Good retirement outcomes depend on collective solutions


The FCA have called for evidence on the likely success of our current “at retirement” strategy, this response is consistent with what this blog has been saying for some years, collective problems need collective solutions, the market is not enough, Government needs to intervene to ensure that people are alright when they get old.

Pension PlayPen response to FCA Terms of Reference Retirement Outcomes Review 

This response engages with FCA’s TOR on three levels

  1. I (Henry Tapper) am 54 and approaching the point when I can exercise my pension freedoms
  2. Pension PlayPen advises 75-100 business owners each week using an automated selection process. I am the founder of this service.
  3. Pension PlayPen is partially owned by First Actuarial, a pension consultancy which has some 300 larger employers committed to providing good retirement outcomes to staff through DB pensions and well-funded DC workplace plans (both trust and contract based).

I have – for just under 20 of my 33 years as a pension adviser, been regulated by the FCA to give financial advice, I am not currently regulated but am familiar with the FCA and retail regulation of financial advice.

This response draws heavily on my personal experience and opinions, I trust that it will compliment more formal responses which have the weight of large organisations behind them.



Consumers like choice when they can make the choice in an informed way. But if they need to make a choice they find too hard, people become frustrated and take choices that they worry about. They may later experience ‘regret risk’ which can harden into a sense of injustice. This is how complaints develop and how mis-selling crisis’ evolve.

We do not want pension freedoms to develop into a mis-selling crisis but we must recognize that people are not making informed decisions (judging on the research published by the FCA.

It is possible for the various choices listed by the FCA to be presented in a relevant and engaging way, but this needs to be done for each individual through the financial advisory process. This process is extremely thorough but also expensive and is beyond the budget of many ordinary people. This is what the Government’s FAMR is finding out.

Were I to carry out a full financial report and detail the options to give a person an informed choice, I would allocate 7-8 hours of my time to do it. Depending on my chargeable rate, I would cost this at between 800 -1600GBP and would expect to charge about half as much again if asked to implement decisions. I have checked these costings with IFAs I know. This is why financial advice is unattractive to people with smaller pots who either see it as ‘too rich for their blood’ or a ‘rip-off’.

Clearly the insurers see an opportunity to make money from the need for advice and they may be able to cross subsidise the cost of advice from the value of products they are selling, but even propositions like Aviva’s don’t look capable of creating scale and penetration in a mass-market jaundiced against pension advisers.

This FCA review looks at non-advised solutions and were I to redesign to provide a means for individuals to take prudent decisions that met the variety of needs of British consumers I would want a multi-million pound budget. This is because (unlike workplace pensions) the number and complexity of choices is much greater, the costs of compensation are much higher and the chances of people mis-using the functionality much greater. The reason I do not want to design a robo-advisory solution which allows people to take decisions for themselves is because of the high up from RnD, the ongoing risk, the Regulatory climate and the low certainty of revenues.

Pension PlayPen retails to employers at between 99GBP and 199GBP, there are around 2m potential customers to buy a workplace pension over the next 10 years. There are probably twice this number of retail customers who will be taking at retirement decisions but the likelihood of success is considerably less and the capital required to offer a compliant and robust product. I would not offer a robo-advice product to help individuals make these decisions.


Consumers (and I speak as one) will follow paths of least resistance. Where no obvious alternative is available, the consumer will stick with what he or she has got.

For most people, it is not intuitive that they need a separate product to accumulate and decumulate a retirement pot. People think in terms of saving and spending and when they think of a pension, they think of a DB plan which pays out money every month in return for having taken money every month. People intuitively understand the state pension in this way.

It is only their DC pensions that have required decisions and one of the novelties of pension freedoms is that it is now possible (as one does with other pensions) to have one pot to save into and another to spend from.

It is in the interests of DC pension providers for their pensions to be used for both accumulation and decumulation and it is quite likely (bearing in mind the cost of transitioning) that most consumers would be better off with what they’ve got.

But this is not necessarily the case and there are opportunities for unscrupulous providers to take advantage of consumer apathy to provide a bad deal. It is easy to make a bad deal look a good deal – especially when consumers are bad buyers (as the OFT report points out).


In my opinion, unless a better default comes along, the default of spending your retirement pot that you saved into, is likely to be the least-worst option for most people.

However, I do not think that “least-worst” is what we should be aspiring to. In 2014 the previous Government introduced the concept first of “defined aspiration” and then of “defined ambition” to encourage innovation.

The DWP closed the door on DA in the summer of 2015 and the current Pensions Minister offers no hope of regulation allowing for a “halfway house” product to be regulated for, before 2019.

. FCA2


For most people, the “non-advised journey” involves a little research followed by frustration and cash out. For small pots, cash-out may be the best bet, since there is no efficient means to drawdown and the tax consequences are unlikely to be that severe.

However, for larger pots, the tax consequences of poor decision making can be disastrous. First Actuarial do work with the staff of large employers explaining this and use an app called “the muppetometre”. Screenshots of how this works are available on slides 33-36 of the presentation behind this link.

If the muppetometre is at the cutting edge of software helping individuals to make decisions on their options then the “free pensions review” is in the stone age. People still believe in the allure of a free review – often (I fear) because it sounds very much like what they expected from PensionWise.


In the absence of a clear default decumulation option, the fear is that cash-out or pension liberation will be seen as many as the line of least resistance and – in differing ways- people will find a large proportion of their hard earned saving going to HMRC or to conmen.


For this reason, I see the customer journey that encourages someone to stay invested, drawdown from the accumulated pot and not trigger either a big fat bill or a fraud, to be the least bad option.

But (see above) we can do so much better than that.



The market has not developed to meet the new challenges of the pension reforms particularly fast or particularly far. There are a few non-advisory products such as the online decision tree developed by LV but most occupational pension schemes have not embraced the freedoms at all and while technically, most contract based plans have the capacity to operate under the various tax options, they can hardly be called self-service.

The concept of the “pension bank account” has scarcely touched the sides and we still get quoted 10 working days as the time between a customer requesting payment and the point at which the money hits the customer’s bank account.


Investment in the online tools necessary for people to take informed decisions is likely to be stunted in favor of proprietary decisions. So long as the funds are subject to a charge from the adviser, consumers will feel that the advice is tainted. However-it is hard to see anyone paying for an independent robo-advisory tool (for reasons outlined above).

I think the answer to question 10 and 11 can be answered as one, individual policies and bespoke solutions are expensive and risky to produce (even with an algorithm). Simply providing a one size fits all solution for income drawdown begs the question – “why don’t you deliver collectively”.

The collective decumulation product – which is where the DA agenda was leading, is the only rational solution to the problems of scale, price and risk that are created by individual solutions. Pooling of investment risk and of longevity risk is the logical way for defaults to develop.

However the market will continue to resist collective solutions for a number of reasons

  1. They are tainted by defined benefit solutions and the risk to employers that what starts out as a defined ambition product,ends up as a guarantee sitting on the employer’s balance sheet
  2. The product is confused with “with profits” and tarred with that brush. A lack of transparency, over-distribution to meet the needs of marketing
  3. A distrust of what John Ralfe calls a “magic money tree” with a distribution policy determined at the discretion of actuaries.

For me, these arguments – while all valid – need to be discounted when considered against the problems created in the long-term by not innovating and creating a default decumulation plan for the mass market.



I worry that the problem of non-advised decumulation is being approached by the FCA without due consideration to the views of the Pensions Regulator, the DWP and its ministers.

HMT and FCA has charge of pension freedoms, but the DWP has charge of Pension Wise and occupational schemes (and the new state pension).

FCA regulation that is written in isolation from the rules of tPR or the laws enacted by DWP will look un joined up both by the pension industry and by its consumers.


I am not in a position to comment as to whether FCA delivers value for money but suspects it does, nor can I really comment on whether we need further regulation from the FCA- though I suspect we don’t.

We have the tools in place to do the job, unfortunately the tool room is currently locked and we need to get on with fashioning a new default as soon as possible.




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in CDC, David Pitt-Watson, dc pensions, defined ambition, defined aspiration, FCA, pensions and tagged , , , , , , , , , , . Bookmark the permalink.

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