of help, help from Zurich and the other financial behomoths.

Zurich manage many large DC accumulation schemes for companies as diverse as WPP, Royal Mail, Dairy Crest and Tarmac. They have great systems and are a massive force for good.

But they manage no mass-market assets beyond retirement; they have no decumulation product other than for those with sufficient resource to drawdown.

So my challenge to Gary and to Zurich today is this. Talk with us about your response to the Government’s Defined Ambition initiative. Engage with your public about your plans.

You speak on your new website about how social media can be used, have the courage to use it. That means letting people like me and my colleagues and the wider groups who talk on mallowstreet and the linked in groups and http://www.pensionplaypen.com into your conversation and it means you getting involved with ours.

I say the same to Steve Webb (who tells me he reads these blogs) and Gregg McClymont (who certainly re-tweets them) and to all the movers and shakers of our industry and to all of the 4000 members of the Pension Play Pen group and to my 7500 connections on linked in (most of whom are in pensions).

We will not get this problem sorted out in a meeting room in the DWP, though the DWP can clear the decks and allow us to operate with a clean sheet of paper.

This problem is going to be sorted in the workplace and with the help of the major workplace pension providers, of which Zurich is one.

Let us hope that this challenge will not fall on deaf ears and that Gary and Zurich are as good as their word!

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in actuaries, annuity, CDC, Change, dc pensions, de-risking, defined aspiration, happiness and tagged , , , , , , , , , , , . Bookmark the permalink.

1 Response to A race to the top?

  1. Mike Atkin says:

    I have to say Henry our thought process seems to be much aligned at the moment. I was about to post the following as a new discussion in the playpen but having read your blog it might be appropriate here….
    Where do we start, I know……
    It looks like people are going to live longer. That’s fantastic if you have the wealth and the health to enjoy that extended life time.
    This is where we are not all in it together.
    Those with a defined benefit package will be delighted to extract a few more years benefit from their schemes and this group will include most of the politicians, civil servants and the rest of the governing classes.
    The reasonably well paid in DC who take an interest and are proactive will also enjoy the extra years and be able to afford a reasonable standard of living and care when required.
    And there are those that will plow their own furrow and make provision via buy to let or whatever.
    Generally speaking Industry and business leaders will be well provided for.
    It looks like those with real influence are going to be OK
    That leaves everyone else: –
    Lower paid in DC will get something but in some cases they would have been better off paying off debts than saving as their savings will just wipe out any potential state benefit.
    Those that earn and contribute a little more will be at the mercy of the markets and the whims of their scheme arrangements.
    These then are the two classes we need to focus upon for these are the people who work hardest, pay their taxes and maybe deserve a little thought. They are also the biggest group and also, in the main, the least qualified or capable of pro-actively managing their pension finances.
    They will also be reluctant to seek financial advice for lots of reasons.
    These will further subdivide in to those that will take an interest and try to make it work and those that follow the path of default in their respective schemes assuming that their scheme will make it all work for them.
    DC is relatively new and the pots are not yet that large unless you are in one the influential groups.
    As these pots hopefully grow and as people eventually realise that they are responsible for the performance then it is not difficult to imagine the quandary in which they will find themselves . It’s a quandary that has not really been mentioned in the DC debate.
    Whilst they are supposed to be working they will be monitoring markets and agonising in volatile situations whether to switch funds or not. The stress of such a responsibility will be no aid to the Country’s productivity nor the mental health of the individual.
    Why we feel we can allocate such responsibility to those least qualified is a scandal. We don’t even seem to provide basic financial education.
    For these people we do need something else. Defined Ambition /CDC may be the way but it depends on how it is arranged.
    For me it should be a national scheme with a national management. It should be allowed to invest in UK.com.
    Instead of guaranteeing returns to foreign investors in return for capital investment HMG could guarantee returns to this collective arrangement. I’m thinking here of investment in the infrastructure such as power generation where at the moment we are promising healthy returns to French Shareholders and Pensioners rather than our own. Various PFIs would have been sound investments whereby at least the exhorbitant PFI payback would at least benefit those that are paying for it. Hospitals would be a good example here.
    I’m not against Globalisation except when large avaricious corporations hold Countries to ransom. These large corporations are also sabotaging true free enterprise because they are becoming so powerful that they dictate terms rather than take any risk. A bit like DC .

Leave a Reply