Introducing the “house pension”

How many times have you scanned a long wine list full of expensive options you don’t understand and turned with relief to the back page to find the house wines?

Reasonably priced and selected for you by the management, they represent the best views of people who know better than you and are selecting in your interest. Restaurateurs are trustees of the culinary world.

Whether we have chosen the restaurant or not, we can see no reason why it should not be knocking out its house wines to please us. If we find a bottle of Blue Nun there – at £30, we have every right to walk out before the first course arrives! The house wine is a sign that the restaurant is on our side and that it’s trying to make choices easy for us.

We won’t get the sommelier recommending the house wine (especially if it comes in a box or tin); you won’t get a financial adviser recommending the house pension. People who want to – can pay for something bespoke, most of us want a quality product at a reasonable price that does what it says on the label. Something that the house is proud of.


“Choice architecture”

The DWP has just finished a consultation on “choice architecture” – the presentation of the pension choices to those at retirement , struggling to find a decent option at a decent price. People looking for a value for money pension that does not require a degree in pensions management to understand or use.

Put aside what the pension solution should be (I cover this elsewhere), I would like to be presented by my pension provider (L&G) a house pension which has been selected for me.

I would like a few tasting notes. I would like to know the basic details as I’d like to know a little about the house wine, or the house pizza or any other house special. I’d like the right to say “no thanks” and choose off the extended pension list, something more to my taste.

But nine times out of ten, people will choose the house pension, as they accept the house savings vehicle. It is slightly different when you are converting from being a pension saver to a pension spender, you need to make a positive affirmation of what you want and you need to give your bank details to the organisation paying you your money (you of course also have the right not to have money back).

House pensions are a good idea all round

The idea of a “house pension” was prompted by my friend Arun Muralidhar,  who simplified the idea of buying strips of inflation linked income to “SELFies”).  For people who want to pre-purchase income in retirement, SELFies are genius and we should have them here for the many people who want to collect retirement security like green shield stamps (look them up if you are under 45)

If you don’t want wine – don’t buy it; if you don’t want a pension – don’t buy one.

But all over the world , governments are waking up to the fact that people aren’t swapping pots for pensions and governments are demanding more be done to promote a house pension option.

The point for trustees is that a house pension fulfils two duties, first your duty to the consumer to make a reasonable pension option available. Offering a pension scheme without a pension is asking for trouble.

Secondly your duty to your scheme to create a marketable selling point which will attract your pension some attention.

This latter point is underestimated. A trustee’s duty must include a recognition that unless the scheme is commercially viable, it has no future. That is a hard truth behind the move to consolidation. Trustees of commercial master trust must consider why employer would want to stay with them and why they’d want to switch to your trust. Even large schemes with a single employer need to justify to their sponsors that they provide a return on the sponsor’s investment. The alternative is that you and your scheme will be consolidated.

While the primary duty of a trustee is to the member, part of that duty is to ensure that the scheme remains relevant and can be sustained.  There should be an alignment of interest in success for funder, trustee and sponsor.

Creating scale

Commentators have often pointed out that nudge theory is about creating a simple pathway we can all follow. Auto-enrolment nudges us into a savings pattern into workplace pensions dependant on a regular deduction of money from our pay. By concentrating flows into a small number of qualifying workplace pensions, new flows are increasingly creating economies of scale. Straggling schemes are being picked up and consolidated all the time. Savings scale is created by the rigorous application of house specials – known as “defaults” (I think that defaults could be known as the “house choice” too.

If an asset manager knows it is part of the default, it offers terms based on securing 90% of scheme flows, the terms are better. The funder can concentrate 90% of scheme resource on optimising sound investment administration , the house fund becomes a success out of proper usage, people understand this as they understand that the ingredients of a house special are likely to be better, for the size of orders the restaurant is making.

But the argument goes that people have different needs at retirement and cannot all be offered the same house special. Instead we offer them investment pathways, which is like bringing out the chariot of cognacs and fine whiskies when all people want at the end of a meal is  to finish off the wine.

Making a night of it

Many people get to the end of the meal and want to clear off because they suspect they will be sold expensive muck which they’ll end up buying because they’ve had a few. I fear this is why investment pathways are popular with some pension providers, they are high margin products that people buy when they find they have a bellyful of savings in their pot.

We are at our most vulnerable when the drinks cabinet is being wheeled around but most of us ask for the bill and head for the door when it hoves in sight.

If the restaurant offered us an opportunity to relax and enjoy an after-eating experience, it could continue to offer us the house products and most of us would be happy to stay for as long as we could. That is how good restaurants get good reputations. Pension schemes that offer pensions – keep their customers for as long as the customers stay upright. There’s a lesson there for providers, as well as for revellers!

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 Introducing the “house pension”

  1. byronmckeeby says:

    Reminds me that Standard Life’s GARS fund was first developed “in house” for their own pension trustees. That didn’t end well, Henry.

    But still, it used to be interesting to learn whether investment managers, in some houses, had “skin in the game” with at least part of their own investments.

  2. Glynn Jones says:

    I don’t disagree with the idea. It would work if most retirees wanted the same things and if they didn’t change wants and needs once retired. If the house version could cope with those, then a particularly good idea.

  3. John Mather says:

    Can you simplify the green shield plan from the term sheet and how did this structure perform in the indexed gilt market las year I can find no performance data, can you supply please

  4. ros altmann says:

    Dear Henry
    Isn’t this idea of a ‘house pension’ what DC default funds were meant to provide – albeit for accumulation phase initially – but to then lead people to an annuity. However, even for accumulcation, they are not working well for customers. ‘Experts’ have designed these default funds with the idea that they will be suitable for the ‘average’ person, but well-meaning ‘target date’ or ‘lifestyle’ options have failed to keep up with changes in pension rules and people’s lifestyles. The possibility of flexibility and reality of individual needs are ignored. No provider explains properly what these ‘default’ funds (what a dreadful name!) are doing with their money, nor do they check whether the ‘target date’ is the correct date and whether people’s lifestyle is going to mean retirement at any particular date, nor whether they may not even want to touch this money for many years to come. Their fund is just moved year by year out of potentially higher return assets, which they may even have to buy back at higher prices when they enter drawdown in coming years. This idea that ‘experts’ know better what people want than the people themselves, without even asking them vital questions about their health, work plans, other pensions etc, seems to me to be flawed in 21st century Britain. Without knowing those vital elements, an approach that suits the ‘average’ is not safe or suitable to rely on in my view.

  5. BenefitJack says:

    In the states, the “house wine” or “house payout” default that would work best for most workers, would present the default at least a decade in advance of the individual’s decision to stop employment and commence payout.

    In the states, a thoughtful default would “push” or present them a menu, as required reading, long before they get to the restaurant.

    That menu would only have the default – what happens if you commence payout without making an affirmative election of a different form of payout.

    It would be presented at age 50 for the first time – highlighting it prior to age 50 would be meaningless for most American workers.

    When they get to the restuarant, at/after reaching age 62, but before reaching age 70 (for Americans), the “house payout” would be on the first page at the top in 36 point BOLD, RED Helvetica. There would be nothing else on that first page. All other “wine” or “payout” options are listed on page 4 at the bottom – requiring the participant to first reject the “house payout” (or at least consider it and decide that it might not be optimal for their purposes) then turn the page at least twice.

    Here you go – my suggestion for America’s “house payout” – something for every American worker to consider. And, even if they decide that this guaranteed, inflation indexed solution doesn’t provide sufficient income in retirement, it could be paired with their annuity or guaranteed income fund selection.

    PS: Although America’s Social Security system faces funding challenges, for everyday workers, all but the highest paid American workers, retirement doesn’t happen without the Social Security benefit. Unless that system becomes sustainable, retirement won’t happen for the vast majority of low- and middle-income Americans (all with income below the top quintile – those with annual wage income < ~$100,000 US ).

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