How we see the new annuity framework working

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Pension PlayPen response to the Treasury Paper

“Freedom and choice in pensions.”



Pension PlayPen Ltd trades as and is a leading portal through which employers and their advisers access information establish workplace pensions.

This response has been written by Henry Tapper, Founding Editor of Pension PlayPen. Pension PlayPen has a significant shareholding in First Actuarial, a company of which Henry is also a Director.


First Actuarial is responding separately to Pension PlayPen but both our responses are driven by a common purpose – improving member outcomes


Both companies have campaigned hard for a reform of the Annuity Framework, the option to de-cumulate collectively and for better Financial Education at Retirement.

Neither company takes commissions from members; we consider ourselves healthily independent of any of the vested interests that so conflict the majority of firms commercially involved in retirement advice, guidance and provision.



The Pension PlayPen is pleased to respond to the consultation in the Treasury’s paper, “Freedom and choice in pensions”. It was a pleasure to read and it is a pleasure to respond.

The focus of the paper’s thinking is the Individual’s decision at retirement. Decision making at this stage of life is poor and the public have become disenchanted with the retirement choices with which they have been presented. We need to restore the public’s confidence in pensions and in DC pensions in particular.

Much has been written in praise of the reforms proposed in this paper, we simply want to add our voice to the chorus. These reforms, though overdue, are very welcome! They go a long way to restoring the public’s confid


The paper asks 10 questions; we will confine our response to answering each



  1. Should a statutory override be put in place to ensure that pension scheme rules do not prevent individuals from taking advantage of increased flexibility? 


There is no need for such an override so long as a right to transfer is available. Members can (with the right to transfer) impose a voluntary override and transfer to another qualifying pension scheme.

Trustees have had to be careful of late because of pension liberation (the risk of which will reduce because of these regulations). We think that a statutory override would have perverse consequences and could assist those fraudulently operating pension liberation “scams”.

Trustees have a duty of care towards members to ensure they are protected and where valuable guarantees are in place, this can create a conflict between this duty and the opportunity to take advantage of new flexibilities.

This conflict is especially difficult where the impact of a member taking a transfer is to reduce scheme liabilities, reduce a notional deficit and improve the scheme’s covenant to existing members. A statutory override could destroy the careful balance within schemes that manages these conflicts without compromising members.

An override would of course also benefit sponsors who, under a balanced of cost arrangement. It would undoubtedly result in a reduction in deficits and reduced cash calls from the trustees.

But improving the solvency of Defined Benefits Schemes is not the point of this legislation. On balance we would favour a retention of the trustee’s current powers and the promotion of the rights of members to challenge the misuse of these powers through the Pensions Ombudsman (TPAS being an important mediator).

This answer directly relates to our answer to question 9 which we take to be posing the same question to Fiduciaries. We oppose a blanket ban on transfers from occupational schemes for the same reason.


2. How could the government design the new system such that it enables innovation in the retirement income market? 

The Government should encourage innovation provided that that innovation is for the member’s benefit. An important feature of this must be the continued use of trusts and the formative Independent Governance Committees to provide collective solutions.

We see the future market for product providers dividing into three;

  • The first is a pure consumption model where people take their money and buy Lamborghinis (or Robin Reliants). For these people, only traditional deposit products will be helpful. No need for innovation here


  • The second is a wealth management model where individuals will ask an adviser to manage their retirement savings in a private portfolio, operating drawdown on a bespoke basis, there are a number of discretionary fund managers and drawdown products in the market who will cater for this need.


  • The third (and default) model is for the average savers who want more flexibility than they are given from annuities, but a degree of certainty and lower costs than that available from the DFM/drawdown wealth management sector. We could call this model “predictable drawdown”.


Innovation is needed to meet the needs of the average saver and the Treasury can do much to help by working with the DWP on its Defined Ambition agenda.


Currently there is not financial model which provides predictable drawdown at a reasonable cost (we can define this as the default charge cap on workplace pensions – 0.75% pa). We see this model as becoming collective and having many of the characteristics of the “scheme pension” provided by occupational schemes.

This kind of low-cost, predictable drawdown, product is best managed collectively (as it is in many European countries). Collective decumulation products have advantages in terms of risk pooling, cost sharing and overall governance and should be encouraged by Government as a means of providing a middle way between unwanted guaranteed products (annuities) and overly engineered wealth management.

We hope that the Government will take advantage of work done on Collective DC as part of the DWP’s Defined Ambition consultation to facilitate such collective decumulation products.

An opportunity to bring such legislation in this parliamentary term exists and we hope that the Queens Speech on June 3rd will introduce the powers for the Government to allow such arrangements to be introduced and prosper


3 Do you agree that the age at which private pension wealth can be accessed should rise alongside the State Pension age? 

Yes we do. It is important that Britain is culturally in tune with the change in its demographics. There is no point in giving one message on the first pillar and another on the second. The pension system should be consistent and we should continue to mark periods when people should be accumulating and periods when they should be spending their retirement savings, if only with minimum ages at which spending from approved pension arrangements can begin


4. Should the change in the minimum pension age be applied to all pension schemes which qualify for tax relief? 

Yes, the qualifying rules are important here as there are a number of “non-qualifying” pensions which are unapproved which should be treated separately



5. Should the minimum pension age be increased further, for example so that it is five years below State Pension age? 

No, the flexibilities within the proposals allow for people to use their pots as bridging arrangements, the proposals provide scope for such bridging for up to ten years and while this is longer than would normally be found in occupational schemes, it is not so long as to suggest there will be many who will run out of savings. People in their fifties and early sixties are generally employable and have the option to return to the workplace if needs be.


6.  Is the prescription of standards enough to ensure the impartiality of guidance delivered by the pension provider? Should pension providers be required to outsource delivery of independent guidance to a trusted third party? 

Yes, the prescription of standards is enough.

The providers will be under intense scrutiny over the delivery of advice. While we don’t expect advice to be the same across all providers- (some providers offering provider-specific solutions, some not), we expect the framework within the advice is given to be the same.

Non-compliance with the framework would lead to unwanted bias and threaten impartiality; but equally, over-regulation would leave little incentive for providers to compete on the quality of advice and scope and quality of retirement options available. currently operates a balanced scorecard which measures providers against six metrics, one of which scores “at retirement options”. We have been operating this scorecard for a year and we expect this metric to receive higher weightings from employers as they recognise the importance of delivering the Guidance well.

As regards independence, we don’t consider this particularly important. Having worked as an IFA, and an appointed representative of an insurance company, Henry would say “the quality of the training that delivers independence, not the paymaster”. If an adviser is trained to be independent he or she will deliver independent advice, if the training and incentivisation is to deliver against product targets, the advice will not be trusted. Trust will come from the delivery not the branding – the proof of the pudding will be in the eating.

Providers should have the choice of using existing resource, training future resource or in-sourcing resource from outside. They should not be allowed to outsource resource and/or their fiduciary responsibility for its delivery


7. Should there be any difference between the requirements to offer guidance placed on contract-based pension providers and trust-based pension schemes? 

No; if an organisation is prepared to offer an occupational DC scheme solely for its employers it should be responsible for the outcomes of that scheme (at retirement).

Commercial master trusts should relish the opportunity to provide guidance at retirement and should step up to the plate and offer at retirement options that mirror the accumulation phase (providing rather than absorbing income).

Occupational schemes that cannot afford to provide the Guidance Guarantee will either have to wind-up and transfer assets into master trusts or switch to an insured basis where the insurer will provide the guidance.

Providers should welcome the opportunity to provide guidance. As with the master trusts, the commercial prize of managing a decumulating pot should be as attractive as managing an accumulating pot. We should not be propping up occupational pension schemes on the basis that they have not the resources to help members get good outcomes.


8. What more can be done to ensure that guidance is available at key decision points during retirement? 

We absorb information in new ways. The broadcast and social media are the primary sources of information for most working people. Financial Services companies have been slow to pick up on the new media opportunities, citing regulatory constraints. We see the obvious means of delivery to people as being television, radio, You Tube, Facebook and Twitter- this is where most people go for information today.

The answer will be different tomorrow but it is up to the financial services industry to reach its audience, it should not be the other way round. Websites such as are now used by millions of Britains in preference to newspapers, libraries and Government sponsored portals.

The Martin Lewis Money Show and Money Box are two examples of the use of broadcast media which have become free-to-use mavens for information on a wide range of subjects. Both Martin and Paul Lewis use websites and social media interchangeably with their broadcasting

Similarly, the on-line money pages of several of the national newspapers are now mainstream sources of financial guidance. More conventional media sources such as newsprint will continue to be important but it will be digital information, especially information that can be delivered by smartphone and tablet, which will drive the delivery of choice.

The Government should be using all available media outlets including those mentioned above. It should also pay attention to the work of and the blogs on !



9. Should the government continue to allow private sector defined benefit to defined contribution transfers and if so, in which circumstances? 

The right to transfer should not be taken away. The incentives to transfer will increase from 2015 and many sponsors may want to de-risk by promoting transfers. But we have trustees who by and large act for members rather than sponsors and provide checks and balances to ensure that members are aware of the benefits they give up (guarantees).

We would favour strong guidance from the Pensions Regulator to trustees on what can and should be said to members requesting transfers. Effectively this is an extension of the work it is already doing on “pension liberation”.

TPAS and the Pensions Ombudsman are further checks in place to protect member’s interests and overall we think there is sufficient resource from consultancies and third party administrators to ensure a voluntary code of good practice on transfers that stops short of a blanket ban.


10 How should the government assess the risks associated with allowing members of private sector defined benefit schemes to transfer to defined contribution under the proposed tax system?

The reference for an assessment should focus on the interests of the member. It is far from certain that defined benefit schemes will provide better retirement outcomes for all. Single people, especially those in poor health subsidise healthy married people (as an example).

The shape of the retirement income (indexation) suits the majority of people retiring from a defined benefit scheme but not all. Evidence of the popularity of pension increase exchanges where people choose to swap pension increases for higher initial pensions suggests that many people do not consider indexation that valuable.

So we’d argue that the risks need to be assessed against people’s retirement needs and not against some arbitrary construct produced by groups with a vested interest in maintaining the status quo. The obvious vested interest group is the public sector who have most to lose in terms of benefits.

An independent commission could be set up to look at this question from the point of view of the member of a private sector defined benefit scheme. Once an assessment has been made of the risk to the member, secondary considerations such as the impact on scheme funding, collateral risks to public sector pensions and the impact on the financial services industry can also be taken into account.

But it is the individual’s interest that is paramount.


Henry Tapper

April 2014

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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