The FCA can excel; the “non-workplace pension” paper’s a model of its kind

Pensions or potsHenry Tapper and Pension PlayPen response to FCA’s paper DP18/1

Effective competition in non-workplace pensions

This is the response of Henry Tapper and the Pension PlayPen. It is not a response on behalf of any other organisation that Henry Tapper is connected with.

I urge anyone who has interest enough in reading my response to respond themselves. The paper can be accessed using this link


Do you agree with our high-level description of the market? Have we omitted any significant elements or dynamics?


value chain 2

It’s a good analysis. If it has a weakness, it is in comparisons with workplace pensions, in publishing the PLSA analysis of who pays for what, you give too rosy a view of subsidies for workplace savers. The 144 schemes in the survey are self-selecting; the reality for most of the 1m employers participating in workplace pensions is that they have no resource to subsidise anything but the AE compliance. Workplace pensions have their own governance issues, not least that small employers share the buy-side weakness of individual purchasers. The critical difference is the higher levels of protection afforded workplace pension savers who benefit from IGCs and the strengthened fiduciary obligations on master trusts.

The comparison of the £400bn in non-workplace pensions with the much smaller amount in contract based workplace pensions is again a little misleading. The majority of workplace pension saving is in to master trusts. It would be useful for the FCA to consider what master trusts are doing that is attractive to small employers and examine whether there are implications for non-workplace pensions. Are the collective structures that master trusts offer, more helpful to small savers than the individual contracts with insurers? If so – why? These questions might usefully be included in any Market Study arising out of the paper.

Demand Side Weakness

Do you have any comments, observations or evidence about engagement levels among non-workplace pensions customers?

Comments on engagement are typically skewed by personal experience. I and the people I associate with are quite comfortable managing our own money and happily disintermediate advisers so that we can get the best deals for our savings. The Self Invested Personal Pension was designed for people like me.

But for most people analysed in the FCA’s FAMR study, the provision of financial support in retirement remains the “hardest, nastiest problem in finance”. I have been involved for the past four months in moderating Facebook pages for British Steel Workers. I have met quite a few and spoken, mailed and messaged many more. I was struck by a poll conducted early in the Time to Choose process which was designed to find member preferences. Like the PLSA’s poll – it is self selecting (only around 8,000 of the 120,000 BSPS members actively used these pages).poll bsps

What interests me in this poll is the high percentage of steel workers prepared to put trust in an IFA and the low numbers wanting to self-manage the pot created from a CETV.

From my conversations, I was impressed by the confidence that steelworkers had in IFAs and depressed when I found how often that trust was abused.

The BSPS Time to Choose consultation, as with the engagement of postal workers at Royal Mail and teachers at Universities shows that people get the importance of “pensions”. But this should not be mistaken for engagement with the dynamics of managing retirement savings, let alone dealing with the business of paying a “wage for life”.

Do you have any comments, observations or evidence about the factors that influence consumers to switch between or transfer into non-workplace pensions?

One of the most interesting aspects during the BSPS Time to Choose was the reluctance on all sides, to consider transferring into the Tata Steel and Liberty GPP workplace saving products. Both GPPs had the features IFAs were promoting with SIPPS (including adviser charging) , both had AMCs well below 0.3% and both had the kind of defaults that could have managed steelworkers pensions.

On investigation, I found that the workplace pension providers (Aviva and Legal & General) were reluctant to put forward their products (as was Tata and Liberty – lest they were seen to endorse transfers). Perversely, the opportunity to use good workplace pensions to manage out transfers was seldom presented and virtually never taken up.

I heard from a number of steelworkers, disgruntled with their employers, that while they were prepared to participate in workplace pensions to pick up contributions, they were uncomfortable with Tata having anything to do with their transfers. This may have had something to do with confidentiality (many steelworkers fear for their jobs) but probably more to do with a fear that Tata might sabotage their savings. When it was announced that Tata were to provide the administration to the Prudential (instead of Capita), a number of posts appeared on Facebook pages from steelworkers who’d transferred to Prudential’s personal pension, claiming they were out of the frying pan into the fire.

My observation is that many people transfer to get a clean break. This is born out by conversations with providers of streamlined SIPPs such as Evestor and PensionBee, whose customers cite a wish not to be a deferred member of a former employer’s workplace scheme (often out of disgruntlement).

Non- workplace pensions play an important part in helping people to “own” their pensions, many people do not think they have full ownership when in an employer or former employer’s workplace pension.

Do you have any comments on the impact of regulated advice on consumers’ ability to understand and assess their pension throughout the product lifecycle?

The use of the phrase “their pension” in this question is interesting. If people understood what they were saving into or transferring into, they might well think it would be providing them with a pension. Of course it is not. It might provide with a flexi-access drawdown or might be swapped for an annuity, but the personal pension is not in itself providing a pension (nor are most workplace pensions for that matter – even master trusts).

When even the name of the product is misleading, it is not surprising that most people don’t really understand what they are saving for or how the “product lifecycle” really works. While a lucky few savers have an adviser for life, most people will have a series of advisers as advisers move jobs, get promoted or retire. While they may have an understanding of what they are doing at outset , too often the strategies selected for non-workplace pensions end up as “set and go”, rather than the dynamically advised lifecycle strategies promised at outset.

I am more confident in the guided pathways of the lifestyle approaches in workplace pension defaults than the promises (however well made) of advisers. My concern is more for the mass market of people who transfer large amounts from DB pensions, than for High Net Worth SIPP owners who – like me – are au fait with the risks.

Do you have any comments about whether certain funds are seen by consumers as default arrangements and whether these should be subject to additional standards and protections?

The most common perception of a default is with the with-profit fund that pays a bonus that appears very much like a guarantee. Of course it is not a guaranteed bonus but that’s how many savers described what they were promised from Prufund and equivalents.

Steelworkers told me they liked these funds because they were “guaranteed” by a household name. There was a suspicion that some were complicit in going along with this talk knowing full well they had rights of restitution if they were let down.

There is a moral hazard at play here (it will be the same with CDC) and I fear that many advisers do too little to downplay the misconceptions. The sales targets on advisers , and the need to sell in bulk, can all too easily lead to dumping smaller or less-savvy savers into default arrangements so that more valuable and more demanding customers can be given full attention.

However, most of the streamlined SIPPs I have looked at, use defaults sensibly and promote them responsibly. They should not be tarred with the same brush.

Do you believe that demand-side weaknesses are present in the market for non-workplace pensions? Do they apply across the market or are they specific to particular consumer groups, products or sales channels?

I have partially addressed these questions in previous answers. The abolition of commission has undoubtedly changed most salespeople into advisers and has improved the quality of the “sales-side”. Where “selling” persists, it is less overt.tideway lbg

Above is an advert sent to a Pensions Manager of a large DB scheme, showing how a sales organisation can advertise itself to fiduciaries as an employee benefit. An actuarial practice – of which I am a Director – has seen examples of firms actively promoting transfer advisers to staff as an employee benefit, in practice it is also a helpful way of “de-risking the balance sheet”. I worry that what looks like a sheep, could well be a wolf.

In the case of Tideway, I have seen statements in the press and in advertisements that strengthen those concerns. Tideway and most other firms operate a conditional pricing structure where advisers are remunerated when a transfer is completed and typically invested in Tideway managed investments.

It seems to me that there are demand-side weaknesses that such firms are preying on. Pension Managers and Trustees are susceptible to advertisments of this type and employers are only too pleased to see pension liabilities transferred at a discount to book value.

Many trustees are now offering CETVs on benefit statements and at retirement. This excites demand for what look like telephone number cash benefits. It is only too easy to see how this can create the kind of feeding frenzy we saw in Port Talbot. I have meetings with three large pension schemes (with assets in excess of £12bn) on this issue in the next two weeks..

In direct answer to this question, the principal concern has to be around vulnerable customers with large amounts of investable cash. The DB transfer issues presents exactly that scenario.

There is a serious issue here which needs to be addressed by the Pensions Regulator and the FCA jointly.


Do you have any comments or evidence relating to our discussion of SHPs?

If there is market failure, it is not with stakeholder pensions. They failed to sell in great enough numbers to be a central focus of this study and those that were sold, were generally sold fairly. I was at Eagle Star/Zurich at the time when SHP was launched and saw some evidence of abuse (though not from Eagle Star/Zurich).

The issues are about the practice of hiding charges in the asset price – depressing performance while declaring an ostensibly low AMC. This is an issue being looked at by the FCA’s IWG and is one for IGCs who should consider now workplace and workplace SHPs as a single item.

SHPs provided a guarantee on pricing which in itself had a price. Whether the price paid for the stakeholder guarantee is worth paying is worth consideration. In my opinion, consumers are getting little from stakeholder pensions that couldn’t be provided more cheaply by the better SIPPs and personal pensions. There is an argument for disbanding SHP but -when do much more pressing issues abound, it is a weak argument

Can you provide any relevant comments or evidence relating to charges on pre-2001 policies?

No. I will leave this to the IGCs and GAAs, who I hope will be contributing to this discussion.

How might we and industry improve non-workplace customers’ awareness of the charges they may or will incur and the impact of those charges on their pension savings?

The most effective awareness campaigns make the impact of poor choices graphic (think the HIV/Aids campaign and advertising on cigarette packets. We can do more to show how the impact of costs on a pension saving plan, can reduce the outcomes. There is a difference for instance in the standard of holidays/cars and other consumer durables that arises from price and the ability to meet it”. I would like to see cost disclosure promoted by regulators in a more outcomes focussed way!

The OFT agreed with insurers that IGCs could provide people with value for money assessments. This has been extended to cover trust based DC schemes. But we have yet to see any proper system for measuring value for money. Instead we get IGCs and Trustee Chairs trotting out the statement “in my opinion we are providing value for money” as if this might help.

The only way such a statement can be meaningful is if it answers the policyholder or member’s question “relative to what?”.

Since there is no coherent system of measuring value for money or independent means to benchmark it, members are entirely let down. We need an independent and public utility (as there are in Australia) to compare workplace and non-workplace pensions for value for money and such a utility needs to use accurate performance data, accurate risk measures (standard deviation) and accurate costs (including hidden charges).

If we were able to see the true costs of some of the non-workplace solutions made available to vulnerable investors, if those costs could be displayed against those of alternatives and if the impact of those costs could be displayed in relation to holidays /cars and other tangible outcomes, then the kind of awareness of charges (and value) that we see in more mature DC environments, could be quickly created in the UK.

Do you have any comments on how industry might better support consumer choice (including monitoring and identifying when it might be appropriate to switch to a more competitive product and / or provider)?

The system of benchmarking (using a public utility) is the initiative that I would recommend. It should be available on every pension dashboard. The workplace pension providers should co-operate in facilitating data and IGCs and Trustees should supervise this.

Allowing people to see if they are getting value for money and explaining its importance is an important step along the way.

Once we have an awareness of the importance of getting value for money and an idea on where it is to be found, then we need a free and easy way to move money from one part of the system to another. I note the comments in the discussion paper on this. I am sure that at the top end of the market, re-registration systems are important, but for the mass market, this means transferring money from one provider to another using unit encashment.

The only research I know of as to how effective the market is , is provided by Pension Bee’s Robin Hood Index. Currently it shows that the majority of workplace pension providers are using the Origo system and that the market is functioning if not perfectly – at least a lot better than it has done. However it is clear that some workplace providers – most notably NEST, are not releasing money in a reasonable timeframe and hiding behind phrases like “due diligence” to hang on to pots. There appears to be one insurer- Aegon -which is making life as hard for transferring policyholders as possible.

The work of Pensions Bee in publishing a league table of the good and the bad, is really helpful, especially as they are using proprietary experience which is evidence based.

The Robin Hood Index should be taken up and promoted by the Pensions Regulator and the FCA as precisely the way to get us to universal good practice sooner.

Can you provide any evidence or examples of where competition is not working well on non-workplace pension charges (applicable across the market or specific to particular products)?

I would like to include with this proposal, evidence of a market failure that is causing misery to many people involved. At the time of writing I have been presented with a twelve page legal letter threatening me with a defamation writ if I publish this information.

Since I don’t want to go to court, I have only one alternative, which is to withhold the evidence that I have.

It is a shame that those people who try to expose bad practice, I cite Gina Miller, Chris Sier as examples, are pilloried for doing so. The resources of those who manage our money are substantial and those who monitor them meagre.

There is a great asymmetry between the information available to those who manage our assets and we who own them. This asymmetry is not healthy, it can lead to bad management, poor outcomes and – in extreme cases – outright fraud. The answer is transparency of disclosure, benchmarking of value for money and the creation of a proper awareness of the impact of charges – by all.

The vast majority of the evidence I have of anti- competitive practices and high charges relates to SIPPs where mutton is dressed as lamb and the victims are those with a large amount of (ex DB) money and a low level of financial literacy – in some cases any kind of literacy.

Summary and next steps

We would like to understand whether and how providers’ oversight arrangements differ between workplace and non- workplace pensions.

This really is a matter for you to judge rather than me to comment. I publish each year a summary of the IGC Chair Statements together with a ranking of each statement in terms of clarity, effectiveness and depth.

I would like to do the same for master trusts and non-workplace providers but it is too much for one person to do.

I would make the general observation that best practice is often found in odd places. Who would have thought that Virgin Money would have such a good IGC while other household names repeatedly trot out bland banalities and dress up marketing information as value for money metrics.

The master trust chair statements are almost impossible to find and are published at odd times of the year – presumably with the intention of getting read by the least possible number of people!

There are exceptions – but they prove the rule that workplace pension oversight arrangements are currently operated in a bubble, and that the only people who get involved in them – are the people who are paid to do so.

There are, I am sure, good things going on behind the scenes, but it will not be until these workplace pensions start publishing real information on the value for money of their core products, that they will be working properly.

I see no reason why IGCs should not have equal oversight of non-workplace pensions as they do of workplace. I note with approval how my non-workplace pension transfer values improved when I reached 55 and they no longer contained transfer penalties. I thank the IGC of Zurich for making this happen for me.

The work they have done so far could be extended, as has been indicated in this response. But by far the most important function of IGCs and Trust boards is to protect their policyholders and members from poor value for money.

In the context of the potential harms in this market, are there any other interventions that you think we should consider? Please explain what the impact might be and why such remedies would be appropriate.

I have referred in this response to the difficulty I have in publicising bad practice. I , and others , find it hard to whistle blow using Project Bloom, not least because we get no feedback from Action Fraud and the people we are trying to protect get help too late.

If we go public we can be criticised for “tipping off” and are sent legal threats from those we criticise. We are vulnerable to being censored by our employers or (for IFAs) – networks. In extreme cases we can be stopped from working.

It seems to me that the system of public censure and self-regulation that we have in this country is based on free- speech.

I would like to see the FCA and other regulators supporting whistle-blowing (though censuring slander and libel). At the moment, it is too hard to speak out and for that reason, many bad practices are allowed to persist. The Port Talbot experience is only one example.

I welcome the FCA’s recent interventions in the market, especially around transfers from DB plans and will work with them wherever I can to ensure better advice and better outcomes for people in DB schemes (and out of them).

Do you have any other comments on the matters discussed in this Discussion Paper?

I have stated publicly ( that I support the aims of this paper and congratulate the FCA for its simple and effective format. It addresses the main issues, has a good market summary and I enjoyed reading it and responding to its questions.

I hope that others will respond to it and that it provokes action within the FCA and other regulators.

I would be happy to discuss any of the matters contained in this response with the FCA and others.

Henry Tapper ; for the Pension PlayPen – Feb 4th 2018

About henry tapper

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