“To meet the needs of those in the middle” – what pension consultancy should be about!

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The Advert

On Tuesday I am sitting on a panel with good friends; Otto Thoresen, author of the Thoresen report; Mathew Arends, Partner at Aon Hewitt, Duncan Buchanan president of the Society of Pension Consultants. The session will be chaired by Malcolm Mclean OBE.

The panel is the highlight of a day discussing the future of pension consulting and I believe you can still get tickets here

There’s a good supporting card including my buddies Simon Leyland and Peter Shellswell and some other people. They’ve even brought in that joker in the pack , Michael Johnson who I hope will do his party turn and tell us that pensions have no future. There’s nothing like Michael to boil the kettle.

The only thing missing is women – consultants don’t have to be male! I’ve put some pictures of some women in this blog to remind me that they are the people who generally get things done!

The Conference is  in central London and gives you all the tra-la-lah of CPD points so I hope I’ll be seeing you there.

The danger of uncontested scrums

The only problem with the panel is that it is in danger of agreeing with itself. Matthew is a fan of CDC (though he hasn’t quite got the point that it’s for people not employers- see yesterday’s blog). Malcolm is generally right though he works for Barnett Waddingham which is becoming an old folks home for retiring grandees, Duncan is a good man but spends far too much of his life devising tax-avoidance plans for the pension super-rich while Otto is representing a clapped out trade-body saddled with debt and a mutinous membership.

So I will find plenty to disagree on! I hope my colleagues will cast an equally jaundiced eye over First Actuarial and the Pension Play Pen. We need some genuine debate. Watching rugby with uncontested scrums (I’ve just watched England lose to Australia this morning) is a sad affair!

Where consultants can be so rubbish

I’ve sat on too many management boards of the consultancies I’ve worked for to have any respect for the way they are run. When the primary objective of a consultancy is to generate value for a small group of Founding Partners, then consideration for the other stakeholders –employers, trustees, members and yes- staff – is second order. The principle of the customer comes first cannot be subjugated to a spread sheet where the first line read is “margin”.

Where consultants can help

The future of pension consultancy lies in seizing the opportunities and managing them. That is not the same as exploiting them. The new pension freedoms offer us the Wild West. We can act as bandit or as sheriff, or we can be the guys who built the ranches and bring ordered prosperity out of seeming chaos.

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There are a whole load of things we can do to make these freedoms work but if we start with a vertically integrated model which asks how many bps we can suck out of “funds under advice” , we will drag pensions back to where they came from – and that is not a good place.

I hope we can talk about the positive role that consultants can play to;-

  1. Construct products that engage, educate and empower people to organise their financial affairs in retirement
  2. Warn people off the scammers that beset our industry like the bandits and brigands that beset the ranchers.
  3. Ensure that we preserve the heritage of defined benefit provision- both funded and unfunded
  4. Promote pensions as things that serve the needs of people retiring and not the needs of the pension industry.

Where should our focus be?

All the panellists were asked to put down a few bullets about what they thought was important. One panellist struck me as hitting the sciatic nerve that should enliven the whole event, his bullet

(to meet) “the needs of those in the middle segment (too much money to just take the cash, too little to perceive value in seeking regulated advice” .

Consultants are not offering retail advice, they are working through those organisations that individuals rely on for the delivery of their retirement income, employers, trustees, unions, insurers and fund managers. They cannot both advise on and be the managers of the benefits for consultants have a critical governance role. They must remain unconflicted and properly independent to fulfil this function.

There are those who will serve the needs of those with limited funds and debt, those who will manage those with wealth but consultants need to focus on the vast majority of UK citizens who will reach retirement solvent but not comfortable. People for whom an acceleration of retirement income by 20% would constitute an economic miracle. I believe we can achieve such a goal.

I will be 53 in a few days, today the average person is providing themselves with around £1800 per year of private pension (based on median pot of £36k), if we could increase that to £2,000pa within five years – solely by making pensions more efficient – we would have done something worthwhile.

Increasing pensions efficiency by 20% over five years may be what we can do, but individuals, by saving more into the new and better vehicles we can hope that pension outcomes increase by very much more than 20%.

If I had a single phrase I could use to capture what 2015 will mean to me it would come from that quote.

“To meet the needs of those in the middle”.

west was won

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, advice gap, auto-enrolment, dc pensions, defined ambition, drawdown, Payroll, pension playpen, pensions, Retirement and tagged , , , , , , , , , , , . Bookmark the permalink.

4 Responses to “To meet the needs of those in the middle” – what pension consultancy should be about!

  1. George Kirrin says:

    Fair to Middling – or second rate?

    The consultant I admired most set out his/her beliefs in the following way, with due deference to Cambridge Professor Luigi Pasinetti:

    1. Reality (and not simply abstract rationality) as the starting point of economic theory. So, short shrift for the pseudoscience of The Efficient Markets Hypothesis (“TEMH”).

    2. Economic logic with internal consistency (and not only formal rigour), meaning advice must have sound theoretical AND empirical bases, not biases.

    3. Malthus and the Classics (not Walras and the Marginalists) as the main inspiring source in the history of economic thought. So, short shrift for neo-Classical marginalist economic theory and the afore-mentioned TEMH.

    4. Non-ergodic (in place of stationary timeless) economic systems, recognising uncertainty as the intrinsic characteristic of investment markets rather than advice based on models of risk, where the spread of future outcomes is assumed to be known in advance, when they cannot be.

    5. Causality versus interdependence, again as most consultants seem to advise based on models which have everything depending on everything else.

    6. Disequilibrium and instability (not equilibrium) as the normal state of the industrial economies. So, short shrift for the idea that things revert to means and that markets return to balance in some abstract sense.

    7. Macroeconomics before microeconomics, as Pasinetti himself argues, when the behaviour of the economic system as a whole is not reducible to the sum of its individual parts, meaning it is impossible to explain crucial macroeconomic phenomena on the sole bases of microeconomic behaviour.

    8. Necessity of finding an appropriate analytical framework for dealing with technical change and economic growth, recognising the afore-mentioned uncertainty in life, but also the agency problems found in pensions and other areas of life.

    9. Last, and by no means least, a strong, deeply felt social concern.

    Most consultants never set out their beliefs, or are even asked to set them out by their clients. Instead, they’d rather charge their clients for exploring what their clients may or may not really believe. That’s agents for you!

    • henry tapper says:

      That’s agents for you!

      What a great post George! I’ve missed them- I suspect your post is rather more interesting than my blog- I will have to spend some time working it out!


  2. Gerry Flynn says:

    Its all right banging on about on about the “squeezed middle” but what about the 5/6 million workers who are sitting at the bottom of the pile, surely they also deserve to get a look in. Pensions is for everyone not just the few.

    PS. Who is this Michael Johnson?

    • henry tapper says:

      I’m speaking here about pension consultants who have a job. That job is not to do what Government should be doing -which is looking after the 5/6m of the population at the bottom of the pile (who in a private capacity I care about very much).

      this Michael Johnson is an independent thought leader who happens to have been plucked from the obscurity of the financial markets by David Cameron.

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