Now and then.

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It all started so well – and ended so sadly. Yesterday NOW’s owner, the Government backed Danish Pension Fund announced it was selling it’s UK master trust to Cardano, the Dutch Fiduciary Manager.

NOW were the first organisation to seriously compete with NEST as an occupational pension scheme. They made it absolutely clear where they were coming from and they set their stall out with conviction

  • Just one fund
  • A Segregated Fund unique to NOW members
  • A Trustee Board drawn from the great and good
  • Outsourced admin

The original vision we were sold at launch also included free life-cover – though that never quite happened.

I remember the launch, a grand affair just off parliament square, it was like a film premier. NOW was launched at a time when its first customers were the large employers without a pension scheme. Employers like ISS who has a workforce in six figures, cleaning trains – they were early stagers and chose NOW.

NOW’s early success was predicated on purchasing employers getting the NOW story. It was that the Danish pension system – was deemed successful because of ATP – the owners of NOW. NOW was popular with Danish owned companies, especially in the shipping sector. If there was a Danish ex-pat in charge of your employer – you got NOW.

NOW’s second phase distribution strategy was to go after large accountants with whom they did deals in return for those accountants using NOW pretty well exclusively. It wasn’t a bad distribution strategy and for a time it worked.

But after a year or two, the large employers who were NOW’s flagship customers started raising alarm bells. Money wasn’t being invested or it was being invested in the wrong place. Money wasn’t being collected or the wrong amount collected. NOW had outsourced the record keeping and contribution collection functions to third parties and had trusted that the third parties would work together. They didn’t.

What actually happened was that NOW lost control of the most important piece of the jigsaw, customer support.

Before long NOW felt it had to switch its original record-keeper, Entegria (Xafinity) . It replaced one third party with another – JLT. In doing so it created the infamous black-out where employers were completely shut-out. It was scary for employers and it freaked out the accountants who had been sold a tale of Danish efficiency and super-clean compliance.

A number of high profile clients – including the biggest by employees – ISS, walked. ISS actually replicated what they were doing with NOW with JLT.

By 2015 the Pensions Regulator was involved and what followed was three years of torrid discussions between NOW’s trustees , its management and an increasingly angry regulator. Poster-boy CEO- Morten Nilsson fell on his sword and was replaced by JLT backroom fixer – Troy Clutterbuck.  NOW ditched its middleware supplier and finally created a dedicated customer service unit in Nottingham. But the damage had been done.

From being top-rated for its vision, Pension PlayPen gradually down-graded NOW for its appalling customer service and the failure of its systems and processes. By 2017, nobody was using NOW.


Where did NOW go wrong

The original vision for NOW was grand (I mentioned its launch felt like a film premiere).

It hired the then top DC players from the occupational market and its architecture was that of the classic unbundled DC scheme of the first decade of the century. NOW’s Trustees were and are trophy. Nigel Waterson arrived from Westminster, a few votes more at Eastbourne in 2010 and he not Steve Webb would have been coalition pensions minister. John Monks was a senior Union man, other trustees had similarly luminous backgrounds in the pensions industry.

But all this glitz blind-sided NOW. They bought the Kool-Aid of the consultants, by-passed the tough job of setting up a proprietary admin system and dedicated customer support. They totally didn’t get the payroll challenge – leaving the interfaces to “middleware”.

NOW were about investment and in particular the investment approach advocated by ATP which was implemented impeccably.

The think that finally sunk NOW was not the train-wreck admin, but the failure of the investment strategy to deliver short-term returns. What happened was the BREXIT vote and NOW’s strategy was predicated on Britain remaining. NOW hedged its currency positions and failed to pick up on the huge gains that could have been made from the currency markets. Relative to its principal rivals (apart from Standard Life’s GARS – which got caught in the same trap), NOW’s investment performance was abysmal.

Had it had its intermediaries and employers on side, this might not have mattered, But they had lost both those training rooms and NOW were horribly exposed.

The final nail in the coffin was NOW’s reliance on its use of a tax-relief system that was de-rigeur for its original clients but which turned out an albatross around its neck. NOW’s members were and are a varied bunch but very many of them fall into the net-pay trap and are not getting the Government Incentives promised by HMRC – because NOW does not use Relief at Source. Worse- all the GPPs and its two principal rivals – NEST and People’s, use Relief at Source. NOW have commendably campaigned to get HMRC to give Net Pay the same advantages to the low-paid as relief at source but without success.

Although NOW has righted the ship with regards record keeping and contribution collection, it still has some fundamental problems which Cardano are inheriting. Apart from the net-pay problem, NOW has a very large of very small pots. These pots are not uneconomic to NOW because NOW charge the pot-holders £18 pa to maintain them. The trouble is that small pot holders aren’t getting much return on their investment and if the pot isn’t getting new contributions , it is gradually being eroded by the charge. Watch out for some newspaper or other discovering a bunch of NOW members whose pots are so small that they cannot meet the admin charge. Try explaining to an ordinary person that their pension provider has just eaten their pension and check the reaction.


So why did Cardano buy NOW

NOW is Britain’s third largest master trust in terms of membership with some 1.7m people having a NOW pot. Well that’s what we’re told though record keeping has never been NOW’s strong point and we can only guess how many pots are duplicates.

NOW has accumulated a decent fund – we aren’t told how much but I believe it is north of £2bn and it boosts Cardano’s assets under management by up to 10%.

No doubt Cardano have considered the risks that NOW brings with it (see above) and feels suitably indemnified to take them on.

To the 30,000 businesses that remain with NOW, the news of change of ownership will not mean much. For admin it will be BAU and investment considerations are pretty low down an employer’s priorities.

Among members, there may be a little frisson of interest, but the number of people who will understand the difference between NOW and Cardano’s investment style’s are pretty small.

Consultants may feel a little aggrieved that they have unwittingly supported what (for most of them) is a rival proposition.

For a small bunch of idealists, who genuinely believed the NOW story back in 2010, this is a sad conclusion to what could have been a great enterprise. It is very hard to be excited about NOW owned by Cardano.


So what of the future?

It will be interesting to see if Cardano change the model. They might get rid of the trophy trustees who look like white elephants in the room. They could tackle the systemic issues associated with small pots and the net-pay collection system (though this looks a tough one).

But I doubt they’ll make many changes. Troy Clutterbuck looks like staying on – his feet are well and truly under the table. Having switched administrators once, NOW will be unlikely to do so again (even though it is JLT who are blocking the move to Relief at source).

I doubt that there’s much appetite to put new employers with NOW in the immediate future and so that 30,000 employer number should stabilise.

NOW need to really deal with small pots and get involved in what their policy guru Adrian Boulding calls “prisoner exchange”. The potential practice of swapping small deferred pots with other master trusts (pot consolidation).

If it continues to run down small pots with its admin charge, it will find itself in deep water. It will similarly find the take-up of its compensation offer on net-pay unsustainable in the longer term.

Cardano are going to have to get their hands dirty on these issues and I’m not sure that they are that kind of organisation. I know Cardano well and will be asking them what their intentions are.

You shall know them by their fruit.

fruit.

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Now and then.

  1. Mark Meldon says:

    Henry, its not just NOW with terrible ex-ante admin. It has take 13 months for NEST to transfer £900 into a PPP for annuity purchase purposes. That’s the worst turnaround time I have experienced in 30 years as an adviser!

  2. DC says:

    Really good article Henry, I wasn’t aware how much of a shambles NOW was.

    Good intentions, naïve implementation?

    I’d like to say you get what you pay for but that isn’t always the case either!

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