“Legacy” is a dirty word – AgeWage would ban it!

Pension hackathon

We need a “pension hackathon” to speed up the pace of change

Not so long ago, well in the late nineties , I attended a series of meetings to ward off the impending threat of stakeholder pensions. The meetings were organised by Allied Dunbar and I attended as the “pinko” from Eagle Star who wanted members of our schemes to get a good deal.

It soon became obvious that the priorities of our joint business (we were both owned by British and American Tobacco) was to ensure we had happy shareholders – happy advisers and that the management teams – of which I was a part – remained in place.

Stakeholder pensions offered lower ongoing fees, no exit penalties, precious little to pay advisers with and a threat to our back-books – which could all too easily be “cannibalised”. The language of the day was boorish, blue from the sales people and obscure from the product teams. If we weren’t swearing at Government officials, we were arguing over measures of embedded value. In these discussions , the customer was nowhere. The management teams have now been disbanded as has Allied Dunbar and Eagle Star.

The world moved and the dinosaurs didn’t

The world we find ourselves in today is a different place. We’ve been through the Stakeholder experience, that proved a warm-up for auto-enrolment. We are now in a world of Fintech – maybe even Pentech.

The new kids on the block are the old mutuals – Royal London and Liverpool Victoria have reinvented themselves as not for profits which deliver to members what few of their rivals could. They have survived as workplace pension providers where many haven’t. Prudential has continued to thrive, but primarily as a with-profits fund. Legal & General has turned itself into a successful fund manager and has shed its old life company in all but name. Standard Aberdeen are trying to do the same.  Meanwhile the bulk of the investment from auto-enrolment is going to organisations that weren’t heard of even ten years ago, People’s Pension, NEST, NOW , Smart, BlueSky and Salvus have revived the concept of defined contribution occupational pensions.

Meanwhile, we have almost forgotten that £400bn of our savings has not moved on. It is stuck in the land of the dinosaurs , a kind of financial Jurassic Park where our money is prey to all kinds of monstrous charging structures that feed the raptors.

Why “legacy” is a dirty word.

In this new world – there are new standards of transparency. The old charging structures and ways of talking to policyholders and members are increasingly an embarrassment. They embarrass the brands of the new mutuals and they compromise their management. The legacy books also stand in the way of a positive relationship with regulators. Firms like Royal London find they have first and second class customers and that sits ill with their strategy.

In an ideal world , all legacy would be able to migrate on a “no worse terms” basis from old to new. Firms like the Prudential and Royal London and Phoenix and Scottish Widows are talking with me about how to accelerate the transition from old to new. But, however much they want to rid themselves of the past, they accept that the best for many of their policyholders may still be to come. The guaranteed annuity rates within many policies need to be honoured, as do terminal and longevity bonuses. Many with-profits policies offer guaranteed returns that are valuable in a low interest rate world.

But there is precious little help for these insurers in communicating these subtleties to their staff. There simply aren’t the advisers, or information delivery systems, in place to engage with the owners of the £400bn. As the MD of one large insurance firm told me recently,  they have no way of engaging with their customers.

Legacy is a dirty word, but it’s likely to remain in common parlance for a time to come

Speeding up the migration to good

At AgeWage, we’ve got ideas which we think can help people understand what they have and what they could have. Our ground-breaking work is helping people to see not just the value for money of what they’ve been saving into – but the value of doing new things with money.

In this we’re being supported by the FCA who are actively engaging with us on how to help ordinary people make decisions on what they’ve bought in readiness for spending it.

I’m even looking forward to going to a two day Pensions Hackathon, organised by the FCA – which will enable firms like AgeWage to engage with some of the providers I’ve mentioned. Technology can help – and we’re determined to prove it!

agewage vfm

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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5 Responses to “Legacy” is a dirty word – AgeWage would ban it!

  1. Simon Freeman says:

    Very interesting article. Thought provoking as well.

  2. Mark Meldon says:

    Well, good luck with that! I hope you succeed, but who will ‘crunch’ that data for the hundreds of thousands of product/fund permutations for legacy pension products? I find this can only be done very laboriously on a bespoke basis – are ‘series 4’ units better or worse than ‘series 5’? Will Allied Dunbar plans look rather good if continued post-SRA?, is the Sun Life ‘EFI’ worth having? – and why not just manage legacy pensions by utilising the funds available? What about life cover and WOC, trusts, too?

    Gosh, a MAMMOTH task to centralise on some kind of whizzy computer system!

    I bet will end up being done ‘manually’, if you can overcome the apathy of consumers!

    Good luck!

  3. henry tapper says:

    We’re into making life simple – we’ve by-passed the full mapping of the legacy pension genome which would have been (as you point out) a full time job for 20,000 monkeys). We’ve adopted a simpler approach which looks at what actually happened to the contributions each person made!

    • Mark Meldon says:

      But how would that work in practice? As a simple example, my now-retired colleague arranged several PPPs with what was then Sun Life in 1992 (now Aviva). These plans are now approaching SRA and, perhaps unusually, have been funded by contributions throughout that time period. One plan has now benefitted from a ‘loyalty bonus’ of, IRRC, £8,500 on a fund of £75,000 as a kind of charges rebate. That’s pretty attractive, no?

      OK, I admit that the majority of PPP/FSAVC/EPP/AVC arrangements from the 1980s-2000s are ‘paid-up’, but not all, but the question of an inspection ‘under the bonnet’ does not go away. Take the Sun Life plan. This was invested in a mixture of equity and bond funds – not the managed fund – throughout and, disregarding the ‘closet indexer’ argument for now, the returns have been acceptable based on the contributions paid. Even had they been mediocre, though, that doesn’t take away the loyalty bonus. It would not go down well with your PI insurers if this fund had been moved by just looking at ‘what actually happened to the contributions each person made’ and ignoring that 10%+ loyalty bonus that would have been lost.

      It’s a fact that not all ‘legacy’ pensions are terrible (I’ll agree that most are) and these can be ‘managed’ quite effectively. You have to run a detailed comparison of the legacy product as against, say, Royal London’s Pension Portfolio (excellent) – ignoring, perhaps, investment projections/hunches – well before even thinking about a switch. It’s very time consuming.

      I worry that you are leaving yourself wide open to complaints.

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