The gap in our thinking on the cost of living.

Posted on September 6, 2022 by henry tapper

The story is in the picture

As so often, the real story is in the image. Here the image of the winner focussing on the gap between her and the loser, perhaps the seat for Boris Johnson. For many, the disregard Liz Truss paid Rishi Sunak as she went to the podium to deliver

was the story.

The audience in the room squirmed in embarrassment as she called for them to applaud Boris Johnson, she told us he was loved “from Kiev to Carlisle” . This of a man hounded out of office only 8 weeks before for serial lies to parliament and the country.

As so often, the story was not what was going on in the room, but what was going on outside. Liz Truss’ victory is less newsworthy than the turning off of the Nord Stream 1 pipeline

FT 06/09/22

We learned yesterday that , unless Centrica can raise billions in loans from the banks , it will go bust – failing to meet collateral calls ( a salutary reminder for over-hedged DB schemes and their sponsors).

That is the reality between what we saw at Liz’ “coronation” and what is happening in British business.

A gap between how we see ourselves and how others see each other.

Other than a brief point in the mid-eighties , the pound has never been weaker (as my colleagues in India are finding out).The Euro is now less valuable than the dollar and even though Britain only relies on Russia for 4% of its energy, we are being told to pay our price to stop Putin’s aggression. It is after all Europe, and Britain is inextricably linked in this to Europe, that is under threat. We are playing catch up with the reality of suffering in the East

There is another gap, a gap between the reality of the situation for ordinary people and the warm glow of a ruling party who scarcely mustered 100,000 people to vote in a new Prime Minister.

There’s a gap too in pension policy as I found last night when speaking to members of the payroll fraternity. One payroll manager of a hospitality group told me that opt-outs and pauses were now running at 30% of eligible jobholders.

Was she inciting desertion? No she wasn’t.

Like me, she is waiting for help from the Government on what she can do to stem the tide. Like me, she feels that referring thousands of staff to Money Helper is not what her job is about, payroll has always been the front line for staff to express their feelings, what support is it getting? There is a gap.

We have gaps too in leadership. From today we will have a new Prime Minister, we will have a new Secretary of State for Work and Pensions and we may have – within the week, a new pensions minister, though there’s plenty of speculation about that.

But since mid-July we have been a ship at anchor , while the tides rip past us.

Finally, there is an enormous gap between those who have a voice (like me) and those who don’t (like the people at my church, on my boat , in my pub, in the shops and stuck at home.)

It’s no use me pretending that I know what it is like not to know if I can pay October’s electricity bill (even if I knew what it was). It’s hard to imagine how hard it has been for parents – especially single parents – to kit children out for the new term. When I look at the prices in the shops I realise that the special offers are more expensive than the full price items this time last year. There is a gap in understanding of what it means to be poor today. It is up to Torsten Bell, Martin Lewis and like minded people to bridge that gap. I look forward to listening to the recording of this.

A gap for all to see.

And that gap was obvious yesterday. Watching the Spads filing out of the QE II conference centre on their way back to “the Westminster village”, I did not see sober faces but instead the clowning around with phones and the like that characterises the vacuous behavior of today’s political circus.

These are the images that people around the country whether in Rotherhithe or Rotherham see and they see an enormous gap between themselves and those who govern. We must be very careful about the gap, in America it led to phrases like “drain the swamp” and the bitter divisions that are threatening democracy.

Belatedly , some in politics are waking up to the fact that we are in a “Dunkirk moment” but the reactions of Government are proving slow, how many will be left on the beaches?

 

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Is there a “complexity premium” and whom does it benefit?

Posted on September 6, 2022 by henry tapper

For some weeks Professional Pensions has been advertising a “complexity premium” webinar where Allianz will be selling the advantages of investing in “trade finance”.

I’m on Warren Buffet’s side here, if I find something complex, I avoid it -if an idea is simple, I embrace it. But I am aware of the attractions of the obscure, the opaque and inaccessible. It has the allure of the Gold in Ali Baba’s cave.

And it is particularly delicious to be the possessor of complex information if you are able to sell it on to others. “I’ve got a horse” came the cry from Glorious Prince Monolulu, heard from Petticoat Lane to the Epsom Downs

When anyone bought a tip from him (at Epsom at the height of his fame he would charge ten shillings) he’d hand over a sealed envelope inside of which was the name of the horse written with careful handwriting on a piece of paper. He’d lean over to the punter and whisper:

“If you tell anyone, the horse will lose”.

It seems that many people shared the horse, for few of them ever won – but no-one ever complained.

So I wish you luck as you embark on the speculative and complex world of trade finance with Allianz. You and your clients will no doubt find it well worth the price of admission (free), you will not have to purchase an envelope but your prize may be just as elusive.

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Liz Truss – “in at the deep end”.

Posted on September 5, 2022 by henry tapper

I’m not waiting till 12.30pm today to treat Liz Truss as the next Prime Minister, we’ve known for some weeks that she is the only horse left in the two horse race.

A £100 bet on Liz Truss will make you £1.

Short of a technical disqualification what she is saying – goes.

And what she’s saying is good for tax-payers and bad for those with limited and fixed incomes with no protection against hikes in the cost of living.

We are hearing that within a week of her accession , Liz Truss will have announced a meaningful price cap ; hopefully one that protects both consumers and employers. This is what Ros Altmann and Frank Field were calling for last week and it is the only way that the Government can use its resources to manage RPI and CPI for pensioners.

This price cap does not have universal support. One of my regular correspondents wrote me yesterday

We need to plan for energy prices in future and who will pay for them. A price cap protects those who should pay the right price whatever it is. That is wasteful. And wrong.

I suspect he would prefer the Resolution Foundation’s approach based on social tariffs, that would go some way to addressing the more fundamental malaise facing the new Prime Minister. The Resolution Foundation’s recent forecasts were published last week and will make grim reading for those in the Treasury

These forecasts show the problem is not just deep, but is also much longer lasting than current talk of a “winter crisis” implies. These large income falls are caused by a combination of rising energy bills, and weak productivity and earnings growth over the last fifteen years.

A significant policy response from the new Prime Minister is needed, otherwise they risk overseeing the culmination of not just the worst two years for incomes in a century, but also the longer-term culmination of two lost decades for British households living standards.

The reality is that we are not getting richer, not living longer and not feeling better about the way we are being Governed than back in 2000. We were being told then that “things can only get better” but since the financial crisis of 2008-9, things have got a lot worse for all but the most affluent.

Only Theresa May has made any reasoned attempt to right some of the inequalities of the past 20 years and address the needs of those “just getting by”. Those people are the one who are today not getting by and I am doubtful that Liz Truss is as bothered about that as she should be.

This is  the kind of issue you find when swimming in the deep end  (from the Resolution Foundation again)

  • A combination of earnings stagnation and the energy shock means the country is on track for two lost decades of income growth. Average real incomes are set to be 7 per cent lower in 2024-25 than in 2019-20 (the worst parliament on record for growth, by a large margin). Indeed, incomes across the distribution are currently projected to be lower in 2026-27 than in 2016-17 and only marginally above where they were in 2006-07.

  • The number of people living in absolute poverty is currently projected to rise from 11 million in 2021-22 to 14 million in 2023-24 – a rise from 17 to 21 per cent, including 30 per cent of children. Relative child poverty is projected to reach its highest level since the peaks of the 1990s.

Things got better for a bit , but Britain is looking like backsliding into the shallow-end where standards of public services are measured , not against the best, but against increasingly feeble measures of comparison. Our principle comparator, the exchange rate, is showing just what the financial markets think of our current economic and political performance.

As many people finally return to work today, I’d ask them to think about their productivity. We have had a summer of zero productivity from Government and I fear from the difference between emails sent (many) and emails replied to (few), that most of us will be dealing with a backlog of things to do.

The sooner we can get on the front foot and take the positive actions, this blog has been calling for, the better.  Hard work and application to detail is needed if things are to get better.

 

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“Reporting bosses who push workers to exit pension plans”, no answer.

Posted on September 5, 2022 by henry tapper

 

According to the FT (reporting an exclusive) , the Pension Regulator has spoken on the tricky issue facing employers this winter over staff  “pausing” or opting-out” of auto-enrolment.

Nothing has appeared on the Pension Regulator’s site by way of a statement and this appears to be by way of a private message to the TUC who have been warning of the danger to people’s retirement from those choosing to prioritise cash in the bank over regular saving into a workplace pension.

Report bosses?

Here’s what the FT are saying is in the statement

“While staff can ask to opt out, we are calling on employers to do the right thing and encourage them to seek impartial advice . . . before making any decisions. “Anyone who is concerned their employer is encouraging them to opt out of their pension should contact our whistleblowing service,”

Impartial advice from a financial advisor is not going to be available without a full fact-find, a process that is long and expensive, more expensive than a cash-strapped employee can currently afford.

The other alternative is to speak to Pension Helper, MaPS dedicated service for people needing guidance on pension matters. It does not provide advice but can deliver general information that may be helpful.  Here’s the example given in the article.

The regulator said that even in “difficult times”, it was important for people to keep up their pension contributions “whenever they are able to, as stopping contributions could have a serious impact on their retirement living standards”.

I don’t always agree with John Ralfe but I do on this occasion, the employer may issue statements of the bleeding obvious, but neither it nor MaPs or TPR can come close to helping someone faced with the choice of not paying bills to pay or paying into a pension .

Where the alternative to paying into a pension is being put on a metre, getting cut off, or in extreme cases getting a CCJ , then “heroic saving” becomes “blind folly”.

If bosses can do no more than mouth platitudes then they are being cut-out of any solution to the problem. This straight-bat response from the Regulator is nowhere near nuanced enough to help.

What the Regulator knows.

We live in a digital age. The information needed for monitoring opt-outs and pausing should be available to TPR on a dashboard.

The Regulator gets real-time information from HMRC on what has been contributed by staff to workplace pensions, it can see where members are “pausing” (you can only opt-out around enrolment and re-enrolment) but it cannot see what employers are doing in response.

Up until 2018, the Regulator produced an AE compliance report, this is from the last of those produced

An inducement is described as any action taken by the employer, the sole or main purpose of which is to persuade or cause an individual to opt out of or leave their pension scheme, without becoming an active member of another scheme. We received 90 whistleblowing reports alleging inducement by employers during the reporting period (2.5% of all whistleblower reports received). Of those, 53 resulted in cases being created for further investigation by the AE Compliance and Enforcement team. It is encouraging that such reports remain low in volume.

With such low levels of inducement, TPR may have felt it could get by without public statements , but I worry that TPR simply don’t have the management information to manage this situation without “whistleblowing”. HMRC have committed to producing more information but , with its IT systems outsourced under the Aspire contract, has it had the resource or the will – to build the reporting that TPR need? If anyone in payroll is reading this, they may be able to confirm what is required to be reported by way of employer’s contributions but….

Unless there has been a change since the last time I inquired, TPR will only be able to see the employee‘s contribution, not the employer’s, and anyone who is in, or switches to, a Salary Sacrifice scheme will appear to be making no pension contributions.

Similarly, TPR will not be able to tell the difference between someone becoming a deferred member by stopping contributions (i.e.. ceasing active membership completely) – and someone “actively pausing” (i.e.. becoming an active member of a non-qualifying scheme, where the employer is continuing to make contributions).

What if a benevolent employer makes it known to staff that it is prepared to continue funding its contributions for the period of a “pause”. Is that considered an “inducement” or “doing the right thing?” Is this any different from making a relief payment to staff via their pay-packet? It could be argued that a payment of £1,000 into a pension is both fiscally more efficient and a more ultra-responsible.

And while we are about moral decisions , what is moral about HMRC persisting with its policy of not refunding over-payments of contributions under net-pay (where the member paying cannot claim tax-relief). In its recent press release, HMRC claimed that this was “unjust”, but said it would not be refunding any contributions made in 2022, or 2023. Savers would have to wait till 2025 to get one year’s contributions refunded – those made in 2024.

The Pensions Regulator may be constrained by having limited access to the Pensions Minister right now, it may be in a hiatus as it finds a new CEO and it may feel that it has bigger problems to think about.

But for people trying to find a way through the next six months, help is needed and it cannot be confined to a recommendation that staff take independent advice. There are an estimated 1.2m employers auto-enrolling , can whistleblowing really be relied upon?

What the Regulator can do.

Firstly, if the Regulator has got something to say, it should say it to everyone, not just to the Unions and the FT. I have written to the Chair, CEO and head of policy at TPR and have been told they are considering a general response.

Secondly, if this is the general response, it is no more than a reiteration of what it said throughout the staging of auto-enrolment. The circumstances staff find themselves in is generally considered a “crisis”, we are being told this is a “Dunkirk moment” by senior peers, surely the Regulator can come up with something that fits the time (if only for a temporary period).

I call upon TPR to issue, with the permission of the DWP , a proper statement on what they consider “doing the right thing” which includes help for employers who are not unionised, employees who do not have unions and advisers who are struggling to deliver guidance within an ever tightening advisory budget.

Finally, if this has not already been done, I would ask TPR to complete the work it started four years ago and get HMRC to include the outstanding fields under RTI , that enable it to see what employers are doing for their staff.

I fear that when the staging of auto-enrolment completed , TPR pulled up the drawbridge on reporting. What we get now is a call to whistle blow on behavior that should be reported automatically by HMRC. As for providing help to those having to make hard choices, the employer must be silent. This isn’t good enough.

 

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“This is a Dunkirk Moment” – Field and Altmann’s tips to the new PM

Posted on September 4, 2022 by henry tapper

Frank Field
Ros Altmann

Our two best know pensioner peers wrote in the Daily Mail on Friday that Government should act to tame fuel inflation and reform the ownership of energy supply and production.

I’m quoting wholesale from the article because it represents the first intervention in this debate from political economists whose focus is on our welfare system. What Field and Altmann saying represents a considered response from two people who command popular respect.

Here is the headline, as presented in “this is Money”.

‘This is a Dunkirk moment’: Freeze energy bills or cap rises at 5% this winter, BARONESS ALTMANN and LORD FIELD urge next Prime Minister

By ROS ALTMANN FOR THIS IS MONEY and FRANK FIELD FOR THIS IS MONEY

‘We are concerned that indiscriminately doling out more taxpayer money will not help all those in need,’

This is Ros Altmann and Frank Field’s message to the new Prime Minister

Government action on the energy crisis must recognise this is a Dunkirk moment – patching up won’t do, radical action is vital.

I spoke with Ros Altmann a few weeks ago, at the time she did not think the energy crisis was of great moment. She has changed her position and I am glad of it.

So what is her and Frank Field’s recommendation? They are clear

Any new package must recognise two factors:

1. Direct action to reduce energy costs is superior to handouts as it also lowers CPI, RPI and wage inflation with wide economic benefits;

2. Privatisation has failed and radical reform of energy pricing throughout the economy is needed.

The strain on Government finances from inflation is immense. Virtually every regular payment to pensioners and those on benefits is upgraded by one of the three inflation measures.

By putting money in our hands, Altmann and Field argue, they are promising increased benefits to a range of people who have no need of double digit percentage rises in their benefits in years to come.

Keeping a lid on inflation also reduces pressure on wage inflation. A third advantage, which Altmann and Field also mention, is that it reduces pressure on small businesses who have had no protection from recent price rises, nor have any current expectation of relief

This is sensible , I support it. More surprising is the view that had we kept energy production and supply in the public sector, we would have been better placed to deal with this crisis.

The Government must recognise that privatisation has failed consumers who are being forced to pay well over the cost of production and also for collapsed energy suppliers through soaring costs and higher standing charges.

It is odd to hear two peers with different political backgrounds arguing against  privatisations which are getting on for forty years old. But a look at the share price of Centrica and others suggests that privisation is not only failing consumers, it is failing shareholders too.

Put together , what Altmann and Field are arguing for is

An urgent review and radical reform of pricing structures is called for immediately while temporarily halting the extraordinary, damaging price increases.

A temporary halt or reduction to price rises would directly reduce CPI and ease pressure on households and businesses, and prevent wage-price spirals spreading uncontrollably, while allowing time for market prices to subside, super-normal profits to be redistributed and better price mechanisms to be agreed.

So what does this amount to?

This could entail freezing costs this winter or capping the increase at 5 per cent, which means six to nine months of subsidies rather than billions of pounds in handouts to households.

It also means ensuring super-normal profits of non-gas energy suppliers can benefit consumers, not shareholders. This package will better target the much-needed support and allow time for a proper review.

A footnote from  Simoney Kyriakou

Thanks to FT Advisor and Simoney for an excellent article , alerting me to the statement by Frank Field and Ros Altmann. She ends her piece with these two sobering paragraphs

Earlier this week, think tank the Resolution Foundation published a stark warning that real incomes for Britons are likely to fall by an average 10 per cent over the next two years, if the new Prime Minister takes no definitive action.

This is not only affecting households, but businesses and care homes – as reported by Sky News, one group of care homes providers said their bills have been quoted at over £1mn for the winter – a shocking rise on the usual £90,000 they pay.

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Dashboard frustration – have a thought for the consumer!

Posted on September 3, 2022 by henry tapper

For some reason , both Pension Expert and Professional Pensions chose to run the same story on an early August Friday afternoon around the “Zero Tolerance” stance adopted by the Pensions Minister on a podcast you could have listened to on this blog at any time this week.

In that blog I posed the question “signing off or stepping up” which is a question that will be on Guy Opperman’s mind this weekend as he awaits the result of Monday’s Prime Ministerial election.

Is it surprising that the Minister chooses to speak his mind over what he considers the obstructive behavior of parts of the pension industry?  I don’t think so. He will feel responsible if he leaves office that the dashboard that the DWP inherited from the Treasury on his watch has not materialised as Government promised and is, at the time of writing , three years late in delivery.

His concern is not shared by those parts of the industry who, rather than let people see all their pensions and pension pots in one place, are fearful that there will not be enough user testing, not enough time for data cleansing, not enough worrying about data security, negative reactions to poorly performing pots and questions from dashboard users clogging up the helplines of pension providers.

Like Guy Opperman, I suspect most people have zero tolerance of further delays in a service that simply sets out to find and display their pensions. Whether this is done by MaPs, Aviva or anybody else is frankly irrelevant to the saver.

As to the “great speed” the project is supposed to be moving at, if the benchmark is a glacier, the observation may be correct. But we live in a digital age where information passes from one place to another in nanoseconds. If the user experience is that a cursor hangs for ten seconds rather than one, then we are in that digital age – albeit at the slow end. But we are in a different age from the “two to three weeks” that are the turnaround times for most data requests we make to pension providers.

If any of the critics of the dashboard’s speed think that it might damage pensions, they should consider the current situation where people step back in time when talking with their pension provider.

I have no idea whether Liz Truss will reappoint Guy Opperman to be Minister for Pensions and Financial Inclusion. Since the title is of Opperman’s making, I am not sure the role will continue. Though pensions is important enough a topic to deserve a full ministerial mandate, Opperman accepted the job as a junior minister and has delivered a lot in his five years. He has shown a stickability that contrasts with the vast majority of his ministerial colleagues and many of his predecessors.

So I think that any implication that Opperman is not on the side of the consumer – is  a little unfair.

I have a lot of time with for Tim Middleton, and have no reason to take issue with his statement . It is the consumer who matters, not the reputation of the Minister or Pension Industry. But if we are to side with the consumer, then let’s accept that further delays to the dashboard timetable are not in the interests of the consumer.

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CDC and “designer’s folly” – Stefan Lundbergh

Posted on September 3, 2022 by henry tapper

 

Collective DC, and other whole of life solutions, look great on paper but they are also a perpetual source of debate. When it comes to pension design, I have identified two common practices which, in my opinion, could be labelled as ‘designers folly’. The first folly is combining the savings and spending problem into one. The second folly is to separate product design and investment strategy. From a common sense perspective it actually makes perfect sense to do it the other way around.

Two problems, two solutions

The same drivers that make it straight forward to deal with the savings problem create challenges when addressing the consumption problem. No surprise Nobel Laureate Bill Sharpe called decumulation “the nastiest, hardest problem in finance”.

The investment problem for the savings phase is basically a buy and hold strategy. The key is to take financial market risk to earn the risk premium. Over several decades, we will experience our fair share of good times and bad times and with all savings fully invested, the sequence of ups and downs doesn’t matter. If our investments are not turning out as planned, we can always increase our future contributions.

At retirement our pension pot is what it is and we need an investment strategy supporting how we want to withdraw our savings. While some of our withdrawals take place in the near future, there are also withdrawals further away allowing for taking investment risk. The size of our withdrawals depends on how we expect our investments to grow; too optimistic expectations lead to overconsumption in early retirement years and too restrictive lead to under consumption. The sequencing of investment returns also matters. When faced with bad times early on in our retirement, it’s difficult to compensate for that during good times because we can’t earn investment returns on what we have already withdrawn. And to make it more difficult, we don’t know how long we are going to live.

The common sense approach is to have two separate solutions; one for the savings problem and one for the spending problem. Trying to combine the two problems into one, is definitely a designers folly. Surly it must be more likely to hit one bird using two stones, compared to hitting two birds with one stone.

We can’t just assume the problems away

Theorists have an excellent way to deal with the complexity of the real world, they just assume the problem away. As practitioners living in the real world, we unfortunately don’t have that luxury. Whether we like it or not, we must deal with complexity and uncertainty. Another common folly is to think that we can mitigate risk, or more precisely uncertainty, through a complicated product design. If that folly would be true, the investment problem could be reduced to providing financial market exposure.

This folly is motivated by seemingly plausible theories about future investment returns, such as mean-reversion, which basically assumes the main problem away. In other words, we can solve a much simpler investment problem in which financial assets are well behaved, delivering a steady return albeit with some shorter term volatility, which means that in the longer term stocks are not that risky. This effectively separates the product design from the investment strategy and, as a consequence, it is sufficient to use a static investment portfolio tracking a combination of market benchmarks for stocks and bonds. This makes it straight forward to implement the portfolio and to evaluate the skill of the investment team against a market benchmark.

Problem solved according to the theorists, what could possibly go wrong? From a practitioner perspective, the short answer is a lot. This is clearly a designers folly since the real world doesn’t care about what theorists have assumed anyway. As Richard Feynman, an American theoretical physicist and Nobel Laureate, once said: “It doesn’t matter how beautiful your theory is, it doesn’t matter how smart you are. If it doesn’t agree with experiment, it’s wrong.”

A robust pension design reinforced by a robust investment portfolio

To avoid the designers folly, what should we aim for in designing a new pensions product or contract? The first step is to acknowledge that the world is uncertain and that we can’t calculate the odds for different outcomes based on a simple mean-variance simulation. As a consequence, we need to approach product design with a mindset focusing on robustness.

The purpose with pension design is to help members achieve their goals; expressed as the target in the savings problems and as a withdrawal profile in the spending problem. When our assumptions about the future do not hold, a robust design should have the ability to self-adjust in order to give members time to adapt, by adjusting their spending, to their new situation in a controlled way.

For the spending phase, this puts a lot of pressure on the investment portfolio as the first line of defence against the uncertainty in the financial markets. Traditional portfolio optimisation will not do the job. Instead, we need to pursue a satisficing strategy which has acceptable outcomes across the different phases of the business cycle and bearable consequences under potential future stress scenarios.

Common practice or common sense?

To avoid the designers folly, we need to have different designs when approaching the savings and the spending problem. For the latter it is particularly important that both the product design and the investment portfolio are robust against what we don’t know. This raises the question, are you a theorist assuming the problems away or are you a practitioner that sees the world for what it is? For any Matrix fans – it reminds me of the choice that Neo was given by Morpheus in the first Matrix movie. The pension analogy would be; do you choose the blue pill and follow common practice or do you choose the red pill and follow common sense?

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Stefan Lundbergh

Stefan Lundbergh
Director Cardano Insights
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Steve Webb and Mother’s Missing £Millions – Pension Playpen – Today!

Posted on September 2, 2022 by henry tapper

At today’s Pension PlayPen Coffee Morning event our former Pensions Minister, Sir Steve Webb, will be giving us an insight to a further Government debacle relating to Pensions and Benefits.

A new campaign led by Sir Steve Webb has been launched by consultants LCP to help thousands of mothers secure millions of pounds in underpaid state pensions as Department for Work and Pensions (DWP) admits a new category of error in its annual report.

Since 1978/79, the state pension system has included measures designed to help protect the position of parents (in practice mainly mothers) who may have gaps in their National Insurance record because of time spent out of paid work bringing up children.

This again will be a lively discussion with our usual Q&A.

Click on the link below to register your attendance. We hope you can join in the discussion!

Register via this link and join/login to Pension PlayPen

 

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Is there ever a “right time”… for pension dashboards?

Posted on September 2, 2022 by henry tapper

In his recent podcast with Tom McPhail, a resolute Guy Opperman defended his engagement program saying there is “never a right time”. He cited the introduction of the Pension Schemes Act as a Bill in the time of Brexit, Covid and Governmental change. He argued that launching “Attention to Pension” week – or whatever we are currently calling it, next month was not the right month to tell people to save more (it isn’t), but that it’s going ahead anyway (hopefully with messaging more in tune with the times).

His predecessor Steve Webb, argues that auto-enrolment – the one undoubted pension success story of the millennium – would never have happened if we had delayed its staging till the end of “austerity”.

So I am absolutely behind Opperman in his call for no (further) slippage in the timetable for the Pensions Dashboard and I give a hat-tip to Chris Curry and the dashboard implementation team for sticking to their guns as they get the inevitable heavy artillery aimed at them.

Heavy artillery.

Chris Curry and Guy Opperman have been in the bunker being pounded by long-range bombardment from those arguing that the dashboard is a data security risk, risks allowing people to misunderstand their pensions, will be hi-jacked by scammers and abused by fintechs. He is not emerging waving a white flag – quite the opposite.

Apparently , many of the largest pension providers told him to hsi face they had no plans to invest in data cleansing and data feeds in readiness for the dashboard till legislation was in place. The legislation wasn’t timely (due to delays in passing the Act) but it is in place.

Which would explain Opperman’s Zero Tolerance/Zero sympathy. If Guy Opperman is still in post for the PLSA annual conference next month, expect more of the same.

To continue the analogy, it looks like the bombardment may be running out of ammunition.

A can do attitude emerging?

I’m hearing a new tone in parts of the industry.

Here is Lesley Carline of KGC, sounding a lot more positive than I’ve heard anyone from the magic circle of pension management consultants.

“Finding and presenting pensions data from multiple sources including schemes, platforms and providers in one place is no mean feat.

“Scheme administrators still have a lot to get to grips with by next spring. To live up to the expectations of pension savers and the government, pension schemes and providers will need to make sure their data, systems and processes are in order well ahead of the connection deadline.”  (my emphasis)

Sleeping giants like Capita are finally stepping up

Is there ever a “right time” for the Pensions Dashboard?

Like auto-enrolment prior to 2012, the dashboard is seen as a good idea ahead of its time. Exactly when a good time for the dashboard is, we never hear. I don’t think we’ll see a fully operational dashboard before 2025 but my prediction when MaPS got involved in 2020 was 2028 (so my worst fears haven’t been realised).

I suspect that we will look back at the implementation of the dashboard and ask why we waited so long. The answer will be that for the quarter of a century between the idea of an integrated pension statement and the arrival of dashboards BAU, a generation of pension plutocrats said “now is not the right time for a pension dashboard”.

Now is the right time for the pension dashboards – bring them on!

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Pension Schemes lose inflation ruling to the great relief of the Treasury.

Posted on September 2, 2022 by henry tapper

Courts rule against schemes and for Government

Three pension funds took the Treasury to the High Court over changes to the retail price index and yesterday they lost.

What this means to the schemes is that a lot of RPI linked gilts (linkers) will pay out less than the schemes had expected before the Treasury changed the rules.

The Treasury changed the rules because they felt they could and because the world has changed. As Reuters puts it , in reporting on yesterday’s ruling

RPI, which dates back to the 1940s and is regarded by official statisticians as inaccurate and obsolete, remains the benchmark for inflation-linked British government bonds that are commonly held by pension funds.

So the pension schemes will be worse off and the Treasury will be better off. It’s not just these big three schemes, it’s all the pension schemes that own “linkers” and that means less security for people in DB plans – not a lot less – but the change is significant. The security that members have is in the likes of BT, M&S and Ford picking up the tab for the downgrade in the value of their assets. The FT reports the scale of the tab as between £90-£100bn (over time).

But this is largely offset by the reduction to scheme liabilities where schemes are promising to pay RPI linked benefits. Where the promise to pay all of part of a pension is linked to RPI rather than CPI, then the changes are likely to mean pensions in payment from 2030 (when the changes come in ) will be lower. This will effect a large number of DB pensioners who are still alive after 2030.

A spokesperson for the pension schemes said this would impact “millions, especially women”, the argument being women live longer, I suspect however that the bulk of the pensioners are men and that (as we know from the pension gender gap) most men get bigger pensions because they are linked to salaries which are skewed in men’s favor.

Which is why I see the real losers in this as not the pensioners (who mainly have CPI linked pensions- with inflation linking capped at 5%) but the schemes, which have over- bought index linked gilts to cover all inflation linked liabilities. They are left with piles of downgraded paper which had previously been used to help cut surpluses.

Schemes couldn’t help buying RPI linkers because CPI linkers haven’t been issued, so some schemes feel they’ve been having to mis-buy the wrong kind of inflation linked bonds (for the want of better). They may feel that the Treasury has let it down twice, firstly by changing the rules of the game and secondly by forcing it to buy the wrong equipment.

The judge and the Treasury are saying “tough”.  Judge Holgate’s ruling revolved around whether parliament had power to make changes mid-stream and this is what he said

“Parliament did not find it necessary to confer or spell out an express power to change the RPI. Given the history and nature of the RPI as an index measuring consumer price inflation, it is obviously implicit in the duty . . . to compile and maintain that index that the UKSA is able to change it,”

In short ,the judge is telling pension schemes they knew the risks and have benefited over the years by the RPI overstating real inflation and linkers over-paying pensions. The Treasury will feel that pension schemes have had it lucky too long and they’ll be pleased the gravy train hits the buffers in 8 years time. The UK  Statistics Authority will feel vindicated (as statisticians don’t get it wrong). This is the UKSA’s boss staying away from the politics and the commercials and staying grounded in fact

“At a time of rising prices, it has never been more important to have accurate and trusted measures of inflation. We have been clear for a number of years that the Retail Prices Index is a very poor measure of inflation, at times greatly overestimating and at other times underestimating changes in consumer prices.”

I suspect it is the integrity of UKSA , as much as the primacy of parliament, that has swayed the judge.

Stand by for lots of actuarial and legal analysis and very little interest from the general public.

This is an important ruling, but it’s a backroom deal that’s more important than the public coverage it will get.

I’m interested to hear views of collateral impact , for instance on public pensions,  benefits and state pensions.

Disclaimer – only an amateur’s view

There are many people who read my blog who know a lot more about this than me and I fully expect to stand corrected on some of my analysis.

But – dear readers – my job is partly to learn from my blog’s mistakes, so please be kind in your comments!

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