This is from the promo for this week’s rather important talk about Standard Life’s Retirement Proposition. As Standard Life are (since buying Aegon) at the top of the tree (by size), what Esther says matters a lot to people who have pot but no pension!

In this episode of V-FM pensions, hosts Darren and Nico chat to Standard Life’s Esther Hawley about all things decumulation. We hear about Standard Life’s approach to helping people with the knotty challenge of how to turn pensions into income including segmenting members, the anchoring decisions around essential versus discretionary income, and offering a guided “starter” solution rather than simply presenting the customer with a blank page.

AI must have written that, because no human being could have set that down without wincing!

Esther came to future pensions after 18 years with dying  pension schemes – the ones that gave a defined benefit. She was a pensions actuary at Barnett Waddingham. I kind of gasp when I hear of people talking about “DC pensions” and I listened awaiting an answer to the question “what is it!”. You can listen to it here if you’d rather get it from actuaries mouths (beware there are two actuaries involved).

Nico’s version of a DC pension actuary

The problem that Nico identifies with being a DC pension actuary is getting paid, this may be because there is no such thing as a DC pension for a pension actuary to do. But I am intrigued as both are DC pensions.

Esther chairs an innovative pre and post retirement actuarial group modelling decumulation. This actually turns out to be a way of comparing annuities with tontines and CDCs – oh and drawdown. This sounds so terribly complicated that it will keep actuaries busy for years to come but there is going to be a report at the end of all this. Whew! But we get a kind of definition of a DC pension by discrediting CDC.

Being a DC pension actuary is not the same as being a CDC pension actuary (who’s an inferior actuary) There is now a new phrase in Nico’s vocabulary for the role of a CDC pension actuary – it is “CDC washing“.

Unfortunately I can’t work out what is being washed but there is a lot of discussion using complex actuarial sentences. which may work out in pension actuary’s brains.

Esther goes back to where financial advisors started their career

Esther tells us that people are retiring and they’ll need a way of turning pots into income. How do we figure out how to get people into the right kind of “decumulation”.  We are on a “journey” into retirement  and its jolly complicated with DC – yeah?

Esther wants to find a way to help people to chose their way and if they can’t – chose for them. So Standard Life have defaults for different groups which is how we end up getting “segmented“. Standard Life doesn’t want to tell people what they want them to do, they just want to guide them in the right decision. Everyone wants flexibility and everybody wants security so Standard are going to make sure there is enough guaranteed income to make it alright. But of course  this means knowing what people have got by way of income and this means a fact find. I am  reminded of how I spent the first half of my career as a financial adviser.

This is tremendous fun – having actuaries turning into financial advisers – doing fact finds. This is a new world of pioneering advice sorry guidance! This is how people can get away from having a pension thrust upon them as they would with the state pension, or DB or CDC. I can see a way of not doing collectivism and it’s called financial advice sorry targeted guidance. All the products Standard could produce could be targeted at people after they have been segmented! CDC has become another choice , like with-profits this and that and drawdown that alongside  the various annuities! How fun!

What all this choice will lead to – is for some advice. For others it will be accepting a sub-optimal solution or people will strive to get the right solution for themselves (and typically as couples). Necessarily advice will be recommended as the solution for everyone who isn’t happy to DIY and buy their correct product

And OMG – there is yet another advice business launched by Standard Life – how new that isn’t. I can remember more advisory solutions put forward by Standard to providing advice than from any other provider. We’ve just got over one with Schroder, there was one with Aberdeen, they go back to the days when I was flogging retirement solutions in the last century!

Now we come to the difficult facts that those who are wanting advice are taking it while those who don’t either DIY or do what they’re told to do (aka default). Between 80 and 90% of memberships of pension schemes have proved themselves defaulters by never taking a decision on pension ever! They certainly haven’t sort (let alone bought) advice.

We then get into discussions about advice and legal discussions about liabilities and you have to worry about what Standard Life is going to be “doing with people” (Esther’s phrase). Here we are in “individual led decisions”.

Wow – the things that actuaries discover for the first time (their first time). I suppose that we couldn’t last long without the phrase “buckets” but we got there after about an hour – about the time when we get to TDFs and “reverse TDFs” and a whole lot more complicated stuff which sets Nico and Esther getting into the depths of solution (but  leave Darren wordless).

The Guided Retirement solution from Standard Life appears to be flex and fix with annuity fix happening if someone gets to 90 years old.

Esther would like there to be more decisions taken on behalf of people who aren’t typical. We are off into what Nico calls “safe harbours” for people who say to Standard Life “I want some income” which makes Nico happy but reminds Esther that the default is a retirement income that goes on as long as the client. This is not a safe harbour but a default endgame, a place like an annuity but with income paid from a pot. A default is for everyone (eventually).

“People are still people whether they are in contract or trust based savings plans”, says Esther. Standard will start doing all this  with Trustee people. But Darren is now in the “dancing on a pinhead” place and he’s terrified for Esther because of all the stuff discussed in the last one hour five minutes (8 minutes to go) is full of risk for Standard Life. I am beginning to think that the insurer may actually be beginning to take some risk on behalf of their “customers“. For an insurer who has declared itself a savings operation, the idea of a retirement income for the rest of someone’s life sounds scary to Darren.

We turn away and Esther tells us what VFM is.

Value for Money is “smug” says Esther , because VFM is never claimed to have been bought or sold except by the smug. I think that that is pretty clever from Esther because smugness is a very good word for the VFM podcast.

Annex; The inevitable Tapperism

I will of course point to the overrun of this podcast which I hoped for all the assertions that it would, would run to an hour. It ran in at nearly 72 minutes, 12 minutes of overtime boys, perhaps we can blame VAR (another acronym that football and actuarial measures have in common).

That is what I do! But I do admire the boys’ consistency!