What do we mean by fiduciary care?

store pod

Travelling back from Newcastle last week in a much delayed train, the passengers in my carriage were trying to get to sleep. It was tough as the carriage were illuminated by the brightest of stip lights.

Eventually some of us summoned up the energy to find the train manager who – along with the train management team appeared to be having an extended cup of tea. One of us asked if the lights good be dimmed, the management team seemed shocked and the manager asked “why”.

We did eventually get the lights dimmed and those who wanted extra light used their individual spotlights above their head.

I thanked the chap who asked the question and he replied “so much for customer care”.

This is an example of a whole train being kept awake because the train management team weren’t paying attention to the needs of their customers.

It’s a good example of a failure in fiduciary duty, in the end it was a member of the collective who changed things and took control.

An example of fiduciary failure

There’s a good discussion about fiduciary care in this linked in post by Ben Fisher.

The post is a story on BBC about a Welsh worker who’s lost his pension savings through a Storepod investment . The investor bought the pod and thought that the trustee of his SIPP would make sure that the pod was used. It wasn’t and the pod is now worthless.

He said: “I phoned Store First, and a lady said ‘Your store pods are empty.’ I said ‘What do you mean they’re empty? They can’t be.’ She told me they’d been empty for two years… Nobody had contacted me to tell me.”

The investor had assumed that his trustee would look after him but the trustee did nothing (a git like the train manager).

Store First said they were never contracted to manage, advertise or let the storage pods – that responsibility, they say, lies with the pension trustee, Berkeley Burke.

It said: “Mr McCarthy has not purchased any store pods direct – he has instead arranged for a trustee to buy them, as part of his self-invested personal pension.

“We have asked the trustee, on two separate occasions, if they would like Store First to manage their store pods.

“The trustee has not however returned the management agreements we have sent to them. That is entirely within the power of the legal owners of the store pods. Store First cannot, and would not want to, force any investor to use Store First’s services to let out their store pods.

Where is the duty of care?

The notion that the customer’s interests come first, appears not to have occurred to Berkeley Burke.

No doubt they will argue that self-investment means just that – you manage the investment for yourself.

Judging by the incredulity of the investor, this notion hadn’t occurred to him.

So there you have it, investors being told to get stuck into an investment they have to manage themselves while the provider takes no responsibility for the investment other than to provide a platform and a tax-wrapper.

Who’s is the duty, the investor, the trustee or someone else?

I suspect that the original adviser (who went out of business shortly after recommending Store First and Berkeley Burke will not have the resource to compensate, if the Financial Ombudsman finds in favour of the investor.

That responsibility will then fall to the Financial Ombudsman and the Financial Services Compensation Scheme, funded by the guys who advise and don’t go bust.

The duty of care reverts to those who care.

Restoring confidence in pensions?

Clearly people expect those who manage their money to exercise a duty of care. In a recent conference NEST told delegates that when asked, members said that by investing in the Government pension , they expected the Government to provide them with a pension.

People don’t expect to be on the hook for managing risks when they have paid others to do just that.

Whether it’s NEST  or the Berkeley Burke SIPP, people expect the people who they pay to manage their investments to manage their investments.

When this doesn’t happen, they are incredulous. Just as I was incredulous that the man who managed the lights on our train asked why at 11.45 pm people wanted the lights turned down.

I am sure that every time a complaint is raised against a railway company or a pension provider , confidence in the service is eroded just that little bit.

Which is why the customer experience matters every time.

When fiduciaries stop caring, we really will have to start managing our money ourselves.

Proper outrage.

It matters a lot that fiduciaries care, whether they are running NEST or a SIPP or simply advising.

The retail pension system, though it might appear to be every man for himself, is much more collective than at first seems. Compensation is collective and so is the perception of “care”.

I do not currently have to pay the FSCS levy or fund FOS but failures like the management of this man’s Storepods are damaging to me and my business interests.

I’m glad to see the proper outrage from those commenting  on the article.

Someone has to care!

Posted in pensions | 1 Comment

Trustees and transfers

Jo Cumbo’s article in Pensions Expert on contingent charging takes a dim view of trustee behaviour to date.

Her idea that advice to stay in a DB scheme could be paid for by docking the original pension has got some support, importantly from Sir Steve Webb


Certainly trustees haven’t been involving themselves in offering guidance, though that could change.

Adrian Boulding’s suggestion – posted on my “planning permission” blog is as follows

I can see a case for a “pre-advice” service, costing not thousands of pounds but hundreds of pounds, that would provide an indicator as to whether full advice is likely to say either yes or no. It would just need an algorithm asking key inputs like your age and wage…….Maybe scheme trustees could offer this service.

The only bit of that , that I’d disagree with is that this kind of triage should cost hundreds of pounds. The key inputs can include a “why are you interested in transferring with a “tick one box” capture, including five or six reasons such as

  1. I don’t think I’ll live long enough to enjoy my pension
  2. I need cash now to pay my debts
  3. I think I can invest my transfer to give me more in retirement
  4. I want the flexibility to spend my money how I like
  5. I’ve been told to look at a transfer by someone.
  6. I’d rather have the money in my bank than in a pension


 1 and 2 ;- the needy

A few questions as to the motivation of the person making the inquiry would quickly establish where this person should go. There are some very obvious danger signs, people trying to draw cash out of pensions before 55 should certainly flash a red light. Tax-free-cash can of course be used to pay off debt but anyone thinking of mortgaging their retirement needs debt-counselling and fast. A responsible pre-advice service can sign-post the free debt counselling availably locally through citizens advice and centrally through the Money Advice Service (now part of the Single Financial Guidance Body).

Where the motivation is driven by the inquirer’s concerns over their health, it’s a different matter. Many people do not realise that were they to die before drawing their pension or as a pensioner , someone else can be nominated to receive a residual pension as a dependent. Obviously a lot of this comes down to definitions but this is an opportunity for trustees to properly promote the scheme’s capabilities before the inquirer is referred to a financial adviser. Defined benefit schemes employ administrators who’s job it is to explain these things and if the administrators can’t do that job, it may be time for the trustees to reconsider them. Trustees can and should back their administration teams to explain scheme rules.

These two categories of inquiry are “needy” and they both point to what the FCA call “vulnerability”. These kind of questions are best dealt with by people who know what they are talking about but they do not generally need financial advice. In an extreme situation, it may be that the inquirer needs medical help, the duty of care to members does not preclude referring the inquirer to a medical service.

3 and 4; the greedy

There are some confident people who believe they can do a better job with the monies allocated to pay a defined benefit than the trustees. These are the people who should be taking financial advice and they may well be those who least want to pay for it. These are precisely the people who are being failed by contingent charging.

I appreciate that many readers will consider me paternalistic or even patronising , but the reason we have trustees is to protect some people from themselves. It’s not just in Port Talbot that contingent charging unlocked the money, hundreds of thousands of people are now sitting on pension wealth unlocked from defined benefit pension schemes – with the money either sitting in cash or in equities and very much at risk of not providing an income for life with any kind of inflation protection.

I also appreciate that for many of those people, replicating the defined benefit income stream was not the point of the transfer and I can accept that some people will be quite comfortable with the depletion of their transfer value by the fall in world markets and the scant interest available to them in 2018.

But I am quite sure that a very large number of the people who transferred out considered the charges levied on their pot by the adviser, the price they paid to get their money, rather than the cost of financial advice. These are the people who we should worry about, for they are the people who consider the payment of advisory fees a kind of insurance policy against which they can claim if things go wrong.

And if things continue to go wrong with their pension policies – or worse still if they have by now transferred the money from their personal pensions into their bank accounts, then the fall in pot value and/or the tax bills on claims, may be the basis of claims to come.

The FT run another story today about the costs of drawing down cash – showing it is hard to have your money managed in an advised way for less than 2% pa.

It is hard to see how a  drawdown strategy costing 2% pa can deliver value for that money in a low-interest, low-return economic environment. Yet this is precisely what many of the personal pensions set up under contingent charging are costing and – even if markets do pick up – the cashflow projections which underpinned many of the transfer approvals I have read, have little or no chance of being met.

If the reason for transfer is that someone is backing themselves to beat the trustees, then that person should be testing that with a financial advisor and paying up front for that advice. The argument that contingent charging is more tax-effecient and maintains liquidity for the client are pure sophistry. If someone is so good with money that they can manage their pension themselves, they should have plenty of liquidity and should know that VAT is charged on professional services. IFAs who think they can avoid charging VAT by charging advice to their fund clearly do not believe they are offering a professional service.

5 and 6; the numpties

There are some people who are neither needy or greedy, they are just financial numpties. These people should not be taking financial advice, they should be taking their pension.

People who take transfer values and then cash in their pensions so they can have money in their bank accounts are numpties.

People who get persuaded to take transfers by financial advisers or friends or family are behaving like numpties. They are generally following the crowd, they are not thinking for themselves – they are neither needy or greedy – they are just being stupid.

I could have told many of the people I met in Port Talbot they were behaving like numpties and in fact Al and I did – when we heard some of the reasons given for transferring – including the arguments that they didn’t want their money with TATA, we told people straight not to be so stupid.

These people did not need to have a financial adviser do cashflow planning for them, they needed to transfer into new BSPS or occasssionally take a reduced pension from the PPF.

To be fair to the Trustees of BSPS, they had set up help for these people, but it was like building the Maginot line- the defences were in the wrong place.

Any pre-advice service needs to identify financial muppets and tell them to leave well alone.

We try to be too tender – people need telling

Amidst all the hand-wringing of the past 12 months, I have heard very little straight talking about transfers.

Hopefully you have read some straight talking on this blog and if you don’t agree with me, you can straight talk to that effect in the comments box.

I don’t agree with Phil Young who blames the transfer debacle on freedom and choice,  

I don’t agree with Quilter and SJP that contingent charging should remain to broaden the range of people who can get advice.

If there was a policy mistake, it was from the Fowler review in 1987 which allowed transfers out of DB plans in the first place. As for vertically-integrated provider arguments about financial inclusion, some of the people who are targeted for DB transfers would never have passed their IFA’s sniff-test, had they not had a big fat CETV.

These are bogus arguments that perpetuate the misery that is being occasioned by transfers out of DB schemes using contingently charged advice.

The pensions given up by steelworkers and many others were designed to provide them with a wage in retirement and a residual spouse’s pension. They also gave people the option of tax-free cash. They were entirely suitable for most people’s later life needs and they have been swapped for wealth management schemes about which most of these “new to advice”, contingently charged people – have no idea.

The people who need telling this are the FCA and TPR who are supposed to regulate advisers and trustees respectively. I tried to tell the Trustees and Advisers of BSPS but they didn’t listen. I am still trying to tell it straight

Contingently charged advice is little more than commission and should be banned immediately.


Posted in advice gap, pensions | Tagged , , , , , , | 3 Comments

Pension Transfers need planning permission.


cumbo cetv

Jo Cumbo

In an important contribution to the debate on how members of DB plans can pay for advice on whether to transfer out, the FT’s Jo Cumbo calls for the financial advice bill – regardless of whether the answer is “yes” or “no”, to be paid by the DB scheme.

The suggestion is very helpful;  this practice is already in place for individuals to pay tax bills arising from stealth taxes on pension accrual where individuals inadvertently breach annual allowances. Schemes are getting used to docking pensions for divorce settlements and the administrative processes needed to administer the advice payments are already in place.

Royal London’s Steve Webb has now come in alongside this suggestion.

Indeed – but if contingent charging was banned we’ve also suggested in our submission that the impact could be mitigated by allowing advice costs to be debited against DB rights, in line with your column this week in @pensions_expert https://t.co/f2uDMAXR3o

— Steve Webb (@stevewebb1) February 7, 2019

This is a rare example in pensions of a news reporter making the news!

The ironies of over-information

Most of the time, prospective pensioners walk into life-changing financial decisions surrounding their defined benefit pension schemes with little or no knowledge of the decisions they are taking. An example being the taking of tax-free cash, which is now so much the default that actuaries assume it will happen in scheme funding calculations.

Many schemes are offering commutation factors that can only be justified by the tax-free outcomes, means that schemes are getting away with poor exchange rates between cash and pension – because people don’t know the questions to ask.

So it’s ironic that the conversion factors surrounding a CETV are accorded so much scrutiny that such a cumbersome vehicle as scheme pays – is actively considered.

The reason it is, is that large parts of the DB pension system are now so fragile that they risk being eroded and falling like cliffs into DC. It needs to be pointed out that there appear to be no losers in such erosion, the advisers are making money, providers are making money and pension schemes are clearing swathes of risk from corporate balance sheets. As with most “win-win-wins”, the dictum we should be reminding ourselves of is..

“If it looks too good to be true – is probably is”.

Case study – me!

When I was 55 , I looked at taking my defined benefit as a transfer to a DC scheme. I was allowed a free transfer quote, prepared at some expense to the scheme by scheme actuaries and administrators. I looked at my CETV and was able to assess whether I would be getting value for the money on offer. I gave myself advice (which I was entitled to) and did not take the money. It wasn’t hard to see that there was a good case at the time for taking the transfer , but I didn’t.

  1. I didn’t trust myself to manage the money successfully
  2. I didn’t trust anyone else!
  3. I didn’t want to be worrying about the markets and the impact on my pension
  4. I had confidence that as a pensioner, I would get my pension paid as long as I was on the planet – and that my partner would get a residual pension too.

Because I did not pay to come to these conclusions , I saved myself around £10,000 (+vat) in advisory fees or a nasty litigious time with an IFA – if I had turned down a recommendation  to transfer on a contingent charge.

I will of course have to live with my decision to get paid a pension rather than take cash, but I am sanguine about that.

If I had taken advice and had a £10,000 charge against my pension, I would have around £25 pm docked from my pension (increasing by RPI each year) for maybe 50 years.

The consequences of eroding pensions by fractional deductions through scheme pays are every bit as serious to my long-term finances as the payment up front. I imagine that in a scheme pays, the VAT I paid would be un-recoverable ( 20% of the £10,000 I was quoted).

The danger of scheme pays

The numbers above are sobering. £10,000 paid to an adviser from a scheme or from the client’s bank account is still £10,000 and that £25 pm is the equivalent of £10,000 whichever way you cut the cake.

It is effectively paying for advice on the never-never – a kind of Hire Purchase agreement of which PPI is the latest incarnation.

The danger of this approach is that it is presented to clients as so painless as to be a “no-brainer”.

“what’s the worst that can happen, I say “no” and you’re out a fiver a week?”

If a fiver a week’s the downside and the upside is half a million pounds of accessible capital, the temptation to take unnecessary advice is obvious.

Unnecessary financial advice

I don’t think you’ll find the phrase “unnecessary financial advice” in the FCA’s COBS rulebook, you certainly won’t see it as a risk in any advisory literature. The received wisdom is that regulated financial advice is necessary.

But in my case study, I firmly believe that I did not need advice about taking my transfer, all the decision points listed above were decided upon by my emotional response to the prospect of having to manage my own money.

Most people, when presented with the stark reality that now faces people who’ve transferred, is that they would have been better off in their schemes being paid a scheme pension for the rest of their days.

They didn’t need to be charged thousands of pounds to be told that. So for most people, the scheme pays route is a total red-herring and good advisers will not lead people down that route.

The danger is that less good advisers will find the each way bet of being paid by the scheme or out of the transfer value, a bet they cannot lose. The poor adviser will be able to lean on the victimless charge argument to provide unnecessary financial advice – as damaging an insurance policy as PPI – and equally useless.

Scheme pays requires full disclosure

If we are to have a non-contingent charge transfer advisory payment based on scheme pays, it must be made crystal clear by the trustees that they will be sending the client’s adviser an amount in pounds shillings and pence terms. Trustees must also make it clear that the deduction from someone’s pension as a result of this is likely to cost the member that same amount – in today’s terms and is simply the same bill expressed another way.

Advisers who work on such a system would need to be equally clear about the impact of scheme pays.

I remain to be convinced that a system of scheme pays would stop unnecessary advice. I think we need more, applying for a transfer should be like applying for planning permission on a house.

Planning permission

I stick with  previous comments in precious blogs; that this kind of advice – advice that is paid for on the never-never, should only be entered into where there is a clear reason why a prospective client might be better off not taking the scheme pension.

My argument is that the onus should be on the adviser to prove that there is a case for the client to be asking the question about transferring in the first place.

Taking a planning decision like this should be as serious a decision as applying for planning permission on a house

The submission of that case for clearance – should be something that should be carefully considered by the adviser. It should not be a cost-free process. As with a house- planning application – it should be submitted with the risk of failure being obvious upfront.


cumbo cetv2

The advisory diagnosis may not always be what was hoped for,


Posted in pensions | 5 Comments

“Why pensions might just change your life”.


This morning I’m travelling north east to Newcastle on the first train up. I’ll be delivering the graveyard slot for my friend Carsten Staehr at the Cintra Conference.

The people I’ll be talking with don’t like pensions, Carsten’s title is provocative. For the payroll and reward people who are Cintra’s clients, pensions are a pain in the neck, the most incredible mess of rules which they struggle to comply with, always worrying about fines and worse – being dished out by a distant pension’s regulator.

I guess my job is to breathe into their day something of the enthusiasm I have for helping people manage their financial affairs so they have a decent wage before and in retirement.

If pensions are supposed to help you stop work, people should be enthusiastic about them. But “thank God I’ve got a decent pension”, is a phrase seldom heard either in or outside the pension bubble that I live in.

If you get to a point in your life when you find that because you have the money, you can stop work, then your pension has changed your life – no doubt about it. And millions of ordinary people are retired today on good pensions with the prospect of an income ahead of them that lasts as long as they do.

I think we take this for granted. But it is an economic miracle that we have created a safety net for so many through the national insurance system and through workplace pensions.

Yesterday evening I sat with some great pensions people variously representing Local Government Pension Schemes, Corporate defined benefit schemes and the new style DC savings plans. It became clear early in our discussion that this meeting was going to be fruitful and that we would agree a common agenda for a conference being planned for May.

What brought us together was the phrase “better pension outcomes” which is all that we focussed on for nearly two hours. Whether we were looking for greater efficiencies for Local Government Pension Schemes , or improving the certainty of the full pay-out of corporate DB or helping people with the business of turning the pot into an income for life- we were joined together by a strong sense of purpose.

This purpose was made the more real as the people around the table clearly felt they had the power to change lives in a positive way.

I’ll be the first to admit that pensions are to most people “scary” almost unbearably complicated and an aspect of their finances that is best consigned to the bottom drawer to be properly opened late in life, People know damned well that pensions are very important and they feel guilty that they don’t feel better informed about their retirement planning.

This is the challenge that I face today, I will be talking to a group of people who see pensions – both personally and work-wise, as extremely hard work. My job is to make them easier, simpler and less scary.

I can only do this by approaching my talk with a positive state of mind. After the conference, I am having supper with two smart academics who appear baffled by their own circumstances. They told me their retirement problems and I blurted out “that seems simple enough”. I can see the wood – they can only see trees!

Like the people in the conference, my friends are looking for encouragement to do what they want (I assume to find a way to stop or cut down on work and rely more on pensions and retirement savings.

They, like most people I know (professionally and socially), feel embarrassed about asking simple questions about how they can get their money back to meet their financial needs. It is fantastic to be able to help them get better pension outcomes.

Pensions have undoubtedly made my career, last night I really got what my vocation has become and I look forward to my talk this afternoon and supper because I’ll be doing what I love.

I hope that some of the people I’ll be meeting today, will read this blog and say – yes – Henry really does enjoy helping people get better pensions. That is why I am travelling to Newcastle for the day and why I’m happy to!

Posted in advice gap, pensions | Tagged , , | Leave a comment

Come join the party – the AgeWage video!

I think AgeWage the most exciting thing I’ve done in my working life!

Watch our video and see if you agree!

Posted in pensions | 1 Comment

The curfew tolls the knell of small DC

I was a bit churlish in yesterday’s blog to the DWP who – on re-reading – have produced an excellent paper outlining the advantages of incorporating social purpose into the DC funds we default to.

I urge you to read the paper, which at 15,000 words is meaty, but if you are in the business, then it provides a wealth of background and asks some important questions of DC schemes. As I said yesterday, it will make for a better conversation between trustees and members and should get some of those chair statements read!

What is so good about this paper is that it looks at the problem holistically. DWP have worked out the key market dynamic – that small occupational DC schemes simply aren’t viable to a single employer. However, where scale has been achieved, much can be done.

There really isn’t much in it for the trustees of small occupational DC schemes. If you want to maintain control of your default – then you have to contend with the strictures of the charge cap and justify your decision to your members every year. This is fine if you are offering a fund that is providing value, but if you have deviated from a beta position and the bet goes wrong, you risk being accused of gambling with someone else’s money.
The thrust of the DWP’s paper is that trustees of small occupational DC schemes and that’s the vast majority of them, are simply not able to participate in the discussion about patient capital as they will never have the scale to build the kind of diversified defaults, the DWP has in mind.
The paper does this using four charts that tell their own story
DWP fig 1
DC is growing – it has replaced DB and is surging because of auto-enrolment
DWP fig 2
Small DC plans are packing it in – giving up the unequal struggle with tougher regulation
DWP fig 3
Schemes are getting fatter (through increased numbers of pots as well as investment growth)  – Tear for Year typo not mine!
DWP fig 4
There are still less than 50 occupational DC schemes with more than £250m in assets and only 16-17 with assets of more than £1bn (mostly banks and pharma)

Turning the screw on small DC plans

Clearly the DWP are turning the screw and this looks like the kind of market intervention that is needed. Too often , under-performing pension schemes are allowed to continue because they mean well. In the DB context, this may be acceptable because an employer stands behind the pension promise (unless the covenant is so weak that it cedes to the PPF). But in DC – a failure puts at risk the member’s pot and retirement income.
No matter how well meaning, trustees cannot be allowed to deliver sub-optimal decisions because they cannot afford the investment tools to do the job.
The  conclusion is that DC trustees will have to fight – for their right – to party.

So what of big schemes – will they buy the green ticket?

So far – the adoption of the ESG principles that drive a move to patient capital have not been generally adopted. HSBC’s “FutureWorld” default is an exception rather than the rule and until L&G adopt the fund or a variant for its master trust and GPP, there will be a lack of conviction about the fund. I know of one or two small schemes that have switched default to Future World but this genuinely green accumulation fund, has yet to get popular acclaim.

The most interesting use of the fund is within the Pension Bee SIPP. Here the fund has to be actively chosen against other “cheaper” alternatives. It will be interesting to hear how take up is progressing fro the Bee-keepers.

The indications are that the the majority of savers under the age of 40 consider how their money is invested important and that investing responsibly is what trustees are about. If trustees cannot demonstrate – both in their SIPPs and in their annual chair statements that they are proactively choosing to invest green – they will be failing not just to comply with DWP rules but in their fiduciary duty – especially to their younger membership

Sure there is a cost to a green fund – FutureWorld is more expensive than the vanilla global equity alternative – almost twice so. But there is a price to pay for cleaning up the planet, the boardroom and the ethics of investment. Exercising good governance does not come cheap – you need good people to do it.

This is a scale play

This brings us back to the central “holistic” view of the DWP. Small schemes simply can’t afford to do responsible investment properly. Large schemes can. They can afford to monitor what their managers are doing and when they get to a certain size, they can start exercising rights over assets by purchasing directly.

NEST, People’s, NOW and even Smart will be of a size within the next few years to create segregated portfolios for their assets. They will be able to invest not just in patient capital funds but directly into the assets into which funds currently invest.

But this can only happen because they all manage millions of small pots.

So if you are reading this and you are a member of a small occupational DC scheme or a trustee of such a scheme or a sponsor of such a scheme, my advice is to start making some noise as to why you are in a small scheme and not talking to NEST or NOW or People’s or Smart.

And if you are a consultant to these small schemes, you should be having that conversation in the member’s stead. It is not enough for you to argue for the status quo, even if the status quo keeps you in annuity income.

Many consultants have decided to set up their own master trusts and encourage small schemes to aggregate to their platforms. Fund platforms like Mobius are available if you want to buy into scale. I do not think that the master trust market is saturated yet.

But unless you are able to access scale and use bulk-buying power, the chances are you will eventually be subsumed by the bigger players.

And the DWP will be applauding your demise.

Of course CDC does this best of all.


Posted in advice gap, dc pensions, DWP, pensions | Tagged , , , , , , | Leave a comment

“Patient Capital incubators” wanted. Our workplace pensions fingered!


The DWP and its pension minister Guy Opperman have taken the opportunity of a speech at the TUC conference to launch an unexpected and wide-ranging consultation on DC investments- where the money of “a couple of hundred short of 10m new savers is going”.

The consultations snappily called;

Investment Innovation and Future Consolidation:

A Consultation on the Consideration of Illiquid Assets and the Development of Scale in Occupational Defined Contribution schemes

At the moment, the money is going into the market via index-tracker funds mainly run by L&G, BlackRock and State Street.

The DWP and the Treasury want this money to be invested in patient capital and so do I. Rather than heading off around the world without much regard to environmental , social of governance considerations, this money should be invested with a social purpose.

If you want to read about Patient Capital, this presentation by Nigel Wilson of L&G is a great way of getting started.

The problem with commercial pension providers

Give NEST a tax-payer subsidised £1.2bn loan and you’re likely to get an investment strategy that fulfills the long-term aspirations of the Treasury and DWP – who collect and spend our taxes.

But if you don’t give the competitors the same loan and then expect them to behave in a non-commercial way, you get this kind of response

NEST has been given the financial incentives to think long-term, its competitors have been given a financial straight-jacket called the charge cap.

The problems with and of commercial providers are the need to return money to shareholders or (pace Gregg) at least to stay solvent. These are not easy problems, especially when you have the Government yapping at your heals over master-trust authorisation , legacy and goodness knows what rules surrounding governance.

Can patient capital be commercial?

There is strong evidence that investing in the kind of things that “patient capital” represents, will produce stable long-term returns for pension funds. Ironically, the kind of income streams patient capital produces are ideally suited to the payment of pensions. I say “ironically” as this is not something that DC pensions do any more. Instead they give you the option of transferring into something else like a SIPP or a bank account (or -say it quietly) an annuity.

Of course we are likely to get a kind of DC scheme that does pay pensions – it’s called CDC or Collective Defined Contribution and it CDC isn’t investing into patient capital, I’ll be asking why. One of the reasons is that CDC will be subject to the charge cap and as patient capital is managed with “performance fees” , it’s quite likely that – until the ideas in this consultation are considered and implemented – CDC schemes will have to do without,

So the argument that the Government is putting forward is to allow the kind of fees that surround patient capital – special dispensation from the charge cap.

The “special assessment” proposed for trustees who use patient capital but pay managers on a performance basis sounds complicated and is complicated, Whether they are necessary I very much doubt, the cost of running the kind of large DC fund that the DWP has in mind for this patient capital idea, aren’t very high and most of these funds are operating well within the charge cap.

The historic issue for the large DC trusts – is why they should put at risk future margins or solvency by investing in assets where the cost of management is underwritten by them. This is what the special assessment is designed to combat and I dare say it will ease the minds of CIOs like the People’s Nico Aspinall and the clever single occupational schemes like Mark Thompson (HSBC) and  Ian McKinlay, (LBG).

Big is beautiful

The DWP have a second bright idea. Having worked out that the only DC pension schemes that will invest in patient capital are big pension schemes, they have decided that this is an opportunity to incentivise further smaller occupational pension schemes to pack it in.

As far as I can see, this is through the gap that will develop between big schemes who will be investing for good, and small schemes that can’t afford to. The game is to get the small scheme trustees to explain to tPR and the members why they don’t pack it in and allow the member’s money to be managed in a more responsible way (by a big scheme).

This is not as bad a tactic as you might think. While most young people don’t give retirement much attention, they do get very excited if they find out their pension schemes is not being invested in a responsible way. If the only DC pension schemes that invest responsibly are those big enough to get involved in all this ESG stuff, then members have got every right to turn round to their trustees and ask them to show the colour of their money. If the colour of the money isn’t green – woe betide the trustees,

Not a full report – but full enough

I will give this consultation  more attention and I will return to it again because it looks like it is packed with good ideas.

Consolidating DC into big DC is a good idea – most small occ DC schemes are vanity projects.

Allowing performance fees a “special assessment” looks a good idea – so long as it isn’t a charter for dumb-arse comedian fund managers to take the Michael.

Excluding contract based workplace pension schemes from this is a dumb idea. IGCs are no different from Trustees, default funds for GPPs look very much like Default funds for Occupational DC funds. I don’t get the exclusion.

But the GPP issues are really for the Treasury and FCA. The DWP team who are leading this work are well ahead of the curve and where they lead, the Treasury will follow.

The full report just looks at pensions, not one half of pensions – which are controlled by the DWP. This is why I call this less than a full report. But in tackling a big issue at some length, in some detail and with sensible conclusions – this looks a helpful addition to the gallimaufry of consultations currently underway!

Posted in advice gap, age wage, Blogging, pensions | Tagged , , , , | Leave a comment

How pensions look from outer space

outer space 2

I’ve been thinking with a few friends about what can best be described as the “pensions market”.

If you were to look down at Britain from Richard Branson’s spaceship, you would see people working towards a single aim in a great number of ways. If you far enough away from the nitty-gritty, you might characterise that aim as

“helping people retire when they want on what they want”.

Such trite phrases were what I spouted when I started out, because retirement when you are 21 is such an abstract notion that only big picture stuff works.

Getting on for 40 years on

I now have experience as an IFA, as a benefits consultant, corporate sales person, investment platform salesperson and latterly an actuarial salesperson. I have been around and seen a few things.

But I still keep a little candle burning for the big picture stuff. So I wouldn’t mind going up in the rocket and describing planet pensions.

We only see the bit we’re in

A couple of weeks back – I spent some time after work with a little group of people who manage large pension funds , some people in communications and a conference organiser looking to make pension conferences more relevant.

It soon became apparent that there were two types of people in the room, those who managed pensions for companies and those who were involved in explaining pensions to the people who would get them. I put myself a foot in either camp and we quickly got on with explaining each other’s positions. The CIOs in the room and those looking after individuals were a world apart in what they thought important to them to do their job, but once we started focussing on the consumer – we became excited.

There was more that joined us than divided us.

We came up with a plan

Our plan was very simple (as good plans are). We would run a conference that focussed on the consumer and got everyone thinking about delivering better outcomes, explaining how what they did benefited people’s retirement income.

This is so simple it is often ignored.

From the spaceship – what the CIO of a multi-billion pound pension fund and what the IFA advising a member on retirement options are doing – is exactly the same thing.

Working out that everyone is batting on the same side, begs the question – what’s the opposition?

We all know what we’re up against – apathy, uncertainty, distrust, disillusionment, incomprehension and laziness.

In the spirit of co-operation, I think a pension conference that had as its sole focus, what brings us all together, would be much more interesting than the usual rather random fayre dished up to us.

This is particularly the case when it comes to thinking of DC pensions, where there is no third man or fine leg to field the ball if the wicket keeper misses it! Here risk management is undertaken entirely by the consumer so focussing on giving the users of DC some help in managing their wage in retirement, could be a great theme for an event.

This simple plan focusses on how we work together to a common aim

After we’d had our discussion , we broke to have something to eat and we carried on talking, thinking of how we could deliver such a simple and obvious idea,

As we talked, I realised we were finding ways of working together that quite broke down the traditional silos of buyers and sellers.

This may sound trite, but going back to the things I used to say to prospective clients when I was in my 20’s – became relevant again.

“helping people retire when they want on what they want” is what the CIO of the multi million pound scheme and the IFA have in common. From the spaceship, they are doing exactly the same thing.

outer space


Posted in pensions | Leave a comment

“Can we have our money back?” Pension PlayPen lunch- Monday


Monday 4th Feb – 12.30 – Counting House, 50 Cornhill


At this lunch we will be discussing whether we are doing enough to help people claim on their pension pots and get their money back as they would like.

In an era of Faster Payments, people seem no more confident about how to draw money from their pension than they were before the pension freedoms.




Key questions for discussion

  1. Are providers deliberately making it hard?
  2. What are the technical obstacles to giving people pension freedom?
  3. Are annuities undersold?
  4. What should the Single Guidance Body be doing to improve financial awareness
  5. Is Pensions Wise doing its job?
  6. Will the dashboard make a difference?

If you’d like to come along and listen or join in then get to the Counting House pub by 12,30am on Monday .

The pub is 200 yards East of Bank Tube in the City of London – details are here

We will be in the Partner’s Room which is at the back, typically food and drink costs £15 and we all chip in (going Dutch).

We wrap up at around 1.45 though you can stay longer to chat things through.


Hope to see you there!

Posted in pensions | Tagged , , , , | Leave a comment

Not all recycling’s in the public interest!

recycling 2

Pensioners recycling

A lot of people are confused about taking money out of their pensions and the pensions industry isn’t being very helpful in encouraging people to have their money back (funny that!).

So when I read a headline in the Financial Times announcingUK pension freedoms open huge tax trap for over 55’s I smelled more scare tactics from those who would rather we kept money with them than spend it on ourselves – I was right.
The tax trap in question has “caught” 980,000 over-55s who took advantage of new pension spending freedoms between 2015 and 2018, with an irreversible reduction in their annual pension tax relief allowance from £40,000 to £4,000.

In practice, very few people who are drawing down money from their pension will be saving more than £4,000 pa and you would expect that most who do – will be accessing tax advice. This is a rich man’s problem and is almost certainly dwarfed by the amounts in unclaimed tax-relief that higher rate taxpayers miss out on when contributing to personal pensions.

I was pleased to see the comments below the article were generally robust. This is typical

This is boring nanny state speak. If you are able to invest £40k but unable to figure out the implications without the help of financial advisers then time to go peacefully to higher planes in the company of grim reaper with a scythe.

Putting this problem in some context

Generally speaking, people who are investing into pensions while drawing money from pensions are doing so as a tax arbitrage and not as an insurance against old age.

Nonetheless, it is important that people who do have pension pots and are over 55 are aware that the annual allowance that they have (normally £40,000) is reduced if people are found to be recycling money they are drawing from a pension back into a pension.

As soon as you start drawing more than the tax free cash available from your pension pot, you are seen to be “recycling”.  Sometimes this recycling has  value as in this idea from Debt Camel

pension recycling

But the reason that recycling is restricted is that for the most part it serves no social purposes other than to make the rich richer.  I doubt that many of Debt Camel’s customers are worried about losing the capacity to pay £40k per annum into their pension!

We currently have over a million people missing out on their promised retirement savings incentives because of the net-pay anomaly. Let’s get back to questions of social justice.

Arguing over the annual allowance misses the bigger point

That people are not aware of the technical issues around recycling is not the big issue. What is much more important is that many people are confused about whether they can start taking their pension when they are still at work.

The simple answer is that they can and that apart from the fact that the pension may be subject to a higher rate of tax than salary, there really isn’t any reason why someone over 55 shouldn’t have access to their money.

Indeed, many employers are keen to promote the freedoms people have , so that their mature workers can give themselves options which may include part time working, consultancy or early retirement.

What is surprising is that employers who are keen to offer flexible working practices, are paying so little attention to the opportunities their staff have to structure their exit from the workplace using the retirement savings plans that these very employers have sponsored.

The use of pensions for the over 55’s is perhaps one of the least understood areas of reward strategy and it doesn’t require employers to spend a lot to get right. We recommend that employers work with their staff’s financial advisers or provide financial advisers for staff to use. There are opportunities for advisers to be paid by employers without that payment being deemed a benefit in kind.

If the budget permits, an employer can commission pension consultants to provide a program of seminars and one on ones with employees in the retirement zone (effectively anyone over 50).

An alternative strategy may be to empower those in reward to become pension champions themselves. Learning the pension ropes may appear daunting, but there are plenty of training courses that can help. The Pensions Management Institute are particularly helpful as are the CIPP and the Learn Centre.

First Actuarial, like most pension consultancies, operates a program for the over fifties. We call it  “saving enough to stop work” and it runs at big companies such as Unilever. We are encouraging staff to create their own pension dashboards where they can see all their in retirement financial resources on a single screen. Even if this is no more than a spreadsheet word table or even a hand written list, the creation of a personal balance sheet and cash flow forecast is not as hard as it sounds!

Most people are frightened by pensions, but in our opinion, this fear is increased by the scaremongers within the pensions industry who would rather have us hang on to our money, than see it spent on retirement.

saving enough to stop work.PNG

Posted in Debt, pensions | Tagged , , , , , , | 2 Comments