The actuaries guide to face mask protection.

By Gordon Woo for

COVID-19 Actuaries Response Group – Learn. Share. Educate. Influence.


  • When the wearing of face coverings in shops became mandatory in UK on 24 July 2020, there was no specific requirement other than coverage of mouth and nose. The purpose was to protect others. No minimum quality was stipulated; improvised face coverings were acceptable. Moreover, general use of the highest quality medical PPE masks was discouraged, as this would have reduced their availability for frontline healthcare workers.
  • One year on, supply is no longer a practical issue, but cost is a factor. Following easing of restrictions on 19 July 2021, there is more individual choice over face masks. This choice is not simply binary: to wear a face mask or not in a particular setting. The quality of face mask might be upgraded according to a personal wish for gaining self-protection. As general usage of face coverings declines, there may be an increased demand for FFP3 masks which offer a degree of self-protection in specific high-risk settings.

The legal requirement to wear a face covering in English shops, public transport and other enclosed public spaces ended on 19 July 2021. After then, the Prime Minister has said it becomes a matter of personal responsibility. The Health Secretary, Sajid Javid, has qualified that, unless exempt, it is expected and recommended that people wear face coverings in crowded indoor settings like public transport.

During the first wave of the pandemic, wearing face coverings was not mandatory. The argument against their use was that homemade masks would be many times less effective than medical masks at preventing the wearer from transmitting the virus – and of little use in protecting the wearer themselves. There was also a practical concern that a sense of false confidence given by using a mask might lead to greater individual risk-taking. Additionally, the public were discouraged from procuring surgical or respirator masks on the grounds that healthcare professionals were finding PPE hard to source and such action might deprive healthcare workers of essential protection, and drive up NHS procurement costs.

With the gradual reopening of public areas following the first pandemic wave, the wearing of face coverings in shops and supermarkets became mandatory on 24 July 2020. The previous month, they had become mandatory on public transport and in NHS settings. This decision was taken so as to give people more confidence to shop safely, and enhance protections for shop workers. This had not happened earlier because of the ambivalent NERVTAG report of 13 April 2020[1]: “Evidence from observational studies tend to support a protective effect of wearing face masks in the community, but results are heterogeneous and subject to major biases and residual confounding.”

Given the ambivalent scientific evidence, there was no specific minimum standard of face covering, which would have been hard to justify scientifically, and equally hard to enforce given the extra cost burden on poorer communities. Face coverings may be improvised from old clothing for next to nothing. Basic manufactured 3-ply disposable face masks may be bought cheaply for a few pence each.

However, for those wishing to protect better their families, colleagues and friends, there are higher grade options.

Type IIR face masks EN14683 are medical face masks with a bacterial filtration efficiency (BFE) of 98%. These can be purchased in bulk for about 30p each (five times more than basic masks). The IIR face masks are made up of a 4-ply construction including a splash resistant layer to protect against blood and other bodily fluids. Type IIR face masks are tested in the direction of exhalation (inside to outside) and take into account the efficiency of bacterial filtration. They are for use in protecting others from the wearer transmitting infection. A higher grade of face mask is needed for self-protection.

FFP2 and FFP3 Filtering Face Piece Masks are European classes of respirators, tested on the direction of inspiration (outside to inside) and take into account leakage to the face and filtration efficiency.


FFP2 face masks are the equivalent of N95 face masks, which meet the guidelines from WHO for protection against Covid-19. FFP2 masks have a minimum of 94% filtration percentage and a maximum of 8% leakage to the inside. These masks are not shaped to an individual face but are simply held in place by the elastic earloop and have a typical lifespan of 3 to 8 hours depending on environmental factors. French and German health officials have advised people to wear surgical masks rather than cloth face coverings, while in Bavaria and Austria, it has been compulsory since late January 2021 to wear a medical grade FFP2 mask on public transport and in shops[2].


FFP3 face masks are the most effective at filtration, with a minimum filtration of 99% and a maximum leakage of 2% to the inside. These masks are better shaped to an individual face for a more snug fit and typically have a valve to help breathe as the filtration material is much thicker. The valve also reduces the build-up of moisture, lengthening the lifespan of the mask. As a measure of their general practical reliability, FFP3 masks are typically used for handling asbestos.

FFP2, FFP3, N95 and other respirator masks are effective at protecting the wearer from viral transmission.


Frontline workers in healthcare settings must have self-protection against infection from COVID-19, because of their unavoidable exposure to those who are unmasked for medical reasons. But there are other settings, where a person may be exposed for prolonged periods to those unmasked, and would benefit from mask self-protection.

Consider, for example, a commuter on a crowded London tube train, who is in close proximity to five neighbour passengers for at least fifteen minutes. Taking the COVID-19 prevalence in London to be at the early July 2021 level of around 1:250, there is 2% chance that the commuter would be exposed to infection, if no neighbour was wearing a face covering. In practice, the risk may be higher as different passengers enter and exit the space or if changing tubes is required.

A survey has indicated that as many as 27% of tube passengers have admitted to not wearing a mask during the pandemic[3]. This common disregard of transport regulation reflects the comparatively low tube usage over the past year, and avoidance of crowding has usually been possible. However, as tube usage returns closer to pre-pandemic levels, crowding will occur, and may be unavoidable during the morning rush hour, even if return journeys home may be staggered.

Assuming compliance with the face covering recommendation drops to 50%, or perhaps below, after 19 July 2021, our example above gives at least a 1% chance that a rush hour commuter on a busy tube route would be exposed to infection. There is still considerable uncertainty in the COVID-19 dose-response curve, but assume conservatively that the commuter receives a sufficient dose on exposure to become infected. Is it worth buying a FFP3 mask for an essential journey, such as attending a crucial morning business meeting? The cost of a single use FFP3 mask is about £3, which is ten times more than a IIR face mask.

To avoid a small chance of COVID-19 infection, this would be manifestly cost-effective for an organisation requiring attendance of key people, and significantly cheaper than paying the £15 daily London congestion charge, or using Uber. It would make sense for companies to bulk buy FFP3 masks, and supply them to those staff members who might need to journey to work during the morning rush hour, and who might be particularly vulnerable to COVID-19.

In the future, as COVID-19 gradually fades from daily public consciousness, people may become much less inclined to wear face coverings merely to protect others. However, those who perceive themselves to be vulnerable may be self-motivated to wear high quality face masks to protect themselves in special circumstances of high exposure in crowded places.

In mid-February 2020, when there were only a few COVID-19 cases in UK and USA, I took a BA flight from London to San Francisco. For the entire eleven-hour flight, I sat next to someone wearing an FFP3 mask, with a bottle of hand sanitiser in his briefcase. He was the only person on the plane who wore any kind of face covering. Examples of selective risk-averse self-protection like this may be the way of the future.


21 July 2021

[1] NERVTAG(2020) Face mask use in the community, 13 April 2020

[2] Geddes L. (2021) What’s the most effective mask for preventing COVID-19 transmission,  GAVI, 27 January 2021


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Does Britain need an Aussie style “Retirement Income Covenant”?


The Australian Treasury has recently consulted with its citizens on how to oblige Trustees of its huge Super funds to provide them with retirement income.

There are parallels in the UK. Over the autumn and winter, the DWP will be talking with our master trusts about what they would need to offer in-house pensions (as part of the CDC initiative). Some DC schemes already offer investment pathways and some signpost pathways of other providers. However, there is no obligation for them to do so, and the discretion of trustees is often used to protect the scheme and sponsor from the liabilities arising when people get their later life finances wrong.

A Retirement Income Covenant

The Australian Retirement Income Covenant ; “will place a key obligation on trustees to formulate, review regularly and give effect to a retirement income strategy outlining how they plan to assist their members to balance key retirement income objectives.”

The strategy will be a strategic document developed by the trustee, outlining their plan to assist their members to achieve and balance the following objectives:

  • maximise their retirement income
  • manage risks to the sustainability and stability of their retirement income; and
  • have some flexible access to savings during retirement.

In the UK , savers have access to 25% of their pot at any time after 55 as tax-free cash. However there is little obligation on trustees to maximise retirement income on a stable and sustainable basis.

There is a strong case for the UK following Australia down this route. Requiring trustees of the fast diminishing stock of sole-occupation and multi-employer DC schemes to spell out the service they offer their members will help determine whether the scheme is providing value for members. Trustees who cannot offer answers to the questions posed by a Covenant Assessment are the trustees that the Pensions Regulator should be asking to consider their and their scheme’s future.

Why does Australia need to introduce this measure?

Despite being held up as a model for other countries, the problems facing members of Aussie Super Schemes sound remarkably like those approaching the close of their working lives in the UK. They struggle with decisions on how to spend their savings

The long-term implications of these decisions, and their complex interactions with other systems like tax, social security, aged care and housing, make it very challenging for retirees to determine an optimal retirement income strategy on their own.

And as with their UK counterparts, Australians are reluctant to take advice

Yet most people do not seek financial advice at retirement to help navigate this complexity.  Rather, in the face of this complexity, evidence shows that Australians currently follow others, disengage, or fall back on rules of thumb and defaults that are not fit‑for‑purpose

The consultation suggests that Aussie savers struggle to spend their pots (clearly as much a  problem for the Treasury as for ageing Australians.

The ‘nest egg’ framing of superannuation compounds the complexities around deciding how to manage their superannuation in retirement. Partly because they have only ever been primed to save as large a lump sum as possible, retirees struggle with the concept that superannuation is to be consumed to fund their retirement.

Because retirees struggle to develop effective retirement income strategies on their own, much of the savings accrued by members through the superannuation system are not used to provide retirement income. Rather, they remain unspent and become part of the person’s bequest when they die.  By 2060, it is projected that 1 in every 3 (Aussie) dollars paid out of the superannuation system will be a part of a bequest

All of this resonates with the UK experience of pension freedoms so far. Retirement living standards in the UK are requiring massively more than the average DC pot can bring, yet there is evidence that many DC savers are starving their lifestyle’s for fear of running out of money later on.

And of course there is the risk of doing quite the opposite and spending your savings too hard, which appears to be equally a problem

So what will these strategies look like?

The consultation document makes it clear how a strategy should be created

In effect, the strategy is a strategic document developed by the trustee that:

  • identifies and recognises the retirement income needs of the members of the fund; and
  • presents a plan to build the fund’s capacity and capability to service those needs.

The retirement income needs of members, and the plan to service those needs, may be different from fund to fund, or from cohort to cohort within a fund. There is significant flexibility for trustees to identify the particular needs of their members and develop a retirement income strategy that is suited to those particular needs.

Knowing your members

The consultation makes it clear that trustees should not be getting involved in providing financial advice individually, introducing soft defaults (such as an option from which you have to opt-out) or a “one size fits all approach”.

Instead the Trustees of a Super Scheme are expected to gather data about their membership and organize them into cohorts who can be offered support as a group

The factors used to identify cohorts of their members are at the discretion of the trustee, but could include consideration of:

  • the size of a member’s superannuation balance
  • whether a member is expected to receive a full, part- or nil-rate Age Pension at retirement
  • whether a member is partnered or single
  • whether a member owns their own home outright, owns their home with a mortgage, or is renting at retirement;
  • the age a member retires and/or starts to draw down from their superannuation.

Clearly some of this  information is not available to UK trustees (and GDPR will make it hard to find it out without member consent).

However, there are interesting thoughts here for UK policymakers to consider. This is the kind of thing, I’d like Nest Insight to be pursuing.

Balancing three objectives – (returns, risk-reduction and flexibility)

The toughest decisions for trustees look like being around trade-offs between mazimising returns, minimizing the risk of money running out and providing the freedom to take cash when needed.

Frankly, this is where I start getting concerned.  There are many good points made in the consultation, not least the recognition that on average income needs fall as people get into extreme old age, but can trustees really manage these trade offs without either financial advice , a soft default or a one size fits all approach?

It strikes me that a strategy that simply highlights the problems isn’t much of a strategy, more another guidance document that leaves members not much better off.

Even if the guidance documents are presented to different cohorts in different ways, this kind of approach still relies too much on members working out the trade-offs. Put simply, members cannot take financial decisions in four dimensions (time being the fourth).

The solutions being put forwards focus on “more products”.

I suspect that in the UK, “attractive products” will be slower to emerge and depend on a highly regulated approach to product development (see CDC regulations published earlier this week)


Does Britain need an Aussie Style Retirement Income Covenant?

My answer is “yes”. However I think that the Covenant needs to be better defined than in Australia, where the trustees are in danger of just adding to the noise with glorified decision trees.

Trustees may consider it perverse to be providing people with guidance towards pensions, but I consider trustees as perverse for running a pension plan where the pension option isn’t at least the soft default.

We have investment pathways but we have no soft option default and (other than Royal Mail) no one size fits all solution.

We should be thinking hard about what a Retirement Income Covenant could do in the UK and how it might be introduced. Put this on your shopping list Mr Opperman!

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Living longer despite everything


When I run around London, I often find myself passing the Covid wall and seeing each heart filled with the name of a loved one who has died in the current pandemic.

The Covid memorial wall is perhaps unique. Established by the bereaved themselves, without official permission, it has attracted nothing but praise. People outside London can request a dedication but many want to make the journey themselves.

At the eastern end of the wall is a plaque to the victims of Human BSE and at the western end an even simpler plaque to those who have died prematurely after contracting this virus.

The hearts are already fading and the flowers wilting in the current heat but this wall is more than a token, it directly faces Westminster and is what MPs and peers stare out on from the palace’s terrace. An awesome reminder that in life we are in death.

Living longer despite everything

Every heart tells a story, we measure the impact of this pandemic not just by “excess deaths” but by those we know who are not here. Yet we remain and in the relentless progress towards a longer life, the pandemic is but a ditch.

Thanks to Jim Hennington for this chart that reminds us that wherever you are in your life, your expectancy of continuing to live is improving relentlessly.

Our ability to stay alive is in contrast to our management of the environment in which we live and our thoughts of health now include the context in which we grow old. I will be 89 in 2050, I think about that a lot.

Our health and our planet’s health are perhaps the two great themes of this decade and are likely to dominate my later years. Those who come after us will carry both the legacy of our stewardship and the responsibility of caring for us.

What we can do, and must do right now, is ensure that we do what we can to reduce those burdens on our children , ensuring that they see continued improvements in their life expectancy and the quality of that life.

Despite everything , we are living longer . But the Covid pandemic reminds us that that is not a given.


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CDC need not be unfair to any generation – Con Keating

This blog was written before the draft CDC regulations were published. It was conceived as the first in a series of blogs examining different aspects of CDC design. It is basically unaffected by the new regulation.

The second will address the design of intergenerationally fair risk-sharing rules and their interaction with the statutory regulations in this regard.  As was to be expected the new Regulations are predicated on the application of scheme rules.

Further blogs will examine other aspects and there are many where the regulations are deeply significant.

On the risk and fairness of a uniform contribution rate and award regardless of member age

A uniform rate of pension award, say 1/40th CARE, regardless of age is a form of risk-sharing among members. It serves as glue binding members together in a common enterprise. However, it has been widely characterised and criticised as being simply a transfer of value from the young to the old. The argument here being that a young member’s contribution is invested for far longer than an older member. As we shall demonstrate this argument is flawed.

The idea that a 64-year-old should receive the same award as a 25-year-old runs counter to basic intuitions of the time value of money. The contributions of a young member are invested for far longer than those of an older active member and should accrue much higher investment returns. There are some strong views on this. For example, from one reviewer we received the following comment: “If the self-employed person is choosing where to put his retirement savings for a year, he is not going to buy CDC pension units where the price for a 30-year-old is the same as the price for a 60-year old.”

The traditional response was to accept this proposition but proceed to offer the counterargument that the young member could in time and turn expect to benefit in that same way as today’s 64-year-old. This has fallen from favour with the often-cited view that labour mobility has increased, that few of today’s 25-year-olds will be employed by the same sponsor firm or members of the same scheme in their fifties and sixties. Of course, if membership of the scheme is unaffiliated with an employer, as is the case in Australia, this counterargument once again has merit. Here, membership of a scheme would be a matter of individual choice as, for example, with the choice of bank account that one’s income from employment is paid into.

An illustrative example

Let us consider this proposition for two members of a scheme, one 24 years old and one 64 years old. The first point to note is that the younger member will expect to receive a much larger pension in absolute terms than the older member, because of wage and price inflation and increasing their longevity in the intervening 40 years. In the numerical illustration which follows, the total undiscounted pension which will be received by the younger member over their time in retirement is 2.27 times that of the older member.

Table 1 below considers a range of contribution rates for this particular set of projected pension benefits and their associated scheme contractual accrual rates (CAR). The CAR here may simply be thought of as the rate of return needed for the total contributions to the scheme to compound to the pensions projected. It also shows the contribution rate necessary to achieve payment on time and in full for each of the 24-year-old and the 64-year-old.

Table 1 – Contribution rates and CARs

contribution 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 28.60%
64-Y-O 8.31% 15.70% 20.83% 24.38% 27.07% 29.17% 30.94% 28.60%
24-Y-0 0.03% 1.45% 6.25% 13.43% 21.90% 31.25% 41.08% 28.60%
Mean CAR 17.28% 8.61% 5.67% 4.19% 3.27% 2.63% 2.13% 2.79%


We can see immediately that there are transfers from the young to the old at contribution rates up to 25% of salary. However,  at higher contribution rates and lower CARs, there are transfers from the old to the young. In other words, the uniform rate of award serves as insurance for the younger member against falling rates of investment return. For these particular benefits projections, the point of no transfer between the old and the young is a CAR or investment return of 2.79% or equivalently a contribution rate of 28.6% of salary.

As we move to higher rates of wage and price inflation then this breakeven point of no transfer rises; if we move from the 2% of the earlier projections to 4%, then the breakeven rises to around 5%. In other words, for the younger member, the uniform rate of award also serves as an inflation hedge.

The breakeven point

It is also worth noting that the breakeven is the special case of contributions being the same proportion of salary for all members. This is often presented as a different approach, when in fact it is a subset of the wider approach. If we adopt this approach of using the same contribution rate as the scheme average for all members (which makes member pots at retirement age-related) we are abandoning the collective insurance offered.

It is also clear that the use of inflation adjustments as a risk control mechanism will tend to disadvantage the young relative to the old actives versus pensioners by altering this breakeven or insurance trigger point.

For completeness, we should state that if pensions are identical for all members in monetary amounts, that there are no increases in longevity or wage or price inflation, the breakeven rate and insurance aspect do not exist.

What about fairness?

This brings us to the question as to whether the cost of this insurance is fair to all members. For CDC schemes? This a matter of estimating how likely it is that investment returns will fall below the breakeven CAR and the magnitude of the transfers resulting.

Fairness among members of the terms of initial award and then the maintenance of fairness among members within the scheme are key to ensuring intergenerational sustainability. If a scheme is fair among members, then it is fair also to new members and with that, is intergenerationally fair.

The younger member faces  far greater uncertainty and risk than the older member. This is uncertainty is its broadest sense and risk is simply the quantifiable subset of that (and a very small part of it at that). It is present in all of the variables that contribute to the projections and ultimate pension amounts and their duration once awarded. In CDC schemes, this risk is assumed by the pension scheme as a question of intent though not guarantee.

If we consider just the investment risk faced by the younger member arising from this mismatch of term, it is 1.7 times that of the older member. If we now consider the 15% contribution case above with its 5.67% mean CAR and introduce an asset portfolio having a volatility of 15%, this investment risk alone has a value of 2.13% pa to the younger member. The CAR of the younger member is 3.98%, which means that the member is forgoing 1.69% relative to the mean, but that is significantly below the investment cost they would face from volatility if standing alone. The younger member’s position is much improved relative to individual DC. We are accustomed in collective arrangements to cross-sectional risk pooling and its benefits; this award arrangement extends this to the time dimension.

Of course, there are some younger individuals who will prefer to see their contributions and the resultant benefits related to the time invested. They are simply saying that they prefer the traditional DC arrangement where they will stand alone at retirement faced with what has been described as the ‘hardest problem in finance’, uncertain beforehand as to the value of their pot at retirement and if or how to convert that to income in retirement. Given the uncertainties we have described, there is little that they can do to resolve these difficulties in advance.

The fact is that all outcomes are highly uncertain and particularly so for younger members. However, this arrangement constructed amidst all this uncertainty, clearly conforms with the Rawlsian concept of fairness[i] as arrangements which are constructed and accepted behind a “Veil of Ignorance”. As such, a willingness to be part of the scheme is due to the likelihood of a better outcome for a member. While perhaps not costless, in the sense that they may have to give something up, it is much more secure than going it alone, as what is forgone is uncertain anyway. Member motivation is therefore simply that they want to do well for themselves and are prepared to conform to reasonable terms of cooperation, provided others do as well.


[i] John Rawls (1999) A Theory of Justice: Revised Edition, Cambridge, MA: Harvard University Press

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CDC is upon us – the return of the “in-house” pension is near


I started writing about the need for a new kind of pension soon after the financial crash in 2008. With Quantitative Easing driving down interest rates, down came annuity rates too. Although annuities were improving in value with the adoption of medical underwriting, they were no longer a mass market product, acceptable to the body of retirement savers who were reaching their sixties. The 2015 reforms effectively released pension pots as capital which suited the financial planning industry but did not help people who wanted a wage in retirement. Although CDC as a concept was introduced more or less at the same time, it was not thought through by Steve Webb and had to await a second coming in the 2021 Pension Schemes Act.

Yesterday saw what the Pensions Minister calls a “job half done”, the introduction of legislation that allows sole employers (and groups of connected employers) to operate a CDC scheme. The other half of the job is to allow employers to outsource their retirees to disconnected master trusts capable of paying “in-house pensions” to anyone with a pot to transfer.

The pension industry continues to consider CDC a “re-risking” for employers and – for those who want to take on the payment of scheme pensions, it is.

But for most employers , CDC offers a default option for employees who do not want to choose their own investment pathway and who do want a pension from their pension pot.

What future for pathways and advice?

For the mass market , neither financial advice nor the newly created investment pathways appear to be the answer. The financial advisory market represents 10-15% of those in retirement with the platforms of  SJP, Hargreaves Lansdowne and AJ Bell dominating the solutions for those who have the will and money to be advised or the financial self-confidence to invest for themselves.

There is much to be said for managing your own SIPP account or employing an adviser to do so and I look forward to getting a refresher on this from Dunstan Thomas on Thursday. You may want to use your lunch break this way too!

But this is a session for people who already know about retirement pathways, it will be full of people like me, the known knowns.

Reaching out to the unknown unknowns

The master trusts, especially those that took on savers new to the game through auto-enrolment, are full of members who we know nothing about and who know nothing about pensions, except that pensions provide an income in retirement.

They are ironically the people who are financially excluded from pensions, typically being outside the defined benefit pension system and reliant on savings, houses , the state pension and benefits for their retirement.

Putting aside the difficulties for those on low income – with means tested pension and universal credits (pace Gareth Morgan), these are people for whom CDC in-house pensions are designed for. Even if they do no more than provide a top-up to state benefits, the CDC pension is likely to be a lasting solution to the problem of turning a pot into a wage for life.

If pensions has a social responsibility, it is here. Whether the pot is £10,000 or £1,000,000, a CDC pension is a responsible alternative to an investment pathway and we ought to be thinking of them as the future of retirement income.

The culmination of a two decades work

By the time CDC pensions come on stream , we will be nearly 20 years on from the point at which auto-enrolment was conceived and well over 10 years from the inception of employers staging. We will have seen 8 or 9 years of pension freedoms and we will be beginning to see the emergence of pension dashboards. The investment pathways will be bedded in and we will be seeing schemes and pots consolidating at pace.

We will be looking at a mixed benefit pension system with a combination of  DB pensions and DC pots supporting a stronger state pension. Hatton should be proud, the pension system has  progressed well.

The creation of a CDC framework into which we can pour our pension pots in return for tax free cash and a wage in retirement is something I look forward to.

It is not generally recognized as part of our future furniture , but I am convinced that it will happen and that it will happen primarily because there is commercial reason for master trusts to make it happen.

For a second time in two decades (the other being auto-enrolment), policy and commercial interests are aligned. CDC will be our second pensions revolution.

A better pathway for many

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CDC – the DWP seem to have got the message.

The consultation on the regulation of CDC schemes begins today and ends on August 30th,  it is a summer holiday job and timed to get a little attention as possible.

As a statement of intent, Guy Opperman’s foreword is different in tone and language to what has come before.

One of the benefits of offering CDC benefits is that members do not have to make once and done decisions about what to do with their pension pot as by default a CDC scheme will deliver a pension in-house. CDC schemes also have greater potential than individual defined contribution schemes to invest in illiquid assets such as infrastructure.

The idea of a “pension in house” is certainty not one I have heard before. It is a return to the concept of the “scheme pension” with which anyone associated with Defined Benefit arrangements is familiar. It is most definitely not an investment pathway and suggests that CDC scheme will offer a “firth way to the annuity/drawdown/roll-up/cash-out conundrum.

It’s good to see Opperman articulating what has always been clear, that CDC multi-employer schemes are the logical extension of the consolidation papers of recent months , offering the opportunity of better outcomes though investment in a wider range of assets held patiently over time.

And while the immediate focus is  on Royal Mail and the opportunities for single employer schemes, the foreword has a much wider vision than has previously been articulated.

Many want to see non-connected multi-employer CDC schemes, Master Trusts and decumulation only CDC schemes. That interest is very welcome. I have no doubt collective provision can benefit millions of pension scheme members when its full potential is realised.

We will have to guess what a non-connected multi employer scheme might be (if any different from a Master Trust) and speculate about how a decumulation only CDC scheme might work without an employer in place at all.

But the statement that these types of scheme are in future regulatory scope is very welcome indeed. We cannot rely on the investment pathways and the advisory framework to sort out the problems people have at retirement with their pensions.

What’s being consulted on?

The regulations are clearly based on the master trust assurance framework.

The DWP’s  questions focus on the following  areas:

i. Scope and application
ii. Application process
iii. Authorisation criteria
iv. Valuation and benefit adjustment
v. On-going supervision framework
vi. Publication and disclosure of information
vii. Member protection and transfers
viii. Consequential changes

I’ll summarize what’s going on in some simplified analysis that is likely to change as understanding becomes clearer.


We look forward to opening up CMP provision to a broader range of models in the near future when aspiring market participants have further developed their product designs.

There is in the phrase “market participants”, a hint of providing CDC as a commercial activity , reinforced by it being considered a “product“, designed by those aspiring to participate. This is a long way from previous talk CDC as an employee benefit, this is about attracting funds to CDC funders.

Connected employers

Master trusts (such as USS , the Railways Pension Scheme and even the FCA’s are within immediate regulatory scope, schemes which are open  to any employer – aren’t (yet).

Authorization criteria

Each section of a CDC offering which offers a different accrual rate will need to be authorised as a separate scheme and pay separate scheme charges. This looks like an incentive to keep things simple.

The Application Process

The intent is to put the onus on the applicant to demonstrate how the scheme meets the authorisation criteria. The criteria are laid out in Chapter 3 of the consultation and are mainly related to the scheme being run by fit and proper way by fit and proper people,

Regulatory Fees

The cost of setting up a CDC scheme will be between £50,000 and £120,000 but discounts will apply where a scheme is being set up within an authorised scheme where the charge will be levied on a time-cost basis..


Viability is the buzz-phrase of this consultation. It introduces two new documents

the viability report and viability certificate produced by the scheme’s trustees and scheme actuary respectively

Viability relates to the scheme’s ability to deliver its benefit “aspirations”  ( a word that returns to the fold after being subbed by “ambition).

The rules around viability are intended to protect members from approaches to benefit calculations and adjustment which may lead to intergenerational unfairness.

A new role for actuaries

Whilst the onus is on the scheme’s trustees to prepare the viability report, the involvement of the scheme actuary in certification recognises that actuaries, rather than trustees, are best placed to consider actuarial matters and to advise on how these impact the soundness of the scheme at any particular point in time.

This looks a powerful appointment for an actuary who is both the validator of viability and potentially the whistle-blower when a scheme becomes unviable. This puts the actuary and trustee in quite separate boxes and could lead to some interesting questions on conflicts of interest.

The  tests of “soundness”

Along with “viability”, “soundness” is a key word and is will be assessed through gateway tests including the capacity of a scheme to pay inflation linked pensions using CPI as the measure.

As well as gateway tests there will be tests in running to ensure that the scheme remains sound and viable and these will include value for money testing.

Failure to meet these tests will create triggering events which could require action such as a decrease in benefit levels or even scheme wind-up.

Member disclosures

The bulk of the regulations concern themselves with the administration and communication of the scheme and in particular with the disclosure of the scheme’s capacity to change the levels of benefit paid

We are therefore suggesting amendments to the Disclosure Regulations to ensure that appropriate disclosure requirements are fit for purpose and meet the unique design of a CMP  (collective money purchase or CDC)scheme. This includes the collective nature of CMP schemes and the important key message that CMP benefits can fluctuate, reiterating this at key points in the member journey (at joining, on an on-going annual basis, approaching retirement and to pensioner members with benefit in payment).

No doubt these disclosures will never be strong enough for those who don’t believe any benefit should be offered on a discretionary basis. However , the focus in the consultation on getting the management of expectations right is welcome.

Charge cap

CDC schemes will be mono-fund and the existing rules on the charge cap will apply. Specific reference is made of the new rules around performance fees and de minims limits for combination charges.

Protecting employers from funding a DB promise

The regulations should give employers comfort that they will not be held to the CDC pension promise if the level of benefits decreases (the problem that occurred for KPMG when it’s target DC plan developed a funding deficit).

 We have always been clear that CMP benefits should be subject to the same subsisting rights protections as other types of pension benefits as far as that is appropriate. For example, section 24 of the 2021 Act amended sections 67 and 67A of the Pensions Act 1995 to prohibit the transformation of defined benefits into CMP benefits. The amendments also imposed a requirement for member consent to be obtained where there is a transformation of CMP benefits to other types of money purchase benefits and vice versa. However, CMP benefits are unique in that the level of benefits is adjusted annually in line with the provisions at sections 18-23 of the 2021 Act, regulations 17 to 20 and the scheme rules. The amendment to the Occupational Pension Schemes (Modification of Schemes) Regulations 2006 in Annex D provides clarity that such adjustments, if made in compliance with those provisions, are not in conflict with the subsisting rights provisions.

I’d be particularly interested in the comments of lawyers on the optionality the DWP seem to be pointing towards and thank Philip Bennett for explaining the inclusion of this in the consultation. Philip’s response to the earlier CDC consultation seems to have been listened to.



Transfers in will be allowed at a trustee’s discretion and will buy future rights to the scheme pension, Transfer outs will be allowed for those not receiving a pension, it is unclear whether transfer rights will be allowed for those who are receiving a pension. In a rare show of emotion the paper warns

The primary purpose of a CMP scheme is to provide an income in retirement until death, not to provide a cash sum.

In summary

The draft regulations  and the consultation that accompanies them are another step on the way to a full CDC regime in the UK. Infact , other than the publication of the Pension Schemes Act, this is the biggest step yet.

There will follow secondary regulations early next year resulting from the DWP’s consultation on what commercial master trust providers want to do with CDC.

From there we may see further applications for CDC but right now we can feel comforted that something is at last being done to provide the nation with a wage in retirement solution to the retirement savings problem.

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Freedom – at what cost?

Rousseau’s famous phrase “man is born free but everywhere is in chains”, will be to the front of many people’s minds today. The true liberal reaction to the pandemic is herd immunity and early blogs from the Covid actuaries explored what that might look like in terms of infectivity , hospitalizations and deaths.

In early April 2020, Joseph Lu wrote for the Covid Actuaries

With a high proportion of infected people displaying little or no symptoms, the lack of a blood test to confirm how many people are indeed infected is problematic to modelling.

For example, without the number of people infected, we would not know if the proportion of infected at risk of severe disease is 1 in 10, 100 or 1,000. Lourenco and colleagues (2020) showed that this uncertainty could lead to a wide range of estimates for the percentage of people infected and immune in the UK, ranging from 5% to 70% by around mid-March.

This has an important policy implication. If the population is, say 70% infected and immune, no stringent measure is needed because we have achieved herd immunity. If it is only 5% immune, then the UK has challenging days ahead and the lockdown is essential. 

15 months later we remain divided as to whether we have got to a stage of herd immunity and whether further lockdown is necessary.

If not now-when?

The question is being asked the world over. If not now- for the Tokyo Olympics – when. The surreal spectacle of a huge air balloon shaped as a human head, now hovers over the city , suggesting that the success of the games is down to our cerebral reaction to what we see.

Over the weekend, I went out twice on Lady Lucy, most of the people who came on the boar had had Covid , all of them had had two jabs, no-one wore face masks, except where required and life seemed pretty normal.

We were outside and the river and locks were full of those like us.

But many people, including one couple who cancelled their cruise,  spent the weekend in isolation as a result of being pinged. We have at last found a way to warn each other that we have been in the company of those infected, precisely when that no longer seems so dangerous. The  danger of scanning a QR code is now obvious, your future plans are dependent on the company you keep.

The idea that you should voluntarily submit yourself to “chains” is an odd way to celebrate freedom. If my experience of the weekend is common, most of us will find freedom by celebrating this amazing country and its natural beauty

Slipper launches in Freebody’s yard

One elderly boater dived from the roof of my boat into the pool outside George Clooney’s house and declared that this was because having had a stroke , lost most of his eyesight and having been hospitalized by Covid, he needed to stay free of fear.

We pulled him out with a sling and a rope ladder and he delighted in his feat of bravura. I suspect that he is not the only 75 year old who feels and behaves this way.

As his wife told me “this is his way of keeping going“.

Our way of keeping going

I know that many people have lost momentum in their lives. It is as if they have furloughed everything and now contemplate a return to freedom as a challenge they do not want to take.

I hear these people talking on the radio in all night shows which have become a place they can share their inhibitions.

We must allow them  the freedom to remain in isolation and not impose freedom on them. The challenge facing our society is to keep going and be tolerant of those who have withdrawn. We must be kind to each other.

The trauma of the pandemic for many people has not abated and is made worse by the sight of millions of Britains who don’t feel traumatized. The inscrutable Japanese head looks down on us all without emotion as if to say “how you go forward is a conscious decision”.  

I worry that many people are not mentally ready to move forward and are struggling to stay still. We need to be very careful how we go, for freedom is being won at a cost.


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How well does Linked in’s fraud protection work?

Grant Eldred is the Chief People Officer of the world’s largest law firm – Clifford Chance. I worked with him at the start of his career, he is one of the most professional people I have ever met.

Do you think he would be sending this message?


Grant Eldred 12:08 PM
Hi there,

I hope this message finds you well! We have a confidential project from Clifford Chance which we are presently taking on. We are 5 in team and It’s still in initial stages of follow up.

From your profile, We see your competences could be useful. kindly access this proposal via the extension below and advise.


We look forward to your prompt and…. (you can guess the rest)

Well I reported this nonsense as a phishing attack and suggested to Linked in that the account had been hacked. The link was live on the message and presumably had been sent to Grant’s connections (of which I was one).

Within 30 minutes of  my report, Linked in had sent me this message.

This message was “not what I wanted to see”!

I wrote back to Linked in

This account looks like it has been hacked and is being used for phishing – I have reported it to you and you see nothing wrong – I think you should be more vigorous

I got through to Grant and he confirmed that his account had been hacked and that linked in were in the process of closing it down.

And only two hours after Linked in told me they saw nothing wrong with Grant’s hacked messaging, the account did come down.

But how many people clicked the link? How easy would it have been for me to click the link having been told by Linked in that it did not violate any of its Professional Community Policies.

The Linked In Trust and Safety Team have been found wanting. How accountable are they?

If you want to change the standards of protection, why don’t you send  Linkedin customer support the link to this blog?

After all, if it can happen to the Chief People Officer of Clifford Chance, it could happen to you.

Case closed?

Linked in are good at these mails and they do at least give the impression that someone will look into matters (more than you get from Action Fraud). But the reality is that mails from a hacked account went out and no warning has been sent to those who received them. People will have clicked the link and may have suffered consequences.

Surely Linked in can and should do more where cases like this are brought to their attention.

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The proof of SJP’s self-confidence is in customer outcomes.

From Boring Money’s “SJP – value of financial advice”.

My friend Robin Powell who speaks for the evidence based investor has republished my comments on SJP’s Value Assessment (it’s nice to see my words properly set). I agree with Robin’s title,


But maybe for different reasons!

Tim Simpson offers an interesting perspective as an SJP customer

SJP talk to their happy customers – should they talk to us all? last year, the first I knew of it was when someone in Citywire recommended your commentary for the previous Assessment. I then checked my SJP Client login: nothing. I had to request it. Yet again this year I still have had no notice of it, so presumably I will have to request it again unless it’s just on their website for anyone to see. Interesting that all their weekly notices that are circulated never mention these or similar publications available. I assume, to use an SJP word, that would be a ‘distraction’. Yes the Contact does quickly reply and is reasonably helpful but, nowadays, they aren’t even SJP staff.

So, in answer to your question, unless your investing over eight figures, I doubt that it will ever be likely..

Actually, the report is on SJP’s website, you can access it here, but Tim’s comment opens up an important question.

“Who owns the client relationship, the platform or the partner?”

As platform manager, SJP reports to the FCA and is responsible for reporting to  client/customers such as Tim. But in reality, the relationship is primarily with the SJP partner/adviser who is self-employed and effectively a franchisee.

This most delicate balance has been preserved over five decades since Mark Weinberg set up independent distribution at Abbey Life and then Hambro Life (Allied Dunbar). Owning your own distribution is nothing new, nor are the issues it brings.

SJP’s partners are of course restricted in the products they advise on and responsible to SJP as well as their customers for the advice they give.

SJP have argued to me that the partner is responsible for distributing the Value Assessment but that many partners do indeed see such formal documents as a distraction to their clients.

I would hope that SJP can break down this perception over time. If Value Assessments are to be worthwhile, they need to be high-class documents that tell the truth and that is what the SJP 2021 Value Assessment is. SJP Partners should be proud of their value assessment and Tim should not be having to ask where to find it (psst…here)

I would like it to be talking to a wider public than just its internal stakeholders, as SJP is the largest financial adviser in the land. It has over 4000 regulated advisers meaning that more than one in five advisers are working for them. It is the single largest contributor to FSCS, it pumps £30m a year into training and has its own academy. It is the breeding ground for the next generation of financial advisers. It should talk for financial advisers.

Unfortunately, it doesn’t. Nor does it talk of its own experience to a wider public. Bearing in mind it owns data on the behavior of around half a million  Brits over the age of 55, SJP has the capacity to be authoritative on how the mass-affluent are arranging their financial affairs in later life. If the average drawdown on our Sipps is 8% pa, SJP may be able to show us that with advice, we can do better!

The value that is sunk into paying for advice, comes from the funds people own and the fees that many complain of, are used in part to ensure customers do not overpay tax, do not invest inappropriately for their needs and that cash flow is managed so money is in the right place at the right time for the right people.

I was educated as a financial adviser in the 1980s to focus on adding value this way and it seems that people value financial advice delivered by real people as much today as they did when I worked at Hambros and Allied Dunbar.

Where I differ from Robin is that I am not opposed to the advisory regime or indeed the fees charged by SJP partners if they can be seen to be value for the money they cost. What SJP appear to be defensive about is whether all the money that flows to partners, platform management  and shareholders, is delivering value in terms of outcomes.

Bearing in mind the encomiums from those who pay the fees, it could be argued that the value is in the sense of financial security that the client/partner relationship brings. This is well brought out in this study by Boring Money. But the b-side to the Holly’s hit single is the financial proof in the pudding. Are the Partner’s clients and SJP’s customers getting good outcomes?

For all the assessment of value, there is very little hard data in what SJP produce to show that the platform and funds are delivering what Partners promise.  And its this that justifies my and Robin’s criticism of SJP falling short. It is not enough to deliver financial well-being today, you have to deliver on expectations tomorrow, expectations that you as an adviser and platform manager have to set.

There is nothing to say that SJP aren’t delivering on these expectation, but there is nothing to say that they are. SJP in the past have told people like me that this is none of our business and that is right, I am not a customer or client and my status as a “commentator” is based entirely on this blog. Nonetheless I will keep asking the question, how are your customers doing to SJP because I can’t ask Partners how their clients are doing.

And if we don’t know how half a million of the nation’s affluent oldies are doing, then it’s pretty hard to judge what can be done for the rest of the nation.

My call is to the management of SJP and to its Partners to be more trusting with the wider public, to get on the front foot and share information that is important for us to know. Principally I think we should know about the outcomes of saving within the SJP Sipp and about how the Sipps are being used to provide income or capital in later life or on death.

This high level information, presented in ways that make sense to the financial services industry and the general public, would be the ultimate Value Assessment and proof that SJP are as confident in delivering on their promises as I believe they are.

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Why our pensions need a benchmark of everyone!

This post’s about getting people engaged with their pensions. It is quite technical but I’ve tried to keep it in a language that keeps you interested. I am a firm believer that people will be interested in pensions if you give them information that is clear vivid and real. We went into the FCA sandbox last year to see how ordinary people reacted to being shown how their pension did compared to everyone else’s. People were super engaged once we started giving their pots performance scores!

But to give a pension pot a performance score, we needed to do something that was very innovative and though the scores are simple, getting there wasn’t. This is about our quest for the benchmark of everything and are ongoing quest for the benchmark of everyone.

The benchmark of everything

The FT’s   talks about the quest for a holy grail – a benchmark of everything. He writes of benchmark providers seeking to capture the performance of the entire market, from bonds and equities to private assets.

People familiar with DC pensions will know that the asset classes that count as “everything” are increasing what our DC pensions are invested in.

So why don’t we turn this around and ask whether we mightn’t find the benchmark return for everything is the average return achieved by a DC saver.

The conventional view of the average return achieved by a DC saver is “net performance”. This is what the DWP want trustees to measure to compare schemes and decide whether to consolidate or be consolidated.

But “net performance” is not the same as the  rates of return that individual savers get. That’s partly because measuring multi-asset performance that changes over time is so damned hard, but also because the return that people get is impacted by all kinds of external risks and rewards. These can come from the sequencing of contributions , the transitioning from fund to fund and the vagaries of a single swinging price.

I’m sorry to say that – despite the best efforts of the performance measurement industry, ordinary savers simply don’t get net performance. They get reporting that tells them how they have done, not how others think they’ve done.

And to know how you’ve done, you need to have something to compare – let’s call this the “benchmark of everyone”.

The benchmark of everyone is not a dream.

The simplest way of telling people how they have done is to give them the internal rate of return based on their contributions and the current value of their pot. You could express this as a percentage – “your IRR is 7%” but you’d get a question – “is that good?”

You might be able to help a few people by comparing that return with inflation over the period or perhaps bank interest rates, but most people will have in the back of their mind “how have I done compared with other people?”

Most people actually want to know what everybody else has done which is why we need a “benchmark of everyone” and this could be achieved if we had everybody’s internal rates of return. Actually we do have around 2.5 million individual rates of return here at AgeWage but we aren’t yet confident that we can create an index of everyone’s returns. However, we think that with co-operation we could get there.

And if we created an index that contained the data of tens of millions of savers , we could see how everyone has done going back 40 or 50 years.

From there it is just a short step to compare how someone’s done compared to everybody else.

So where are we today?

Three years ago I went looking for a benchmark of everyone in workplace pensions and couldn’t find one. Nobody had tried to create the price-track of the average pension managed fund used for savers over the past 40-50 years and we were told this would be impossible.

But one benchmark provider agreed to take up the challenge. Morningstar agreed to set up a UK Pension Index that provided a daily index of prices of various equity and bond markets going back 40 years. We worked with Morningstar looking at what people had been invested in and saw that this changed over the years. Of course if you are trying to produce an index of everything it will miss things out and it won’t be as inclusive as the index of everyone.

But it will do for now!

Because what the Morningstar UK index allows us to do is to turn those Internal Rates of Return into AgeWage scores – which tell people how they’ve done compared to everybody else.

And when people get that information – they get engaged – and from there a lot of good can happen.


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