Balance sheet relief leads to later life grief?

It’s a shame for my loyal readers (Con Keating especially) that some of the most interesting comments on my blog are made on twitter and linked in. In yesterday’s blog I suggested that our former pensions minister, Steve Webb, was using the skills that won him “Spectator Minister of the year” in 2014;- specifically he was justifying pension atrocities in the name of freedom – specifically pension freedoms!

I am not alone in calling this

This may all seem a little arcane but there is substance in this discourse that informs on a wider debate about whether defined  benefit pension schemes are a help or a hindrance.

Those arguing for de-risking see DB schemes as a corporate hindrance, shackling executives to low bonuses, shareholders to low dividends and the enterprise to low investment in its future.

Those taking the opposite position consider pensions promises that should be honored and not shipped out (along with all manner of risks) to be floated on choppy markets.

Having worked in a DB consultancy for 10 years I know of many consultants who have openly sold DB de-risking (aka the facilitation of transfers) as a means to give the corporate balance sheet immediate relief as individual transfers invariably cost less than the imputed balance sheet item of a “deferred pension”.

This argument is then stretched by suggesting that de-risking is strengthening the employer covenant, reducing the risk of the scheme going into the PPF and that transferring members are in fact doing remaining members a point. Believers in the old adage “if it looks too good to be true , it probably is” should be gulping for air at this point.

Providing a DB cash equivalent transfer value at the discount rates that result from the dash to buy-out/self sufficiency means paying a much higher price to de-risk than would be the case for  open schemes. Proposals from tPR to force schemes into low-risk funds are likely to increase pension transfers still further.

There is a much clearer link to increased transfer activity and increasing transfer values than member desire to exercise pension freedoms.

Witness the British Steel Pension Scheme which reported virtually no transfers in the years following the announcement of the freedoms  leading up to the announcement of the RAA in 2017.

On the basis of this information , the trustees believed that steelworkers were (even with the temptation of pension freedoms) were supine and fans of scheme pensions. I was told that this was the prime driver for the complacency that was identified in the Rookes report.

But early in 2017, the scheme – determined it would lock down its investment strategy , the Trustees shifted the investment of the scheme from growth to defensive assets. They abandoned an age-banded  discount rate to a  much lower flat rate  The result was that some transfers nearly doubled, something that would have been foreseen by the employer’s actuaries and something that led to one of the largest mass-exoduses in British pension history.

I am not saying that the consultants to Tata purposefully encouraged the transfers or that the Trustees were complicit, but I am saying that they created the conditions for £3.2bn to leave the scheme to sit in a wide range of SIPPs, some – none too savoury.

Balance sheet relief or later life grief?

A point that is made too rarely is that we really don’t know what will happen to the £80 bn that flowed out of DB schemes between 2015 and 2018. Will it be used to replicate the defined benefit with former members buying escalating annuities and spouses pensions? Or will the money find other investment pathways – from Lamborghini to wealth preservation scheme?

I think it almost inevitable that a high proportion of the proceeds of these CETVs will find its way into the pockets of intermediaries and I see absolutely no argument to suggest that taking their transfers was the “no-brainer” that several welsh steel-makers believed them to be.

In all probability, a high number of people who took transfers will draw down too hard, from pots denuded  by high charges and the money will run out before they do. We will not know this till the money starts running out, but expect in future decades to find a different debate about transfers.

In one corner will be steelworkers being paid a pension (probably by an insurance company as New BSPS looks headed for buy-out).

In the other corner will be those who have taken transfers. Some will feel winners but many won’t. This is what the FCA are thinking about when they question the basis of so many of these transfers.

This is what I mean when I say that employers and trustees must be aware that “balance sheet relief risks later life grief”.


This and my previous blog result from a webinar laid on by LCP and Royal London. These webinars are free – but we know that in this naughty world, very little is for free. The price of attending a webinar in these times is to listen and tacitly consent to the approach being taken.

There is here a worry that those with the capacity to host these events are now so powerful that they can dictate the way things are. So I ask…

Are consultants using webinars to create an oligarchal agenda?

I do not point Zola’s “J’accuse” at pension consultancy. It is true that they are paid by employers (directly or indirectly) and are keen to play to the employer’s agenda.

It is also true that the PPF, as much as any other superfund, poses an existential threat to consultancy earnings , once a scheme slips into it.

But that does not mean all consultants are compromised. First Actuarial’s response to the Pension Regulator’s proposals to the DB funding code shows that consultants can deliver non-hysterical messaging about the PPF and encourage diversity of strategy beyond the one size fits all dash to self-sufficiency.

Lane Clark and Peacock (LCP) where Steve Webb is a partner is a firm, like First Actuarial , with the interests of members at heart and I know that Steve Webb has ordinary people’s interests at heart!

Or can delegates re-create debate?

One trouble with these webinars that we get in is that the dissenting voice finds itself difficult to be heard. The debate recorded earlier this week was such a case with two good speakers arguing not in a dialectic , but to reinforce each other’s views. We are left with a largely muted audience to give tacit assent to the views being expressed.

There can be few more frightening examples of group-think than a webinar without dissent!

Credit LCP for letting me in and credit them for allowing the debate. I have been told on many occasions my questions are unwelcome to the host!

As with consultations, so with webinars – it is essential that we do not allow the conditions under which we live and work – to prevent a reasoned debate.



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Balance sheet relief leads to later life grief?

  1. Derek Scott says:

    I also tend to agree. Whenever I’m asked for feedback on these webinars (and on previous conferences) I have a tendency to say that I would always prefer to hear contrasting speakers who disagree on at least some points. My feedback is invariably ignored. I understand the commercial reasons why, but do wish so-called professionals would show more courage to invite debate rather than simply promote “one way” solutions.

  2. Too many conferences, and now online sessions, are also ‘pay to talk’. I suspect that many people, who pay good money to attend events, are unaware that the speakers are very often not invited because of their expertise but have bought their slots. Some organisers use ‘sponsorship with speaking opportunities’ to describe it but many are bald in their selling spots adverts.

    That’s not a good way to get expertise and varying views.

  3. Eugen N. says:

    Just one point on Steve’s message above (B. point). I participated in a few ETV exercises which included other options like switching pension RPI pension to level pensions for pre-1997 members, IN these pitches I did not find that consultants were paying much attention to members, the main target was for reducing the liability for the schemes, for the benefit of the sponsoring employer.

    In many cases, even the pitch was one sided with promises that were not possible to happen in reality, so the whole exercise would earn fees for consultancy, the chosen pension transfer specialist, but added no real benefit to the sponsoring employer either, as the expectations did not happen at all in the end. Also the total costs at the end of the exercise were a lot higher than in the initial proposal. For example, they were pitching our services for Overseas members at £1,500 a client, but in the end, we were paid a lot more, as members were asking to the trustees to cover all the costs, not only the initial report etc. Our charges for Overseas clients were higher, and the expectation was that members will cover some of it. But most of the time this ended up in a revolt, mainly because of how documents were drafted etc!

    In a case for a German bank, they pitched us at £1,500, but the sponsoring employer ended up paying an average of £3,500 per Overseas client! Not to say the added time they had to spend with all those people moaning (some still their employees all around the World), complaints etc.

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