Good from NOW – poor from HMRC


Our response so far


That we should still be talking about the “net-pay anomaly” shows how little the debate has move on in a year.

For most people losing out on their promised incentives for saving into a workplace pension , “anomaly” is not a normal word. I’d replace it with “rip-off” because that’s what HMRC are doing to thousands of people who most need a small boost to their pension savings. “Anomalies” belong to the world of Government and Industry affairs.

A year ago, the union Prospect wrote to the then Treasury Minister David Gauke asking that the “anomaly” get sorted out. This was the response they gotNOW RAS

Well, the auto-enrolment review in 2017 is soon to publish its findings. David Gauke, as the DWP’s Minister of State is responsible for the delivery of that review. The 2017-18 tax year is only a few months away and I for one am not prepared to tolerate poor people, promised a Government incentive to save, being denied that incentive by poor administration.

HMRC have not paid this proper attention so far, fortunately- one (and only one) occupational pension scheme has stepped up to the mark. Well done NOW Pensions,

“How far that candle spreads its beams, so shines “a good deed in a naughty world!”


A very good question! It is not just the smaller master trusts that operate on Net Pay, it is the bulk of occupational pension schemes run on a DC basis. SHAME ON THEM.


The net pay anomaly came about because of Government policy. It is the Government’s incentive at stake, it is for the Government as well as the private sector to work to an immediate solution.


Good for NOW Pensions. 2016/17 sorted if you’re with them. But what about 2017/18 when the employee minimum contribution triples? Will NOW be able to afford that? Is it fair that we rely on them to come up with the goods on behalf of the UK tax-payer. IT IS NOT!

The net-pay rip-off has gone on far too long. The auto-enrolment review had better have a work-a-round in it for the net pay schemes – (perhaps a subsidy on the admin costs of moving to RAS?). If this is simply kicked into the long-grass it has the potential to become a major scandal – which is the last thing the pensions industry needs right now.


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Workplace Pension winners and losers- Punter Southall Aspire do the numbers (Now with added NEST!)

Aspire 5

Employers selecting DC default investment funds for their workforce pensions assume they’re making a wise investment choice. However, a new report, ‘Who’s performing well?’ from Punter Southall Aspire, which examined nine major DC pension providers’ default pension funds in their growth phase (as of 30th June 2017), reveals huge variations that could deliver diverse outcomes for savers.


Employers may assume default funds are standardised in the industry, but the report highlights the opposite. Funds vary in design and construction, investment risk and volatility, asset allocation strategy, return benchmarks, management and critically, performance – suggesting far more scrutiny is needed by employers to stop them unwittingly putting their employee pension pots in jeopardy.

Aspire 2

Funds vary in asset allocation



On a positive note, the market delivered strong market growth over the past twelve months. The total value of Assets under Management (AUM) in Q2 2017 for the providers rose to £24,005,155,499 compared to £14,808,248,400 in Q2 2016, an increase of £9,196,907,099.


Most default funds sitting within an Assets under Management ranged between £330m and £2bn but the value reflects whether they are new funds designed and launched to be the DC default such as Fidelity’s default which started in 2015 or mature funds from Scottish Widows and Legal & General repurposed for auto enrolment and pension freedoms to meet member requirements.

Aspire 3

Default Funds vary in size



This is the reflected in the individual AuMs. The Scottish Widows fund launched in 2006 has a a total AUM of £11,683,055,584 and Legal & General’s fund which is also mature has £5,257,933,083 – far higher AuMs than other providers.


The allocation to equities, bonds and other asset classes varied dramatically between the default funds, depending mainly on the targeted risk levels and the range of investment tools used.


Providers such as Royal London, Standard Life, Fidelity, Aviva, Legal & General with their own asset management arms have developed more diversified and sophisticated default offerings.


In general, the growth phase of the average default options for the providers reveals that most funds have significant exposure to equities to maximise growth. The average allocation to equities was around 62%, with Scottish Widows’ default having the highest exposure at 85%, while Legal & General has the lowest at 45%.


Default options also hold a significant portion of Fixed Income, allocating 26% on average to this asset class. Legal & General and Fidelity have the highest allocation with 47% for both, while Royal London have the lowest exposure with 0%.


Steve Butler, Chief Executive, Punter Southall Aspire, said: “Our analysis highlights for the second year running that DC default pension funds are far from standardised – there are still huge variations in fund structures, objectives, asset allocations, the level of risk taken by providers and fund sophistication and employers need to take note.


Take the levels of exposure to equities. Scottish Widows has 85% of funds invested in equities – a very astute move in today’s rising market, but what happens if the market falls? Equally, could Legal & General with just 45% in equities get better returns with more exposure particularly as many employees will be invested for the next 40 years? It begs the questions? What is the optimum level of risk and exposure to equities and should some providers be more cautious and others less risk averse?


There were huge contrasts in fund diversification too. Some providers are spreading their investments across a range of asset classes in the UK and globally and others a far more limited range.


Most defaults don’t use Alternative Investments, which includes investments such as commodities, property and absolute return strategies – mainly due to cost constraints.


The average percentage of overall allocation to Alternative Investments within the default funds is almost 6%, but Standard Life and Royal London place the highest weights, 21% and 19% respectively. Equally, the average allocation between UK and non-UK assets was 27% and 73% respectively, with Aegon and Zurich having the highest concentration in the UK region with approximately 50% of their total assets.

Aspire 1

These funds have huge variation in performance



Steve Butler said, “Investment diversification is key to managing risk during volatile periods. But again, the market varies widely. Providers such as Friends Life, Scottish Widows, Aegon and Zurich favour a limited range of asset classes (with Zurich using the least, at four) but at the other end of the scale Legal & General, Fidelity, Royal London and Standard Life are more diversified incorporating commodities, high yield, property and other alternative investments alongside traditional asset classes. Greater diversification can lead to higher risk adjusted returns, especially in stress markets but on the flip side there can be more illiquid on occasion and investments are more costly, risky and more difficult to monitor.”


The report also revealed there is no standard approach to measuring performance of DC default funds – providers use a variety of different comparators (peer group sectors, composite benchmarks, cash or inflation indices) based on the strategy’s objectives and asset allocation.


Over the last three years, the Zurich fund was the best performer (11.8%), although on a relatively higher level of risk (9.3%) compared to the other defaults, which is no surprise given the levels of equity within the fund (77% equities). In the same period, Standard Life produced the worst return (6.5%), but it does exhibit a consistently lower level of risk (5.2%) than all the default funds.


Steve Butler, Chief Executive, Punter Southall Aspire, said: “Employers must examine all aspects of their DC default fund carefully to understand exactly what they are getting and how their funds are performing.


“Default doesn’t mean standard – far from it. This is the second year we’ve analysed the industry and little has changed. With greater numbers of savers now enrolled in pension funds, employers have a duty to scrutinise their schemes to ensure they are on track to deliver the best retirement outcomes for their people.”



The nine default funds examined are run by Aegon, Aviva Investors, Fidelity, Friends Life, Legal & General, Royal London, Scottish Widows, Standard Life and Zurich. This is the second annual report from Punter Southall Aspire tracking the default funds market.


Aspire have just published their results for NEST in Corporate Adviser. They confirm independent research by Defaqto last year, confirmed by work done by Con Keating and myself, that NEST is currently delivering the best risk adjusted return of any provider

NEST perform






This is really great work by a top firm of consultants, but more needs to be done to raise awareness among employers that not all workplace pensions are the same and that outcomes will vary according to the decisions they take on their choice of workplace pension.

This blog will continue to highlight good work, wherever it is being done and promote best practice! Well done Punter Southall Aspire, now to have a chat with my colleagues at First Actuarial – the bar has just been raised!

 Aspire 4




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(s)Carey pensions!

Thanks to Angie Brooks for bring to our attention a very disturbing matter relating to Carey Pensions.

“Careys” will be known to those working in the early days of auto-enrolment for providing auto-enrolment shells into which various entrepreneurial fund managers could launch fund solutions. Little survives of the various master trusts which were offered. These pensions did not appear on nor on the Pension Regulator’s list of pensions with the MAF

But Carey Pensions are best known to IFAs as a SIPP provider who will offer contract based pension wrappers for entrepreneurial fund managers launching fund solutions.

Whether under trust or as a contract based pension, Carey administrate investments and keep member records to help the fund managers get the tax benefits from UK pension legislation.

What is not so well known about Carey is why they carry the name.

This is taken from the website of the Islamic Pension Trust, one of the many master trusts operated by Carey.

Carey Pensions is part of Carey Group which traces its origins back over 40 years and whose principle shareholders are ten partners of one of the largest international law firms in the Channel Islands, Carey Olsen.

The link between the Carey Group and Carey Pensions is clear from the pension link from the Carey Group website. However a search for Carey Group on the Carey Pensions website reveals little, the “about us” section makes no mention of the legal parentage.

Carey Group states on their website

Carey Group have historical links to, but are independent from, the leading offshore law firm Carey Olsen. Our principal shareholders are a number of past and present partners of Carey Olsen in Guernsey

I am not sure what legal status “historical links” implies, but from a reputational point of view, the link between Carey Pensions , Carey Group and Carey Olsen is both obvious and obscure, a legal paradox!

Which is odd, because the  parentage is ssuch that any small business such as Carey Pensions  should be proud of. Its Wikipedia entry points out that .

The Corporate Advisers Rankings Guide places Carey Olsen in the top five law firms by the number of London Stock Exchange (LSE) and AIM clients it advises. It is the only offshore law firm to be ranked alongside UK legal advisers in the top five. (Source: The Corporate Advisers Rankings Guide, January 2016 report

All of which would lead you to believe that Carey Pensions would leverage its historical links  to attract high net worth customers confident they would be treated impeccably.

Why so shy?

The shyness of Carey Pensions about their links to Carey Group and to Carey Olsen may be explained by the local problems it is experiencing with the UK financial ombudsman.

This was the subject of a BBC investigation by the You and Yours team which produced a program last month which you can listen to here (17 minutes on).

Below is the excellent reporting of Citywire’s Jack Gilbert T/AS New Model Adviser  (Jack runs Jo Cumbo close as investigative pensions journalist of the year)

The BBC You and Yours programme reported that the FOS is considering 77 claims against Carey Pensions and 24 provisional decisions have been made ruling in favour of the client and against the Sipp firm.

A FOS spokeswoman added ‘our investigations are ongoing and we haven’t issued any final decisions’.

These rulings concern the due diligence carried out by Carey Pensions on the unregulated introducer, which was selling investments in an unregulated investment scheme investing in Store First storage pods.

The BBC report also said the Financial Services Authority, predecessor to the Financial Conduct Authority, had previously issued a warning about one of the introducers involved in passing business to Carey Pensions.

Carey Pensions has been offering some of these investors settlement offers lower than the expected FOS compensation payouts.

One investor told You and Yours that Carey Pensions’ solicitors sent him a letter trying to convince him to settle.

Earlier in the year the Sipp firm reported a loss of f £153,800 in 2016 due to complaints and legal cases. The firm’s chief executive Christine Hallett confirmed these legal cases relate to the settlement cases.

Hallett said her firm has offered settlements to ‘resolve some members’ complaints on a confidential basis with no admission of liability’.

‘Any offers were made taking into account the individual’s circumstances and were presented in an open, honest, fair and reasonable manner,’ Hallett said.

‘The FOS has visibility of all ongoing complaints against Carey dealt with by its service, including any settlement offers made for complaints presently before FOS. We are aware that the FOS has been in dialogue with a number of members in respect of the offers we have made.’

Hallett said she ‘fundamentally disagrees with some of the findings of the FOS’ provisional decisions’.

New Model Adviser® asked Hallett why she was not appealing the decisions rather than paying settlements.

‘We are appealing but that is running in tandem and that could go on for a long time,’ she said. ‘We have made a decision to try and be fair and reasonable to the client. At the end of the day we are doing things with our legal advice and PI insurance advice.’

A spokeswoman from the FOS said: ‘If we’re made aware that a firm is seeking to bypass us to make offers, and especially if they are offering consumers less than we have or might recommend, we’ll refer them to the regulator.’

I suspect that Carey Pensions have good legal advisers – don’t you?

I suspect that they are very good at keeping bad news out of the public eye and that the letter mentioned by Jack and featured in the broadcast might well be sufficient grounds for FOS to refer Carey Pensions to the regulator.

It is not just the regulator that Carey Pensions should be mindful of. Hugh James, a top 100 solicitor themselves , have picked up on the commercial opportunity of advising others who have used the Carey SIPP and dodgy investments.

Carey Pensions UK has reportedly sent threatening letters to its investors in an attempt to prevent adverse Financial Ombudsman Service (FOS) decisions from being reported in the public domain.

It is has been reported by BBC Radio 4 that Carey Pensions UK is facing 24 preliminary decisions from FOS which suggest they are liable for losses incurred by investors as a result of their pension transfers.

It is understood that the decisions relate to complaints by pension investors who say they were persuaded to transfer their traditional pensions and to invest in highly speculative investments, such as self-storage units, by unregulated companies.

Following a report in October 2010, the Financial Conduct Authority (FCA) issued a warning in respect of Mr Terrence Wright, the man at the centre of a number of the unregulated companies involved. According to the BBC Radio 4 report, CareyPensions UK failed to heed this warning and continued to accept business from those companies that Mr Wright had an interest in.

Following their recent investigation, BBC Radio 4’S “YOU&YOURS” has reported that CareyPensions UK has been sending “long and threatening“ letters to their investors, claiming that the 24 FOS decisions mentioned above, are wrong and that they could face losing all of their money if they were to proceed with their complaints.

In the same report by “YOU&YOURS” it was stated that CareyPensions UK has been offering smaller but very quick cash settlements on the basis that the FOS complaints are withdrawn and no final decision is made public.

Further, it is believed, that these quick cash settlements come with a condition that the investor enters in to a non-disclosure agreement, effectively ‘gagging’ him or her.

Just what the partners of Carey Olsen make of all this is anybody’s guess, unsurprisingly they are keeping their heads down.  Just what the legal liabilities between Carey Pensions, the Carey Group and Carey Olsen are is also unclear.

What is very clear is that Carey Pensions is in a first rate mess and risks damaging the unsullied reputations of the Carey name.

What is also clear is that Carey Pensions and by extension its parents are doing nothing to restore confidence and a lot to increase distrust in SIPPs and UK pensions in general.

Carey 3

Hope so

Posted in dc pensions, drawdown, Henry Tapper blog, London, pensions | Tagged , , , , , , | Leave a comment

Sexy cash in a vibrant market? You ain’t seen nothing yet!


I’m not quite sure why Money Marketing is reporting man of the people Steve Webb as re-phrasing Bachman-Turner Overdrive’s famous phrase, this way

Steve Webb: DB transfer demand? You’ve not seen anything yet

Steve is not a linguistic pedant and can throw a few literary shapes when called upon . Get on down Sir Stevie- get with the beat!

The pilgrim has progressed

Actually this story is not about transfers but about DB schemes, Frank Field’s “great British success story”, that have been put out to pasture by corporate UK to the point where transfer values are the only rights that many people remain interested in.

Steve Webb has been a pension champion for thirty years. Now the pilgrim has progressed, like Saul – he has been blinded by the light!

The Damascene conversion


Steve! Steve! – why persecutest thou me?

Webb comments are on the back of a joint report from Royal London and LCP into the transfer market. I’ve focussed before on findings from LCP about the acceleration of transfer quotes and the feedback from IFAs about why people would prefer money in a SIPP or even a bank account to rights from an occupational pension.

But let’s look at this the other way round. Why is it that the lure of what Webb in a previous incarnation denigrated as “sexy-cash“, has become acceptable to him, to Royal London and to hundreds of thousands of occupational pension members?

When Steve Webb stood up in front of the NAPF congregation and railed at Boots for incentivising cash transfers, he was speaking to the converted. “Congregation” is the right word for the delegates who showed reverend awe for Webb’s oratory.

But within two years, pension freedoms were upon us and shortly after, a Damascene conversion had overtaken Sir Steve and cash was king. A year later and Steve was booted out of parliament (for no fault of his own) and into the tender clutches of Phil Loney- Royal London’s CEO.

From Church to Casino, the pilgrim  progressed the path to perdition.

Phil Loney

Sexy-cash ATM

Perdition at least for support of the principal of an income for life. I sat adjacent to a Royal London rep at a recent FCA workshop where we considered the future of retirement income. Like every other person in the room (but me), he showed no appetite for the risk-sharing that has characterised private pension provision for the past 70 years.

Instead, he participated, as did we all, in discussions on defaults, pathways, guidance and advice through the minefield of individual decumulation. The paradigm in which the FCA Retirement Income Study is being carried out, has nothing to do with pensions and everything to do with sexy-cash

Wallowing in sexy-cash

At one stage in his article in Money Marketing, Webb actually gloats at the tsunami of money coming the way of financial advisers (and Royal London).

Suppose the typical deferred pension is worth a relatively modest £5,000 per year and that schemes offer a multiple of 30 times the annual pension as a lump sum.

Multiplying £5,000 times 30 for five million people suggests total potential transfer values for deferred members could approach three quarters of a trillion pounds.

But for Steve Webb, there is now only one villain in this piece. It is not the wicked ETV incentiviser, but the occupational pension scheme trustees, trying to follow Webb’s instructions and keep sexy-cash at bay!

A recent survey by LCP found….only around 30 per cent of schemes routinely provided transfer values as part of retirement communications. So at the point when members are most engaged in looking at their retirement options, the majority of schemes are still not giving them basic information about the value of the rights they already hold.

Time to restore confidence in pensions

Let’s be clear, occupational pension schemes were not set up to provide CETVs, the right to a cash equivalent transfer value was created for those few people who had special circumstances that made “cashing-out” a valuable option.

The mass market migration to SIPPs – envisaged in Steve Webb’s article is not the sign of a “vibrant market” but a vision of utter chaos. As providers freely admitted to the FCA, while “wealth management” is vibrant, it is not geared for managing pensions for those with a £150,000 transfer value (see above). People who jump out of occupational pensions will have short term solvency of which they may never have dreamed – sexy-cash indeed.

But the “relatively modest” £5,000 they have forsaken is an inflation protected right to an income for life which will become increasingly valuable to pensioners whose capacity for loss and ability to manage complex financial matters, diminished with time.

The risks of the flight to cash are simply not under consideration, instead Webb finished his article

the scale of these (DB) entitlements suggests there will be enough people for whom transfers are worth serious consideration to make sure this market remains vibrant for some time to come.

The real problem with Webb’s oratory (putting aside the awful headline) is that it is inciting ordinary people to take rash decisions based on incomplete information, fear and the herd instincts that he so decried only five years ago!

What is needed is a counter to this. What we need is someone to stand up for the value of a wage for life. I am delighted every time I see another CWU tweet advertising more postal workers saying “yes” to a proper pension and “no” to a cash balance.

I hope Steve Webb has time to tune in to this tonight


Supping with the devil?

LCP are supping with the devil and they know it. They should be wary of seductive sexy-cash and wary of Steve Webb’s oratory if they too are not to be dragged into the slough of despond.

We need pension champions not drawdown chumps. I fear that Steve is becoming a drawdown fantasist and that he is legitimising the wholesale dismantling of private sector pensions in favour of an uncertain and unformed future.

There is no vibrant market for most of those taking their CETVs. The FCA know this and Steve knows this too. The exercise of freedoms, to use another biblical parable, is akin to the eating of the forbidden fruit.

I fear that Steve is talking our way out of Eden.

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Are bonds “suitable” assets to meet the promises of a pension plan?

bonds and equities.png

“recrudescent Ralfe syndrome”



Pension funds are struggling to find suitable assets in which to invest, says Pat Race of KPMG in an article in FTfm. The headline of the article is that “North American Pension Funds grow assets faster than their global peers.

Nobody would point to US DB plans as a model for the rest of the world, they have huge deficits and scant protection for members, but the article points to the growth coming from the strength of the yankee dollar and the investment of the funds in growth assets (e.g. equities).

The article also quotes WTW’s Roger Urwin  citing Japan’s $1.2tn Government Pension Investment Fund as an example of an investor that had improved returns after a shift in strategy. In 2014, the GPIF signalled a change into riskier assets and away from low-yielding bonds. Assets held by the world’s largest pension fund have since hit a record high.

What is suitable about bonds?

Clearly bonds are a suitable asset to buy if you want to back up a promise you are making. If you have promised to pay a school fees program for your grandchild and you know the size of the liability, then you can buy bonds which will pay the exact amount as long as the credit is good – I understand that, and I understand that the more you pay for the bonds, the more likely it is that the credit is good.

It’s easy enough for a predicable payment over five years (the school fees) but it’s harder for an unpredictable payment in 40 years time, especially if the size of the payment varies on things as strange as average life expectancy.

This is why, investors of yore, decided that the most sensible way of meeting their promises was betting on the growth of their economy by investing in things getting better. This broad philosophic concept translated into assuming that equities would grow in value as companies prospered in a growing economy. The idea of diversification took hold as people realised that simply investing in a local economy meant putting too many eggs in one basket.

Diversification into bonds and alternative assets happened because of the changing nature of the liabilities – which became more pressing as our pension funds grew, but there was not – until recently – that perception that pension funds were finite and that payments would come to an end.

While bonds are a suitable way to match promises for school fees, where the child’s education finishes and other’s does not begin, they are not suitable for pension funds where thousands of new members are created just as thousands die.

The internal rate of return

The most interesting part of the management of a pension scheme is how the promises are made in the first place. It is a general maxim you do not make promises you cannot keep, though we may not have made them, we must assume that the defined benefit promises made by those older than us, were meant to be kept and that people assumed that the original investment strategies were meant to fund them in full.

Con Keating, who is a “bonds man” spends a lot of time thinking about how those founding fathers assessed their capacity to meet the promises and has come up with a word “accrual” which he uses to explain the long-term internal rate of return that the founders would have needed to pay in full.

That return assumed a regular payment from the sponsors of the plan (employer and member) and a consistent treatment of assets by the Government (tax). This was part of the deal. By and large the deal has been broken, tax on equities was introduced by Gordon Brown, employers took contribution holidays and members are now being asked to pick up a higher proportion of the original “accrual rate”.

Employer representatives (such as unions) are right to point to the past and ask why today it is those who have broken the promises, who are calling the shots. The internal rate of return (as Con keeps telling us) , is not “time variant” ; it is the same today as it has always been. It should be what values people’s property rights (nowadays measured as transfer values) and it should be the measure which – when properly applied, values the obligations of employers to their pension schemes (and so to its members).

A long-term obligation

I often hear people (mainly those in Reward) wondering why so much company money is spent on the pensions of people who have left, as if those people were no business of the company any more.

This is to misunderstand the basis on which the original promises were made. As with marriage vows , so with pension promises, they may be severed for the future but they apply forever – for the period of the marriage.

I am no fan of divorce but -as a twice divorced man – I believe absolutely in the sanctity of the promises I made when I married and of my legal obligations when I got divorced.

Those who think that deferred members of pension schemes can be treated as second class members are greatly mistaken. The Government found against the “active member discount” precisely because past members of a pension arrangement do not lose rights when they leave a job (unless in extreme circumstances such as gross misconduct).

The rights bestowed on us, once vested, are inalienable. The attempts to retrofit changes (perhaps with the exception of the mucking about between RPI and CPI, have failed). A promise is a promise.

Why then, when we expect the nature of the original promise, do we not respect the way the promise was meant to be repaid? Why did we have contribution holidays, why should de-risking involve members getting lower benefits or paying higher contributions?

When most of these promises were made -in the middle of last century, no-one could have imagined the economic situation today. I expect most people then would marvel at our lifestyles today and the capacity of employers to pay staff to meet them.

I suspect that the promises made in those days, for all the increases in life expectancy, were realistic then and are realistic today.

What has changed is the means we employ to meet them. We have stopped looking to the future with courage and optimism and started thinking of failure. We assume the deficits we imagine are real and that they cannot be staunched. We believe investing in real assets is reckless and should not be done. We have so collapsed our view of what a pension scheme can do, that we can find no suitable assets with which to do it!

Pensions are long-term obligations which can only be met by long-term thinking and long-term investment! Bonds are not part of the long-term equation and are not suitable as the base with which to run a forward-thinking pension scheme.


Comments very welcome!

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Time for bosses to get value from Workie!

workie + man

There is plenty of crowing in policy circles about the success of auto-enrolment. The headlines are certainly good with nearly 9m new savers and over 1m new employers due to have staged by October. The public has taken to Workie with 83% of those surveyed by Ipsos MORI saying workplace saving was the new normal and 79% saying they would benefit from an increase in their contributions.

This is just as well, since the vast majority of the new savers are on the phasing timeline which sees employer contributions increase from 1 to 2% next April and employee contributions triple to 3%!

But Government should not gloss over the problems. At a recent meeting, both Peoples Pension and NEST reported that cessation rates (where people stop paying after the opt-out window has closed) were rather higher than opt-outs. If this is the case, then we should treat the accepted wisdom that 90%+ of us are “in” with some caution.

The increase in contributions in April will need to be carefully managed. If over-communicated, employers risk being accused of a “nudge too hard” and actually inciting cessations. If under- communicated, employees may well feel mis-sold! And of course, the marketing departments of the providers are going to be uber-cautious about what they are saying as the communications coincide with the introduction of GDPR.

April 2018 will be a busy month for payroll, with the introduction of the National Living Wage. Employers also have to consider the impact of their new business rates. There is never a good time to deliver a further payroll deduction, nor a good time to remind the finance director that the employer is on the hook for an extra 1% of band earnings! Get your bad news in early – last minute shocks never go down well!

How much of a shock will Workie give us?

So just how much of a financial shock will the April 2018 phasing increase be? We’ve done a little modelling looking not just at the contribution shock but the likely impact of taxation and national insurance changes. It looks to us as if the average earner will be losing about £20pm.

Estimate of change in net pay at phasing


The net impact of the forthcoming changes on workers (assuming that relief at source is claimed) is likely to be considerably lower than might be imagined. The hope is that the impact of getting more into workplace pensions will hardly be noticed.

There was more good news for those behind the auto-enrolment project from an Ipsos MORI poll in August. 83% of workers surveyed said that they saw saving into a workplace pension as “the norm”, 80% felt it did them good and 79% claimed they would welcome being nudged into paying more.

So while we should be cautious in our messaging around auto-enrolment, guarding against taking people’s ongoing co-operation for granted, we have grounds for optimism that these pension contributions are indeed a benefit of employment for which employers can take some credit.

The value of the workplace pension, in the eyes of our workers, will of course build over time. There is a saying in Australia that people start getting interested in their savings when they become worth more than their car!

As we move towards that point, more staff are going to start asking questions about workplace pensions. It is at this point that we may start having to move a little faster. While we are walking today, in the future we may have to do a little running and that will mean learning where to point staff to get the information they want.

That is tomorrow’s problem, but employers should be thinking about their role in helping staff get the most out of their pension saving right now!

workie working

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The world of the inactive investor


The Plowman is an armchair investor


Of all my amateur enthusiasms, my interest in how to invest my money is perhaps the silliest. The economist’s hat sits ill upon my head, my capacity to second guess market trends is zero.

So I’m always pleased to discover from an expert like the FT’s senior commentator John Authers, that my current world view is in line with others.

 How do we reconcile a calmly rallying market with so much turmoil? The most likely explanation, I believe, is monetary policy. With bonds still so expensive, investors are still buying stocks, relatively indiscriminately, but not enthusiastically. And they are very worried about what happens to the most indebted companies when interest rates rise. It is an unpalatable picture, but it seems to be an accurate one.

It is very comforting to know I am not alone!

In truth, the Plowman’s world view is no more than “keep calm and keep invested”. I have moved my personal savings out of a multi-asset fund and into a global equity fund on the basis that I couldn’t be doing with investing in debt (the multi-asset) and I was prepared to buy stocks indiscriminately through LGIM.

When I say “indiscriminately”, I mean I am comfortable with the simplicity of the passive approach, though I expect the managers of my pension fund to be exerting pressure on the stocks they invest in to do environmental and social good through the exercise of good governance.

The world of the inactive investor

The investment of my retirement savings is something I am willing to entrust to a trusted third party. It is extremely important I trust Legal and General Investment Management. I trust them because I feel they are competent , fair and have a value set similar to mine (e.g. it is possible to invest for social good without prejudicing your return).

For me, the investment of my time in shaping a private portfolio of stocks is out of the question, I have neither time, nor competence nor interest. Similarly, trusting in active managers and the “factors” that drive their investment decision making seems a decision too far. I want to find the fund that allows me to do as little as possible to have absolute peace of mind.

This approach appears to be mirrored by other investors, who according to John Authers, are unenthusiastically, indiscriminately investing in global equities.

I am sure that I ought to be more passionate, I got passionate this time last year, when i met with HSBC’s Mark Thompson who explained the philosophy of the Future World he had created in junction with FTSE and LGIM

 Future World

All year I have been waiting for L&G to offer me the opportunity to invest in their Future World fund (the one HSBC use as its default) , (I might switch to something called their Global Equity Ethical Fund as an alternative- if I could understand what it does). I am a little disappointed that despite claims earlier in the year that the Future World fund was an investable option, this has not materialised.

I had hoped , during the course of the year, more about CEO Nigel Wilson’s vision for engaging people like me in how our money was invested and what good it was doing. I have every hope that I can help build houses in Leeds, or hospitals in Southampton or help revitalise Salford.

However , the reluctant investor that I am, is still waiting! Perhaps i should have a word with the IGC and find out what is going on.

Engage me please!

I have chosen to give my money to LGIM and I’d like to have the chance to find out what is going on. Inactive as I am, I have the capacity to turn on my web browser, I can even get across to LGIM HQ and meet with either the people who do the investment or the independent governance committee who look after my interests.

I am unusual in that I have the capacity to share the information I get (rather than hoarding it). So if LGIM has messages for inactive investors like me, it would make sense not just to kill this bird , but the other birds that read this blog.

Our fund managers are our fiduciaries, they are the people we trust and – in LGIM’s case- I know them to be worthy of trust. I may be inactive, but – passively as they manage my money – I’d like to see a little more activity from them in getting my attention!

As our DC balances grow, I am sure I am not the only one!


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Transparency as disinfectant

transparency9Wherever possible – organisations should aspire to be transparent in their dealings, sharing information with all stakeholders.

Bank wins by being straight with customers

Making information difficult to access causes problems. My friends at Quietroom tell the story of how, early in the company’s history, it was called in to stem outflows from the Halifax Bank in the wake of the crisis engulfing Bradford & Bingley, Northern Rock and others. Quietroom’s advice was for the Bank to stop making it difficult to access their money and to make the information on how to transfer money away easy to find and use. The Bank now credit Quietroom with helping it retain up to £500m of assets.

These lessons could be well learned by master trusts and other occupational DC schemes who rank low on Pension Bee’s Robin Hood Index. It is best to be helpful!

I’d love to properly report this morning’s debate at the Pensions Network, but it’s under the Chatham House rule. More tomorrow, if I allow myself to be reported!

FCA fails to disclose its disclosure committee

It wasn’t very helpful for me sitting in the lobby of the FCA and watching the members of the Disclosure Committee make their way past me. I am not bound to secrecy as to who they are but they are. After a lengthy wait since the announcement of Chris Sier as Chair, it is time the composition of the committee and its terms of reference was made public.

It is time that we had a proper debate about what the outcomes of the Committee’s work should be. Running a committee that is trying to improve disclosure behind closed doors is asking for trouble!

USS concedes its members can see the consultation on its 2017 valuation

A small victory for public disclosure was won yesterday when the USS conceded when the widely disseminated consultation on the 2017 actuarial valuation could be read by members. Its content has of course been on this blog in the early part of the week, though out of respect for both the Trustees and the members , I took down the information which I had thought to have been in the public domain.

I will re-post when time allows. Trying to manage an announcement on a consultation via a press release is a risky strategy. The PR has gone wrong and Jo Cumbo has every right to be cross that she was only able to publish partial information while a proportion of her readership were party to a bigger picture.


No harm has been done by publishing this information; as one member (who runs an actuarial course wryly commented.


Clearly this was an attempt to spin that went wrong. The website 38 degrees smartly ran a campaign to get 1000 people to demand the paper be made available to members.


I expect by the time you press the link, the target will have been attained.

I’m informed that essentially the same thing happened in 2014/5 at the last valuation when many institutions released the paper (though not with USS permission). It only takes one employer to treat the consultation as a public document for the edifice to collapse. Let’s hope that by 2020, the USS Trustees will have moved on.

I have only one of a number of blogs with an interest in the issues surrounding our large DB schemes. Those issues were given a still sharper edge by yesterday’s announcement with regards the BA pension scheme.

Transparency as disinfectant

Clearly the way that information is absorbed is changing. Sitting in a room in Docklands hearing about Wake Up Packs being sent to savers approaching retirement with the FCA, I wondered whether many in pensions actually know that digital information exists!

Social media doesn’t just ask for transparency, it creates transparency. Whether it be the FCA, the USS or back in the day – the Halifax Bank – transparency tends to be a disinfectant that cleans up rather than muddies wounds.



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Why some transfer values may be just TOO HIGH!

over priced


Earlier this year I wrote a blog “why some transfers are ridiculously high” which set out to explain how DB transfer values are calculated and why they are at present at historical highs.

My friend and colleague Alan Smith presented the actuarial version of that blog at the Great Pension Debate. I don’t think we distributed the slides, but if you want to see the technical arguments for high transfers, please read , download and share these slides, they are meant to help – not to sell us as actuaries!

The link to the slides is here

I won’t be delivering these slides to an audience at the Pensions Network tomorrow, but I will be referring to them.

If you are going to the event in Tring, and have questions about this blog- please ask them at the session on Friday Sept 8th (tomorrow as I write)


Transfer values are a regular topic of breakfast discussion in our household.

I live with someone who manages a DB scheme with assets north of £45bn and with outflows from CETVs of some £250m a month. She reports that there are schemes in her peer group with even higher levels of exodus.

Her feeling and that of many senior pension professionals is not just that pension transfers are high – but that they may be “too high”.

The fundamental objection to the current means of calculating CETVs

One argument, an argument that Con Keating articulates, is that there is an unstated but implicit internal rate of return on which pension promises are made at the outset of someone’s joining a DB plan. This is not “time- variant” – it does not vary with time.

If you accept this argument of an internal rate of return, Con calls it the accrual rate, then all transfers would be calculated using this as the discount rate and transfer values would be much lower than they are today, reflecting the longer term assumptions underpinning the scheme, not the short-term best estimates discount rate – based on the scheme’s actual asset allocation a the time of transfer.

The pragmatic arguments against the current means of calculating CETVs

Another argument, based on a less fundamental approach to the problem, is that CETVs are unfairly rewarding those transferring with the prudence with which the trustees are managing the assets. Put in easier words, people are getting fair shares plus.

The highest transfers, those which give cash sums of 40+ times the pension being forsaken, are so high- typically because the remaining assets within the scheme have been selected to maximise the security to existing members – it could be argued that schemes that are invested almost entirely in bonds are “self-sufficient” and don’t need any future contributions from the sponsoring employer. Indeed most of such schemes want to sell themselves to insurance companies who will guarantee to pay the pensions.

Not only do members walk away with the “prudence” in the funding, they also get a CETV based on 100% of the benefits being paid as pension. In practice – most people take around 75% of the benefit as pension and the rest as tax-free-cash. As we all know, tax-free-cash commutation figures are set in favour of the scheme. Every time a CETV is paid out on the basis of 100% pension being paid, the scheme bleeds the cash-commutation windfall.

Transfer values from such schemes are close to the buy-out cost of the scheme. They don’t offer much of a discount to the employer to the book-cost of the liabilities in the company accounts (under IAS 19) and they offer individuals a right to something well in excess of the original promise – the transfer includes the price of the guarantee of the insurer (or a good part of it).

Why does this matter?

It could be argued that these super high CETVs are windfalls for those lucky enough to have them – rather like the huge bungs paid out when mutual demutualised. This argument simply says that some people get lucky.

But when some people get lucky, the premium they receive is paid by others. In the case of defined benefit schemes, the high transfer values are paid for at the expense of other stakeholders of the scheme.

One of those stakeholders may be the sponsor, who is relying on an investment strategy that benefits from a carefully planned cash-flow strategy that may have to be unwound to meet exceptional early payments of CETV. If you are paying out £3bn a year in CETVs against a fund of £45bn , you have to do a bit of rejigging, re-jigging does not come cheap. The cost of changing an investment strategy is born in the future funding rate of the scheme- that cost is either born solely by the employer or shared by those members still accruing. Either way there is a cost.

And if the point of moving the scheme into low-risk assets, was to immunise the sponsor from future cash calls, the impact of CETVs on the sponsor will be most unwelcome. The sponsor can rightly say they have paid once for prudence, why pay again to regain prudence that has been un-necessarily paid out in the CETVs. In extremis, the sponsor may walk away from the problem and that puts members in jeopardy of a scheme going into the PPF.

Is there a solution?

It’s not often that actuaries are challenged, least of all pension actuaries. But I am hearing stories of expert trustees challenging the payment of high transfer values on the grounds laid out above.

Of course, there are all kinds of reasons that employers like people taking transfers, but for trustees, they are not good reasons. Trustees want pensions to be paid and paid in full. They do not run pension schemes as a kind of launch pad for the wealth managers.

Nor do they run their pension schemes for the benefit of finance directors of sponsors who can write large chunks of pension liabilities from the sponsor’s balance sheets on the basis of what has happened in the past.

The Trustee solution may be as simple as challenging the basis of CETV transfer and going back to the first principles  of how the scheme was set up. It is unlikely that they will adopt as radical a discount rate as Con Keating’s IRR or “accrual rate” but it is quite likely that they will argue that CETVs should not include the full prudence within the scheme funding and should reflect the commutation of tax-free cash.

If that challenge happens, and is successful, then the current transfer bonanza may be drawing to a close.

However – I do not suppose that this will happen soon and this is not a call for IFAs to put out the “transfer now while CETVs last” sign.


One final point – and it’s an important point. There is a much simpler way for trustees to reduce CETVs and that is to demand an insufficiency report which tells members that the Transfer Value has been reduced because the scheme is in deficit and the trustees need to protect the scheme as a whole. Those who remember market level adjusters in with-profits will see the analogy.

Trustees are understandably nervous about telling members they are nervous. It tends to cause a run on the scheme and give all the wrong signals to the Pensions Regulator.

Many people have commented that there are too few insufficiency reports out there. There are very few employers who make those arguments, it hardly does your credit rating good – if your trustees are telling all and sundry you may not afford the pension scheme.

It may be time for insufficiency reports to be reviewed by the Regulator, they aren’t doing what they are supposed to be doing and we may need something better.


I find myself once again having to talk about something which is sensitive and I’m quite sure that a lot of actuaries, including some of my colleagues, who will be asking why a non-actuary is asking questions about the way they do things.

Once again I will point such people to the rubric at the top right hand corner of this blog. I am  speaking as a non-expert but as someone who cares about pensions.

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What do we tell our members?

David farrar

David Farrar of the DWP – far from a typical civil servant



Yesterday’s keynote speech from David Farrar at the Professional Pension DC Conference contained some important messages. I wasn’t the only person in the room picking up a new tone on disclosure. The quote is a close approximation to what David actually said.

Not only did Farrar pick up on the asymmetry between the information available to fiduciaries and asset managers, but he pointed out inconsistencies in the reporting to savers into master trusts and GPPs.

DWP and FCA working as one

The really good news is that David has confirmed the DWP will be observing on the meetings of Dr Chris Sier’s disclosure group. Let’s hope that means that trustees – as well as IGCs- will be given the power to demand proper disclosure and that members who want to know what they are paying for fund management , can know the full answer.

Jesal Mistry, of Hymans Robertson, who spoke on the same matter, discussed with me the impediments to getting to this true cost.


Jesal – investment consultant at Hymans



I’d asked Jesal in his talk whether full disclosure should include the terms of the investment management agreement (IMA)  which are typically subject to a non-disclosure agreement. Jesal, true to his profession (an investment consultant) was equivocal, recognising that NDAs had enabled him to get better deals for some trustees than had they refused to keep terms hid.

Listening to both Jesal and David, I am more than ever convinced that members must know what fund management actually costs – to occupational trustees and the trustees of GPPs. It is only by knowing this commercially sensitive figure that we can assess whether these trustees are getting value for money.

Of course the cost of fund management is only a tiny fraction of what we members are actually paying as an AMC and the AMC is not a fully inclusive figure until it contains a full disclosure of the costs borne by the fund which impact fund performance (transaction charges).

IMAs must be disclosed – NDA or no NDA

Jesal mentioned me a case where the trustees literally paid nothing for asset management and allowed the fund manager simply to take his cut from the stock lending fees he handed to the fund manager. This is only one example but explains why the terms of IMAs need to be fully disclosed.

It is only when we can see the deal, that we can work out whether it is a good deal. Farrar actually talked about benchmarking costs in his talk, something that is an anathema to many IGCs I have talked to. This proves to me that not just the FCA but the DWP are alive to the value of disclosure, which acts not just to educate members, but to give them assurance that they are being served by a competitive and transparent market.

Valuing the member experience

Once we know what fund management costs, we can ask real questions about the balance of the AMC.

The attempt last year by the IGCs to establish the value of the member experience, as measured by NMG was a hopeless failure. It failed because some IGCs stymied the full publication of results – we couldn’t see who were good or bad, we could only see the IGC’s interpretation of results. Even worse – we could not see what the member experience was costing us, since we had no way of splitting it out from the bundled charge – the AMC.

We all know full well that the balance of the AMC not used to pay fund managers is what providers of master trusts and GPPs make their money from. We also know that what appears to be a cheap AMC may prove expensive if it buys nothing in the way of fund management and a rubbish member experience. We also know that what looks like an expensive AMC can be cheap if it buys quality fund management and a great member experience.

In short, proper disclosure of investment costs (stripping away NDAs) will lead to proper exposure of the cost of the “member experience” and ultimately to a proper assessment of the value of the money that the member pays.

This information has to be generally available

Returning to what David Farrar said in his (excellent keynote), it seems that the DWP want this information to be available to members of occupational trusts (including master trusts) at the member’s request.

This – together with Farrar’s messaging about benchmarking, suggests that there will spring up central depositaries of information which will allow people to see costs, performance and the value assessments of the member experience in one place.

It is clear from my conversations with Government , that it does not see itself as being this depositary of information. There needs to be a central depositary arising from the private sector that can allow people to properly understand how well their workplace pension is working.

What do we tell our members?

David Farrar was clear; trustees can tell members where to find the information they need but they cannot ultimately be the judge of how well they are doing.

It is for the members, and their employers to determine whether they are giving value for money.

Ultimately ….

It is not what trustees tell members that counts, it is what members and employers tell trustees!

Thanks to Professional Pensions for their excellent conference to which I felt privileged to be invited. Thanks to David, Jes and all the speakers too.


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