Addressing Bill Sharpe’s “nastiest, hardest problem in finance”
This blog is about the reasons pension master trusts are struggling to pay pensions. The individuals above are Christoph Hirt and Laura Johns whose report for Pi Partnership can be read here.
The first workplace master trust to matter was Nest and it was soon followed by People’s Pension, NOW and then L&G’s. The L&G master trust was a reaction from an insurer to a demand from large employers such as M&S for an occupational pension scheme to let the retailer outsource it’s obligation under auto-enrolment. M&S and a few other large employers employed hundreds of thousands and they and Tesco were among the first employers to “stage” into an L&G master trust.
The promise of L&G became to run outsourced occupational as well as personal pensions for employers who didn’t want to do it themselves. Promises to do this job was quickly followed by others. Standard Life and Aviva, and BlackRock who became Aegon and Zurich who became Scottish Widows, all offered trustee based occupational schemes with continuity for employers and their pension departments to use occupational schemes.
Nest and People’s and NOW were to catch the second , third and fourth waves of smaller employers and sweep up the smaller employers who had no history of pensions.
auto-enrolment traffic (produced by Pension PlayPen at the end of 2012)
It was clear even in 2012 that the strain of AE would be caused by employer size early on and employer numbers towards the end of staging. The new names had no bars to employers and accepted anyone who came their way,
But the insurers were able to pick and chose their customers and underwrite. This meant that they could justify offering ridiculously low prices in return for employer covenant. This wasn’t just a price war for master trusts, (Standard Life offered 10bps to BT staff for a GPP), but as more master trusts sprang up (Smart, Cushon and a host of smaller master trusts), the price war really took off. Grabbing savings took over ,
What happened was a conversion from a pension culture in these schemes to a savings culture. This was accelerated by the announcement in 2014 and implementation after only a year of the pension freedoms. The insurers had underwritten on the basis that all their savers would become customers in retirement using their annuities. BlackRock and Zurich were always going to struggle having no annuity capability but pension freedoms was a challenge and an opportunity which would be faced but not in the AE staging rush and not in the troubles of 2020 when the pandemic bit.
Infact, the insurers had no replacement for annuities and Nest and NOW and People’s were so awash with new customers as the smallest companies staged, that they didn’t have time to get a decumulation in place. The decumulation problem was not solved in the early twenty twenties and this was picked up by a Labour Government with a pension minister with a clear idea of what a workplace pension was.
When Torsten Bell took over from Emma Reynolds he worked with Andrew Tarrant who had worked with Greg McClymont (a shadow pensions minister ten years before). Between them they brought out a Pension Schemes Bill which was presented to parliament last summer. It had at its centre a revitalisation of the workplace as a place where pension are created.
The CDC plans that had reached only Royal Mail, were extended to all employers who prioritise pensions over pension freedom and the workplace DC pensions are fast becoming consolidated into a hardcore which may be reduced to ten or less by the end of this parliament, but a hardcore that will have to deliver a lifetime retirement income as a default. The default will kick in at an age selected by the master trust, will provide real income and real protection either through a retirement income or some kind of flex and fix with the fix being an annuity.
So far only Nest have said they will adopt flex and fix with the annuity kicking in at 85, Esther Hawley of Standard Life told the VFM pod that Standard Life will fix when someone gets to a certain age (this is anecdotal but Esther is reliable)
So far only Willis Towers Watson have said they will offer Retirement CDC as a default for its master trust -Lifesight. Aon are rumoured to be offering CDC and may even offer it as a workplace pension to compete against its own DC master trust. TPT are offering such a workplace version and will continue to run it against its DC master trust, perhaps extending its UMES CDC to be a retirement CDC for its DC members.
CDC is an alternative to a master trust with an exemption from the Scale rules for DC plans. Scale may mean some small DC master trusts convert into CDC plans to avoid losing control of its relationships with employers and members through consolidation.
Tomorrow’s challenge to master trusts is large employers offering workplace pensions through CDC. If these employers leave master trusts for better staff pensions, master trusts will face their biggest challenge since the inception of AE.
Finally, more than 10 years after the introduction of pension freedoms , workplace savings schemes are having to establish a way for people who don’t take decisions to spend the money they have saved.
The original idea (even at Nest and People’s) was a system of annuitisation but that has changed. Right now, the remaining retirement savings plans are looking at ways to become pensions again and it’s proving really complicated. I have listened to over an hour of explanation of Standard’s solution and feel sorry for the job of Esther Hawley in developing a proposition for those retiring. It is a mess for DC, the nastiest hardest problem of finance.
Against the morass that DC decumulation is becoming, CDC may be considered a clean and easy way of improving people’s pension prospects!
CDC needs pots for without them where will the money come from?or CDC?.
Demonising the opposition is a phase that society is about to end as higher purpose replaces greed. Maslow will need to be revised.
Summary: A New Era of Defiant Humanism in the U.K.
In his lecture, David Brooks (Yale) outlines a historical cycle of cultural paradigms, suggesting that we are currently transitioning from a “Decade of Resentment” toward a “Humanistic Turn.” For the United Kingdom, which has long mirrored American cultural trends—from the post-war “Moral Realism” of the 1950s to the “Bourgeois Backlash” of the Thatcher era—this shift represents a profound opportunity for national renewal.
Adopting the ideas of “Defiant Humanism,” the U.K. in the next five years could move beyond the cynicism and “social chasm” created by the meritocracy. An optimistic vision for Britain includes:
A Move Toward Earnest Admiration: Instead of the politics of grievance and “cancel culture,” the U.K. can rediscover its capacity for admiration. By elevating figures who exemplify service and integrity, the nation can break the “doom loop” of distrust.
The Renaissance of Civil Society: As trust in central institutions remains low, the “Humanistic Turn” suggests a revival of local communities. We may see a surge in local “social capital,” where people find meaning not in digital outrage, but in neighborhood cooperation and “moral formation.”
Bridging the Education Divide: By moving away from a narrow “meritocratic” definition of success, the U.K. can begin to heal the divide between the “educated elite” and the “left behind.” A shift toward valuing the “higher virtues”—justice, hospitality, and wisdom—over mere professional status will foster a more inclusive national identity.
Ultimately, the U.K. is well-positioned for “Rupture and Repair.” By choosing “uplift” over “dark passions,” the next five years could see a Britain that is more vulnerable, more connected, and more confident in the shared dignity of its citizens.
A more pessimistic reading might question both the diagnosis and the implied trajectory, John.
First, the idea that “demonising the opposition is a phase that society is about to end” looks to me more like a hope than an observable trend.
In the UK (as in the US), affective polarisation hasn’t peaked and receded—it seems to have become even more structurally embedded.
Media incentives/distortions, party competition (rather than collaboration), and algorithmic amplification all reward moralised conflict.
Even if many individuals tire of outrage, our institutions still seem to profit from it.
That makes “higher purpose replacing greed” less like a turning point than a countercurrent—present, but so far marginal.
The Maslow point also feels overstated.
Human motivations haven’t obviously shifted upward to me; if anything, prolonged economic insecurity (stagnant real wages, housing costs, fiscal drag, costs of living generally) tends to push behaviour back down the hierarchy toward status anxiety and material concern.
Revising Maslow to emphasise “higher purpose” risks misreading a period where many households feel more, not less, constrained.
On the “Defiant Humanism” thesis, there’s a selection problem.
Brooks-style narratives often extrapolate from elite discourse (universities, think tanks, parts of the professional/chattering classes) and assume diffusion into the wider population.
But the UK’s social fragmentation—by education, region, age, and asset ownership—limits that diffusion.
What looks like a cultural turn in certain circles can coexist with deepening cynicism elsewhere.
Each of the proposed shifts also faces friction:
Public trust in “figures of integrity” is low not just because of cultural mood but repeated institutional disappointments (expenses scandals, Partygate, regulatory failures, broken election “promises”).
Elevating admirable figures requires credible institutions (including our Parliaments) to validate them; without that, admiration quickly collapses into suspicion or accusations of elite signalling.
Localism sounds attractive, but capacity is uneven. Areas with high social capital can compound advantages; those without it may just see further erosion.
A retreat from central institutions can also look less like renewal and more like abandonment, especially under tighter, centralised public spending.
Moving beyond meritocracy rhetorically is easier than altering its economic underpinnings.
Labour markets (which have still to reveal the sustained effects of AI), credentialism, and disproportionate housing wealth all seem to reinforce divides.
Valuing “higher virtues” doesn’t change the returns to degrees or the geography of opportunity. We now seem to have too many ordinary and doctorate degrees with lower earnings prospects and continuing student debt for a growing, and already large, minority.
There’s a risk this becomes a moral gloss by a few over persistent structural inequality for the many.
More broadly, your five-year horizon feels very optimistic.
Cultural cycles—if they exist—tend to be slow, uneven, and reversible, eg “The Sixties” for me probably didn’t start till 1962 or 1963 and then ended somewhere in the early 1970s.
The UK is also entering a further period of fiscal constraint, demographic pressures, and geopolitical uncertainty, all of which historically harden rather than soften social divisions.
So the pessimistic view isn’t that “Defiant Humanism” is wrong in spirit, but that it is likely to remain a partial, fragile layer on top of a larger system still driven by distrust, scarcity, and institutional weaknesses.
Sorry to sound such a skeptic, but no doubt I’m being affected just now by the dispiriting (and largely “negative”) party election campaigns towards next month’s Scottish Government elections.
Rather than a clean “rupture and repair,” the more plausible path for me is a muddled coexistence: pockets of renewal alongside entrenched resentment, with no decisive cultural turning points in the near term.
Derek, The challenge is, as usual, to turn adversity to advantage. It is thinking people who need to lead the change.
You may be right about the longer timing.
At age 78, moving to a lower-cost base country (60% lower than central London) and turning an overpriced London home into a local income insulated me against the political manipulation of my retirement provisions, designed 30+ years ago. It’s now an income for my wife and a care home for me should we need the facility.
This week my golf clubs arrived, a sport I have never tried. At the end of this week I go to the west coast of Ireland and will scout out a trip so that the fly rods can be brought out of storage.
… and if you’re ever in St Andrews, do look me up.
My email Mather.john@gmail.com