L&G; a smooth operator with an open IGC


legalandgeneral_logo

For an Independent Governance Committee to work, there must be a means for it to interact with its membership in a meaningful way. L&G – uniquely to my knowledge – offer policyholders of their workplace pension the opportunity to come to their offices and quiz the IGC Committee. Yesterday was the day, I saw the window and jumped right through!

As well as convenor Richard Atkins (who will be sorely missed), the committee that turned up were Dermot Courtier (chair), Steve Carrodus, Rachel Brougham, Daniel Godfrey and Ali Toutounchi.  Thanks!

This is an impressive turn-out and it was complemented by talks from a number of senior people from Legal and General. It was entertaining, interesting and thought provoking but best of all, it gave people who are interested in their L&G workplace pension , a chance to share views. Mine is my most valuable liquid asset and I certainly had a chance to ask my questions!


What’s good at L&G

There’s a lot to like. The introduction of the Future World fund this year (the one used in the HSBC DC default) is good news. IMO the fund could currently be overpriced (at twice the cost of their bog-standard global equity product). But we’ve been seeing clients choosing it as the default accumulation fund and 50% of my money is now managed with the various tilts and screens that distinguishes it.

We heard from the Chair about various initiatives from the IGC to hold L&G’s feet to the fire on admin, the cost of fund transactions, member communications (Dermot’s pet subject) and on default management. I was pleased to hear that action is being taken to help employers with adviser designed defaults whose advisers have “gone away”, we see quite a lot of stranded defaults in our governance work at First Actuarial and we’d like to see insurers take responsibility for them. Default investment options need to adapt to changing times and times are changing.

LGIM are doing much good on corporate governance, we heard case histories of how they’ve engaged with companies like SNAP and help exclude them from indices for governance failings. We saw diversity in action as speakers came at us with a diversity of ideas and intelligence that really engaged the audience. This is an investment organisation at the top of the class.


What’s not so good

It was worrying that, despite my meeting earlier in the year where I told them this, the IGC still don’t get that the ITM Ease and PensionSync links are really not working as they should. Employers have problems with ITM Ease and the PensionSync link is only available through a few payroll software suppliers (Star, Xero, QTAC and one or two others). L&G need to do something to raise its game re small employers. It should have a clear strategy which helps advisers place business with it on a structured basis, what is happening now is a mess that needs cleaning up. I will be following up on this with the IGC.

The problems with closing one major operational centre- Kingswood – should not be used as an excuse for L&G. The administrative platform is in need of a refresh at the very least. I have spoken to L&G about this and know there are plans, I was sorry not to get mention of these plans from L&G directly.

L&G are valiantly trying to reach out to their customers, but they clearly aren’t getting all the right people to their events. Where were Liz Robbins, Daniel Harvey and the FSB yesterday? There was insufficient input yesterday from the SME segment of AE clients.

Also in need of some investment is the member portal which looks and feels 20th century. I know that L&G are doing work on this but the Chair seemed to gloss over areas where even L&G know they are behind the times.

And as for the IGC itself, it needs some diversity. We had two good talks on corporate governance from Sacha Sadan and Dame Helena Morrissey which raised some questions that I wanted answering. Helena talked around Andy Haldane’s question;

You can hire two but have three candidates for a job, two get 80% of your questions right, one gets 20%, why would you hire the one who scores 20%?

Andy’s (and Helen’s) answer was that if the person who knew little but what little he/she knew complimented what the other two both knew, you should hire the 20% er, and leave one of the 80% ers on the bench.

From what I can see, the entire IGC is made up of 80% ers. There were plenty of 20% ers in the audience, some highly articulate and clearly IGC board material.

L&G are getting really weak at knowing small employers, they are focussing on their big trophy clients and have a big trophy client chair, I urge them to let the IGC get itself a rep who is both a member and working for a smaller company. We don’t need L&G’s workplace pension to become another exclusive club like BlackRock’s, Fidelity’s and Zurich’s.


What of the future?

I’d urge L&G and its IGC to read yesterday’s blog about guided pathways. Most members of L&G’s workplace pensions have little idea how their plans can be used to provide them with retirement income. I say this as a member of a group plan with 300 pension-savvy members but as someone who speaks with ordinary people quite a lot.

At Tata Steel, there is an L&G plan and an Aviva plan and they are simply not being considered by members for transfer purposes. If you read Brian Gannon’s excellent comments on the blog, you’ll see that IFAs are simply not connecting with these excellent products (and why). Many L&G GPPs sit alongside DB plans that are shedding members at a fast rate, some of these members should be in SIPPs and some could do with the low-cost default management offered by workplace plans.

L&G need to wake up to the needs of ordinary people who want to manage their own drawdown , they should be looking at NEST’s suggestions for guided pathways, which – in the absence of collective solutions- are the next best thing.

The IGCs should be recognising that many people (like me) in workplace pensions are in need of default disinvestment options. So far, product development in this space has been weak and L&G can and should do more to hang on to its money – not through lock-ins but through positive incentives to stay.

If L&G don’t do this, people like me with SIPP off!


Why I can’t I write this kind of blog elsewhere?

I would like to provide my feedback to the trustees and IGCs of other workplace pension operators. I don’t think many of them want it! There are a number of exceptions, I think of NEST , NOW, Aviva, Salvus, Blue Sky, Smart and People’s Pension but I also think of the many insurers and master-trust operators who are busy spending money on benchmarking exercises and missing the chance to talk to payroll operators, the owners of small businesses and the IFAs and accountants who advise them.

I fear for IGCs and for Master Trustees, they are all too often collections of people who have similar interests, similar views and have similar blind spots. The worry is they end up becoming a club and a cost centre, rather than an open community giving value.

I can’t write this blog for other workplace pension operators because L&G is the only organisation that runs the kind of open forum that gives me this chance. If you enjoyed reading this and want me to do more work in this sector, contact your IGC of trustee chair right now and ask them why they aren’t doing more of this kind of thing!

 

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Why are workplace pensions excluded from transfer advice?


Gavin p.jpg

Gavin Perera-Betts

NEST gets us thinking

Gavin Perera-Betts work for NEST, he’s the chief customer officer – the person charged with helping people get the most out of their savings and he’s the author of NEST’s recent response  to the Government’s Select Committee for Work and Pensions (Frank Field’s committee).

Reading about this response, I’m struck by what a difference it would make to BSPS members wishing to take their CETVs, if there were “guided pathways” for them to follow. I don’t think pathway is the right term – it has the wrong medical connotations, but it does at least highlight the need for solutions that serve members till death do them part.

NEST warns that a major mis-selling scandal is likely to hit millions of retirees unless default decumulation options are set up.

NEST says providing advice and guidance alone would not meet the needs of millions of savers approaching and entering retirement.

It wants pre-set retirement options which meet high minimum governance levels to be set up by pension schemes – helping members get the most out of their savings for life.

NEST points out members face multiple risks including overpayment of tax, being scammed, facing higher overall costs and spending too much (or too little) in retirement.

Here’s what Gavin actually has to say

“We don’t need to look too far for the answer. Auto-enrolment has worked extremely well and can be a model for where to go from here. No one is tied in, savers are free to make their own choices, but most of the hard work is done for them. We think that’s what’s needed in retirement too”.

Qualifying workplace pension schemes, which have a fiduciary duty to their members, should be expected to offer a straight-through solution from saving through to taking an income, so anyone who doesn’t want to shop around doesn’t end up worse off.

“We want strong default options in place to complement a thriving and competitive advice market. We believe that’s the way to avoid the next pensions mis-selling scandal and give millions of savers peace of mind in old age.”

NEST says that  qualifying workplace schemes should be compelled to offer a guided pathway for those who remain disengaged or just want a trusted source to do it for them.


Right Solution – wrong problem

I agree with all of this, but NEST’s solution is designed to meet its savers needs in a decade’s time. In the meantime, hundreds of thousands of savers will be looking for a home for the transfers they are taking from occupational DB schemes. As this blog points out, they have no guided pathway, only an array of products about which they know very little .

The British Steel Pension Scheme has been succeeded for its current employees by a new DC arrangement which could- in theory – provide the guided pathways Gavin is talking about. I have met a number of current TATA employers – none of whom had considered transferring into their TATA workplace pension. I think this might be a good option.

But it would only good for the relatively small number of current TATA employees eligible for membership. The majority of BSPS deferred members are not eligible for the TATA DC scheme but are eligible for the kind of workplace pension scheme that Gavin is talking about.

But in all the conversations I have had about transfers, both online and face to face, I have not heard mention of these new workplace pensions – once!


Why workplace pensions aren’t being used for transfers.

There are two reasons

  1. Workplace pensions have their eyes set on receiving auto-enrolled contributions. They are managing small pots for the future, they have not prepared themselves for helping people spend their pension pots today. They are ill-equipped to deal with let alone compete for transfer business.
  2. The people advising BSPS members (and many others) about how to spend their pots are looking everywhere but workplace pensions. They may have interest in managing the money themselves, they may wish to retain advisory rights over the money or they may simply be unaware of the workplace pension retirement option.

But the average cost of managing a pot in a workplace pension is around 0.5% of funds, typically half the cost of managing money in the self-invested personal pensions. This matters when you have a pot which is on average worth £350,000.

Workplace pensions are set up to help people who may not have advisers and offer those who want self-sufficiency, options to manage their investments independently. Non-advised options may be scary, but they are the alternative to paying ongoing advisory fees.

Both from a cost and value perspective, workplace pensions should be the natural home for much of the money that is flowing out of DB schemes. NEST is now able to receive transfers in as are all the other qualifying workplace pensions. There is still time to construct the guided pathways Gavin is talking about in advance of most transferors starting to spend their pots.

There should be a clear alternative to the advised SIPP and it should be on the menu of choices available to anyone considering transferring out of a DB plan.


Food for thought for the FCA

Just how many of the people advised to take a transfer from BSPS, have discussed their current workplace pension (including the new  TATA DC arrangement) – with their adviser?

More widely, what are the IGCs of insurance companies offering workplace pension products doing to promote workplace solutions against individual self-invested plans (often offered by their own insurer)?

What are the trustees of occupational pension plans (including master trusts like NEST), doing to promote themselves as homes for these substantial sums of money arriving from CETVs?

At an advisory level, can advisers – as they had to in the days of RU64 , demonstrating that independently sourced personal pension solutions, beat transfers in to lower-cost occupational and group personal pension arrangements (available to their clients)?

 

Posted in advice gap, BSPS, pensions | Tagged , , , , , , , | 13 Comments

“Transparency” needs to do some work.


transparency10

I worry the work on transparency is hypothetical – that it lacks practical application – that it has no immediate value to the consumer. But then I think of the conversations I’ve been having with consumers – these past four weeks – I get it.

I will begin quoting advisers debating what the Prufund where many BSPS members are investing their transfer values.

Prufund 1

While advisers debate exactly what Prufund is – and what it can reasonably be expected to deliver – here is another discussion about what BSPS members are actually being told.

Prufund 2

There are already many former BSPS members who have confirmation they are invested in insurance funds. I am seriously concerned about this.


Prufund

I know a little about Prufund. What I know I have from the Pru IGC chair- Laurence Churchill, to whom I will send a link to this blog. The point of the fund is to provide stability to people who want their long-term investment returns linked to the stock- market and not just cash or gilts. It is invested as a cautious diversified growth fund and the Prudential issue bonuses, which ordinary people think of as dividends or interest.

As such it is a reasonable home for people’s money, provided that they realise that returns are in the long-term linked to what the market offers and that they are not guaranteed. And provided that the gross return is not eroded by charges from intermediaries to a point where people could have done better sticking their money in cash.


Advisory fees

As with Prufund, there is nothing wrong with financial advisers or with paying them a fair day’s wage for a fair day’s work.

But when advisers claim that they are authorised by the regulator to take 2% of an investment that may be worth £1,000,000 for a recommendation (that’s up to £20,000 folks) then the world really has gone mad.


Advisory solutions

When you look through a window, you want to see what is inside. If you can’t see inside you have to take somebody’s word for it. With Prufund, which is a complex product , you have to take the word of an adviser.

The Prudential trust advisers to properly represent their product. I was in the room when al Rush heard that 5.5% number, we heard a number of people talking about the financial solutions they had been offered. When we probed people’s understanding, it was paper thin. They had no idea of what was the other side of the window.

People are trusting in advisers and so are the Pru. This little poll – taken by members on members is  representative of what Al and I found.poll bsps

Not only are people prepared 2% upfront to advisers (on average CETVs of £350k) but they are happy to pay full product charges and pay 1% + for the advice.

I would be happy to pay these costs if I could see they were value for my money, but none of the people we spoke to had the first idea what level of service they would be getting from their adviser , let alone what the total costs of the financial solution were.


The Regulator

No doubt the FCA will be conducting numerous thematic reviews on the advisers who are recommending these solutions at these prices. The question is whether the solutions are appropriate – not to the risk-appetite of the members but to their financial aptitude.

I know from time spent at racetracks and in betting shops, that the appetite for risk of the working man is substantial. This is why there are so many profitable bookmakers. Working men bet on dogs and horses, white collar staff bet on markets, usually to the same effect.

In my view, any thematic review needs to start not with the adviser – who will evidence all the right disclosures – but with the customers. If the customers do not understand the nature of what they are buying, disclosure has not happened, advice has not been taken.

My position is that of Al Cunningham
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Put another way: unless someone can get you a GUARANTEED personal arrangement (aka an annuity) worth more than the PPF or BSPS2, think carefully about the risk and potentially lifetime commitment you’re taking on. https://t.co/DDYouvDIpc

— Alistair Cunningham (@Cunningham_UK) November 11, 2017


Transparency

 

I now find myself a “Transparency Ambassador” – thank you Andy. That title is meaningless unless you can translate a good idea into action.

That ordinary men are investing their most valuable financial asset – what was their wage for the rest of their life- into products they know nothing about with advisers who they know little about is not “transparency in action”.

Transparency in action is to shine a light on these practices, to broadcast them to the IGCs that run the products into which money is invested – I mean Prudential, Zurich , Royal London and Old Mutual as well as many others that have not been mentioned to me but accept CETVs. It means talking to the IGCs and GAAs of the SIPP providers including Hargreaves Lansdown and AJ Bell. It may mean talking with the Pensions Regulator and the Financial Conduct Authority. It does not mean standing by as the train crashes.


Lessons must be learned

The trauma of “Time to Choose” will lead to a period of reflection, when the lessons of the BSPS consultation with members need to be learned.

We do not know the final numbers, but even the early door statistics are frightening

I BSPS Transfer

I am not frightened that people asked for transfer requests. I am pleased, if they didn’t then they could not have made informed choices. I am not worried about the numbers of transfers made so far, the 700 mentioned and £200m is meaningless. What is happening between now and March 28th (when the last BSPS transfer request can be accepted) is that up to 40,000 people have to make decisions with an advisory population (qualified to advise on these decisions) of only a few thousand.

We saw plenty of evidence of transfer analysis being commoditised through outsourcing, we saw no evidence of members understanding what they got for their advisory fees and we saw frightening examples of misunderstanding about the products used to replace rights under BSPS and its successors.

It is absolutely right that people have a CETV and I do not censure any member for wanting to avoid BSPS2 and PPF and have pension freedoms. That is their legal right.

But it is wrong that we let  people take decisions without the help of good quality advisers – and that is what we appear to be doing.

The lesson that must be learned is that with freedom comes responsibility and we cannot require the responsibility for decision making  to be entirely on pension scheme members.

transparency

Posted in BSPS, pensions | Tagged , , , , , , | 6 Comments

Advice to WTW, Aon, Mercer and the denounced.


Sit down- shut up!

This is my advice to WTW, Mercer and Aon who are facing the Competition and Market Authority’s probe into their behaviour as investment consultants.

They are reported in the FT “denouncing the FCA’s flawed report” that got them in this pickle

Mine is advice given to rival football fans when they are facing a penalty. It is good advice.Here’s another piece of advice

When you’re in a hole – stop digging,


And here’s some advice to the victims of bullying

From the Daily Mirror for “12 ways to beat bullies“. This should be read by  anyone who comes in contact with the “big three” in “denouncing” mode.

  1. Don’t become resigned to being a victim. You CAN help yourself and get others to help you
  2. TELL a friend what is happening. It will be harder for the bully to pick on you if you have a pal with you for support.
  3. TRY to ignore the bully or say “No!” really firmly, then walk away
  4. MOST bullied people have negative body language – hunched up and looking at the floor. Try to stand straight and make eye contact
  5. IF you don’t want to do something, don’t give in to pressure. Be firm. Remember, everyone has the right to say no.
  6. SIMPLY repeat a statement again and again: “No, you can’t have my lunch money, no, you can’t have my lunch money!” The bully will get bored because they are not getting anywhere and give up
  7. MAKE your phrase short and precise: Say “It’s my pencil.” or “Go away” firmly
  8. DON’T show that you are upset or angry. Bullies love to get a reaction – it’s “fun”. Keep calm and hide your emotions – the bully might get bored and leave you alone
  9. MAKE up funny or clever replies in advance. They don’t have to be brilliant, but it helps to have an answer ready. Practise saying them at home. If the bully says: “Give me your sweets,” you could say: “OK, but my dog licked them so they don’t taste very nice.”
  10. STOP thinking like a victim. If you have been bullied for a long time, you might start to believe what the bully says – that you’re ugly, awful and no one will ever like you. This is “victim-think”.
  11. MAKE a list of all the good things you can think of about yourself. Talk to yourself in a positive way. Say: “I may not look like a film star, but I’m good at maths and have a brilliant sense of humour.”
  12. KEEP a diary about what is happening. A written record of the bullying makes it much easier to prove what has been going on.
Posted in pensions | 6 Comments

“Certainty and Security”; a message for British Steel Pensioners.


This is a message to British Steel Pensioners who may be feeling uncertain about the  British Steel Pension Scheme. The message is simple, you have two secure options, the BSPS2 and the PPF, for most of you BSPS2 will be the right option. Though there is short term uncertainty because of the choice you have, you continue to have long-term security – whatever happens

Hugh Smart is the CIO of BSPS, he runs an in-house team of experts who are wold-renowned for managing the assets of the Steel Pension Scheme to pay the pensions of 130,000 steel workers. The skill of him and has team has made sure that even against the most rigorous standards of reporting, the Scheme has remained solvent.

Hugh will continue to manage the assets backing most of the 90,000 pensioners who should transfer to BSPS2 rather than the PPF. He will also manage the assets backing future pensions payable to younger members who choose to move to BSPS2 rather than to the PPF or to take a transfer value.

Of course, the assets that are transferred out of BSPS to investments managed by insurance companies and SIPP managers will not be managed by Hugh, but by other investment experts. From the small amount of correspondence I have had with Hugh he seems stoical and resigned to losing members exercising their pension freedoms.

He recognises that BSPS2 will  manage a fund through to the payment of the last payment of the last pensioner, this will undoubtedly post-date his retirement and maybe the retirements of his successors. But I am absolutely sure that he and his successors will continue to work for BSPS2 members as diligently as he has worked for members in the past.

It will be a tough and unglamorous job, he will be called a Zombie manager of a Zombie fund. There will be those who think him a failure (for no good reason). That is why I use the word stoical. Hugh should know that I do not think him or his team failures, I expect them to be heroes

For while BPSP2 pensioners will not have the certainty of a cash transfer, they will have the security of the services of Hugh and his team of staff and advisers. I do not think that this security has been fully explained.


Certainty and security

The choices offered to the members of BSPS create insecurity. It is not just the 43,000 who have the option to transfer who are taking choices. The 90,000 older people also have a choice – though it is easier for them. Unlike their younger colleagues they do not have the certainty of a transfer value (though we had enquiries about transfers from pensioners when we saw in Wales). The choice is the security of BSPS2 or the security of the PPF.

The security of a wage for life that has been enjoyed by BSPS pensioners is now being shaken by unnecessary speculation about the viability of BSPS2. This cannot be good for pensioners and I hope that  BSPS pensioners who read my opening paragraphs will take comfort from knowing that there are people within the BSPS management team who will continue to exercise their skill and judgement on their behalf.

Those advisers who imply that BSPS2 is unviable do so with little understanding of the facts. There is a financial buffer – expected to be £2bn with which BSPS2 will be protected from going bust. On top of that, its liabilities are likely to be much reduced by people taking cash transfers. Taking these cash transfers will reduce the risks of BSPS2 but will not reduce the buffer.

BSPS2 has every chance to prosper. It should be self-sufficient and not need further support from Tata. Even if Tata went bust, BSPS2 has a good chance of surviving. If – in the worst case – Tata went bust and BSPS2 was insolvent (under PPF rules) , pensioners would get the PPF benefits. These benefits offer a high degree of security.

The security of BSPS2 for pensioners who choose it (over the default option of the PPF) is increased because of the numbers of  younger members transferring out. Since I am not advising for and against a regulated product, I will be blunt.

BSPS pensioners have little to worry about by moving to BSPS2.  The small minority of pensioners who might still benefit from Clause 11 (and might benefit from the PPF) know who they are and are getting special help.

certainty

The message to the generality of BSPS pensioners is simple, stay calm and join BSPS2.


The certainty of cash – is not the same as security.

I notice that the financial advisers and lead generators who have been coming from all parts of the country to the valleys, are showing no interest in those who are in receipt of pensions and you don’t need to be cynical to understand why. However, what is being said to the younger generations of members is creating insecurity among the pensioners and this is not good.

While the certainty of the cash equivalent transfer values is valued , there is insecurity among many of the deferred pensioners as to whether the financial advisers who they are putting their trust in, have either the competence or the integrity that steel workers have enjoyed these past sixty years.

Some people , on reading this, will suppose I am arguing that younger steelworkers reject the CETV. I am not saying this, I am saying that the certainty of the CETV needs to be backed up by the security that comes from sound financial management. My reason for being involved is not to influence people’s choices, but to make sure that people know what they are doing, and- if they do hand their money to someone other than Hugh- that that person has the same standards as Hugh has.

In the meantime, I would like to assure BSPS pension members that they have been and will continue to enjoy the highest standards of skill and care, from BSPS2. BSPS2 trustees have sound advisers and you have a sound helpline and the services of TPAS. You should use both to understand the high level of security you will enjoy in BSPS and – if you choose it – the PPF (which is also very well managed)

I have been recommending advisers in the Port Talbot area and up north and I have also been recommending people look at e-advisers where they feel comfortable to take advice without physically meeting advisers. I will continue to put good advisers in touch with members who ask for help. So will Al.

I can be contacted on henry.tapper@pensionplaypen.com

Al can be contacted on advice@yourwealthcare.co.uk


A bit of philosophy (indulge me it’s my birthday)

Certainty is generally false , security comes from within and cannot be sold you.

The security that BSPS members enjoy, will not be lost in BSPS2 – or yet the PPF.

After a lifetime’s work, BSPS pensioners should be allowed to dream a little!

certainty 3

When I looked at the hills behind Port Talbot, I knew what the painter meant!

 

 

Posted in BSPS, pensions | Tagged , , , , , | 5 Comments

Nice perk if you can get it! Pension Exclusion in the UK.


SS poll 2

Nice perk if you can get it!

When Guy Opperman became Pensions Minister , he close to have the words ” financial inclusion” inserted into his title, now is the time for him to prove his title’s worth.

According to Government statistics, there are 675,000 of us in the “savers rate” of tax, that is the tax band where we pay no tax, but still qualify for incentives to save – into a workplace pension.

Latest estimates suggest that around 300,000 (just under half) of these “savers” are not getting the promised incentives because they are in the wrong kind of scheme. That is no fault of theirs, it is because most occupational pensions pay people under  a “net pay arrangement” where if you “don’t pay tax, you don’t get tax relief” .

The reason that phrases like “savers rate” and  “government incentive exist – is as spin from the Government that they encourage the low paid, to join the higher paid tax-payers in saving for a workplace pension.

Unfortunately this doesn’t happen. Not only are just under half of our lowest earners not getting the Government Incentive, but if employers try to get them into the system via salary sacrifice, they are stymied by the complexities of a tax and national insurance system that has gone wrong.


Let me show you what I mean

RAS Non salary sacrifice Salary sacrifice Net pay Non Salary sacrifice
Monthly pay £100 £90 £100
Ees NI (£12) (£10.80) (£12)
Pension contribution (£10) Nil (£10)
Take home pay £78 £79.20 £78
Pension contribution £10 £10 £10
Tax relief under relief at source £2.50
Employer NI added to pension at 80% £1.1
Total received by pension scheme £12.50 £11.10 £10
Total benefit, i.e. take home pay plus pension contribution £90.50 £90.30 £88

The table above shows that for saving £10 into a workplace pension, a non-tax payer, paying national insurance – has to lose £9.50 under the relief at source method of tax-relief. He/She pays £12 NI and gets £2.50 tax relief.

The non-tax payer saving £10 into a workplace pension, paying national insurance gets no tax-relief and is losing £12 in making a £10 payment.

If these non-tax payers moved to salary sacrifice and were rebated 80% of the employer NI saving (a typical discretionary share) and the employee had a reduction in his/her statutory NI – then both the net pay and relief systems would become irrelevant. The employee would get £90.30’s worth of value , pay £9.70 to the Government and would still be down on the deal. Losing the Government Incentive means that salary sacrifice (under an 80% share) makes one group of pension savers (those who used RAS) – worse off! It levels up the unfairness for net-payers, but they are still worse off than the non-tax-payer getting RAS.

Which is rubbish!


Why paying tax becomes makes pension a tax-perk.

If you salary sacrifice as a tax-payer, not only do you get the NI savings (discretionary and non-discretionary) but you also get tax-relief – immediately and at your highest rate.

It means that for every £10 you save, you get a minimum of £2.00 back from the Government and a maximum of £4.50. So a basic rate tax payer sees his/her cost of saving £10 under our salary sacrifice model fall to £92.50 and the higher rate tax-payer to £95.00.

Unbelievably it can cost a super-earner a fiver to save a tenner while the lowest earner pays twelve quid for the same thing!

This is not only rubbish, it is crazy rubbish! Why is the pension taxation system so unfair?


Why salary sacrifice is most unfair of all

If you have followed my argument so far, you will notice that the one chink of light for net-pay pension contributors is that the salary sacrifice model at least gets them somewhere back on track – at least with other non-taxpaying pension savers.

But here is the unkindest cut of all. Many pension savers who pay no tax are not allowed to get the benefits of salary sacrifice – they are EXCLUDED (note Guy- this is the opposite of FINANCIAL INCLUSION).

This is because if you are on the minimum wage, you cannot choose to make yourself better off by saving using salary sacrifice. Your payroll people won’t let you because it is illegal! That’s right, the Government that promised you the “savers rate” and “Government Incentives” has excluded you from the perks that everybody else gets- BECAUSE YOU ARE ON MINIMUM WAGE!

That net pay contributor who is on the minimum wage and pays no tax has no choice but to pay £12 for a £10 benefit. He has to stand on the pavement while the wealthy are chauffeur driven into retirement.

how it should be

One system for all please

 

 

Now I know that Guy Opperman (who had the benefit of having been educated at Harrow)  will point out that the Government are only trying to protect the lowest earners from exploitation.

guy opperman

Harrovian Opperman

But salary sacrifice is an elected option, people have to choose it – after it’s been explained to them. Protection is built into the system because employers are trying to benefit their staff – all of them! It’s called “EMPLOYEE BENEFTIS” and it’s not happening.

 


We are waking up to this!

Despite the roaring silence from the PLSA and PMI and the other vested interest groups in pensions, it seems that the majority of pension experts are on the side of social justice.

I point to a flash poll from Professional Pensions that had these results.

ss poll

Ok , there’ a hard-core of about a third who either don’t like poor people or don’t think they should be saving, but well over half the people polled , thought that the rules should be changed to help ordinary folk who aren’t earning much.

Thanks to Steve Webb for bringing this to our attention. I’m chairing a session this pm where Steve is the speaker and I hope that one of the questions will be on this (hint hint!).

Steve-Webb-MP-006

Steve Webb state educated in Birmingham


A word of caution.

Thanks to Kate Upcraft for these two timely reminders;

  1. Salary sacrifice stops saving  NI when you earn less than £157pw.

Do be mindful that no one pays National Insurance until they earn over £157 pw;- so  there is no NI saving for employers or employees earning below £157pw.


2.  If you sacrifice below £113 pw – you could be losing rights to the state pension

Sacrificing to below £113 pw isn’t illegal (as long as your hourly rate remains at least at NMW) but is not advisable as you lose the ‘deemed NI’ entitlement to state pension.

You should be making the week count towards ‘qualifying’ for state benefits including single tier pension. You need to get to the magic 35 years of qualifying earnings.

Earnings between £113 and £157 fall in the “deemed NI”  band but if you earn less than £113, you could be counting yourself out of state pension.

Posted in advice gap, Big Government, pensions | Tagged , , , , , , | 5 Comments

Cost and value of advice in Port Talbot


taibach

Al Rush and I drove down to Wales yesterday and spent a day in the Taibach Rugby club at the invitation of the moderators of the BSPS Facebook groups.

It was helpful to understand a little of what it’s like in Port Talbot. Al grew up there and many of the steel-workers we met knew Al from school. Thanks to the club for making us so welcome and supplying us with the bottomless cups of coffee and tea we all consumed!

It is not until you sit within a stone’s throw of the factory gates that you can understand how important the Port Talbot Steel Works is to the communities of the town – such as Taibach.


What we found

We did not meet great numbers of members, but we were busy for seven hours with small groups wanting individual help. We were not there to tell people what to do but to help them find good financial advisers as they thought about their options (including the option to transfer).

We found

  1. That those people who had met advisers had no benchmark for judging either the quality of the advice or its cost
  2. That there was general confusion about value for what was being paid for advice,  implementation and ongoing servicing.
  3. That there was confusion about whether the advisers were offering advice or simply outsourcing advice to third parties (outsourcing).

Costs

Some people we met had shopped around and got wildly carrying prices and solutions. We found little evidence of advisers suggesting anything other than transfers. The cost of advice, transaction and ongoing service was generally expressed as a percentage of the transfer value and was typically 2% of the CETV for implementation and 1% for ongoing advice (paid on top of product fees of c1%). The average transfer value of those we spoke to was £350,000.

We did not see any justification for these costs, though one gentleman who asked for a justification of a 2% up front charge was told that this was what the FCA suggested.


Value

We did not see any evidence of cash-flow modelling by advisers. Most people we asked, found it hard to explain the basis of the adviser’s recommendation and gave as reason for transfer, it was what they wanted.

Most people had been recommended insured products, typically from Zurich, Prudential or Royal London. We found a lot of confusion – especially among those looking at using Prudential’s Prufund, more than one person we met thought it was giving a guaranteed return (of around 5%).

We found little understanding of the risks of drawdown. We did not hear one mention of annuities. While people were generally aware about the PPF, BSPS and BSPS2, we found there was little awareness of the risks of what they were transferring to and considerable trust that the financial adviser would take care.

One person we talked to, thought he had spoken to three tied representatives of Zurich, Prudential and Old Mutual. He could only articulate the advice he got in terms of the solution presented.


Outsourcing

There appear to be three kinds of advisers operating in Port Talbot.

  1. Travelling advisers who turn up from other parts of the country, offer an incentive for meeting (chicken in a basket), conduct advice sessions and then are away.
  2. Local advisers who do not have the qualifications to advise on transfers and who outsource to specialists who provide the certificate needed for the trustees to release funds
  3. Local advisers who do the work themselves.

We met with local advisers doing the work themselves but not with the (1) and (2). Coincidentally, the FCA were reported on making a pronouncement on the state of the market that drew similar conclusions (Megan Butler as reported in New Model Adviser).

‘We often found the route cause of a lot of these issues related to the business model, the business model between the firm and sometimes the specialist transfer firm. In part some firms which had seen significant growth in their DB transfer business had defaulted to a commoditised, industrialised process, an outsourced process perhaps, not focused on the client’s individual needs,’


Conclusions

We did not see enough people to make any general statements, but what we saw concerned us.

The advice given by the trustees to use unbiased.co.uk is not being heeded. The market for advice is forming around availability of advisers not around suitability. We found a low level of understanding of cost and value and a confusion about where the advice was coming from.

Considering the sums involved, we see a considerable transfer of value from member’s pension rights to the advisory community and on to pension providers. The concept of “independence” is not high on the agenda and most advisers talked of advisers as gateways to getting their hands on their money. There was little awareness of the contracts that members were entering into with advisers or people’s rights to move away from advisers and cancel the advisory agreements they were signing.Al

We were not there to discuss the quality of the decisions being taken, though Al did valiantly talk with members about their future cash flow requirements.

We were there to help people meet good advisers – and they did. In Al they saw how things could be done and though Al is not putting himself forward, we have now met advisers who have an approach to the problem that offered a high quality of service at a rather more reasonable price than what was generally reported from those we spoke to.

There are some 43,000 steelworkers who are eligible for a CETV from BSPS. All of them should be looking at this option and most will need to take advice on whether it is right for them, and if so- what to do next. There are rather less qualified advisers to help them.

If Steel-workers want help with signposting to good quality advisers, we can now help, though we cannot advertise these generally.

If any BSPS member wants help with finding an adviser, they should contact henry.tapper@pensionplaypen.com or Al at al advice@yourwealthcare.co.uk. If they need more help with their options , they can speak to TPAS on 0300 123 1047 or the helpline provided by BSPS.

Posted in advice gap, pensions | Tagged , , , , , , , | 6 Comments

Work and pensions are boring – getting paid is never boring


ht-lifetime-achievmentThis article first appeared in Reward Strategy. It’s a thank you to the people in payroll who have made a boring pension person a little more chirpy!


 

Readers who went to the CIPP conference and award dinner, will know that I was recognised with a lifetime achievement award by the CIPP Board. They will also know that I didn’t show up – which might be interpreted as a snub.

It wasn’t meant to be: I was in Newcastle and this article is about what I think we can achieve – not what we’ve achieved so far! The CIPP’s recognition makes what I have in mind a little bit easier! Which is why I’m so pleased by the award. I’m so pleased, I’m not going to shut up about it, or about the CIPP or about payroll!

.

The expansion of those employers funding a workplace pension from a base of around 150,000 to its current level of around 1,000,000 presents an enormous challenge to those in pensions. The pension industry has been handed an extra 10m customers each contributing around 8% of average earnings (let’s round that to £2,000 pa per person). That’s a net inflow into fund management of £20,000,000,000 a year, which is a lot of money.

One challenge is to manage this money wisely. Another is to pay it back to people as they want it paid (we no longer talk of pensions – we talk of freedoms). Studies in Sweden, UK, Australia and USA concur that while people like the idea of freedom, most of us want our money paid to us as a wage for life, when we can no longer work, which is a pension!

So, payroll is not just involved in the payment of money into pension plans, but will be involved of the payment out. If I have done anything to deserve the award so far, it is to point this out to people who benefit from the money (the pension operators); they forget how it arrived and where it’s going!

But recognising the operational importance of payroll has not (so far) led to a shift in the mindset of pension operators, who still consider payroll as an accessory after the fact. Payroll pass the money – pension providers keep the value.

But my discussions with payroll software companies reveal a subtle shift in the value chain. Payroll has achieved something that IFAs and employee benefit consultants have failed to do; that is – charge employers for the use of auto-enrolment software. Employers are happy to pay for payroll software because they trust it to deliver – this is not always the case with pension providers;

The revenues from these contracts allow software companies to develop auto-enrolment modules into pension modules. The forward-thinking software suppliers see the provision of simple services within these modules as essential to the successful maintenance of compliant, well-governed and really useful workplace pensions. Collaboration can ensure employers offer good pensions as well as compliant auto-enrolment.

This is the reason I was in Newcastle and not with the CIPP. I want to help the 900,000 employers without access to pension support, as confident as the 150,000 who have pension advisers,

That means independent helplines for member queries, operational support for employers.

It means access to league tables that tell employers and members the value they are getting for their money (benchmarked against other providers).

It means offering remedy where things aren’t working, helping employers change providers and members move one pot to another (great big pot).

And it means keeping everyone up to date with what’s going on – a proper newsletter and at least quarterly reporting on the progress of providers.

To put it simply, I want employers to have peace of mind about their workplace pension.

 

I have 11 years between now and my state retirement age. I’d really think we had achieved something in my lifetime if every employer that participated in a workplace pension had access to these things.

I cannot see any way that this can happen except through the conversion of payroll managers into payroll and pension managers. I hope by 2028, when I hang up my boots, that the CIPP will stand for the chartered institute of payroll and pensions!

Work is boring, pensions are boring, but getting paid is never boring!

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

Salary Sacrifice – a foot in the door for the poorly pensioned?


foot in the door

Everybody knows that the pension tax-relief system is heavily weighted in favour of the have’s who get big income tax incentives. It is weighted against the low waged who can get excluded from contribution incentives altogether.

Steve Webb, who thinks about these things, has announced he’d like to see even those on minimum wage, being able to participate in some of the tax and NI saving activities of those who earn more than him.

I’m not an actuary, and I’m getting some experts to run a check on these numbers (which may change when they have) but here’s the Pension Plowman’s stab at how salary sacrifice (some call it salary exchange) could work for the low paid.

An employee is  on minimum wage of £7.50 an hour working 40 hours a week. Weekly pay = £300 so annual pay is £15,600. This person will be auto-enrolled and pay basic rate tax.

The employee pays 12% employee NI on earnings above £157 a week so 12% of (£300 – £157) = £17.16 a week.

In addition the employer pays 13.8% NI on these same earnings.

If they could pay pension contributions of say £10 a week by salary sacrifice they would save £1.20 in NI (and still get tax relief) and the employer might share some of its NI saving,

So a minimum of a 12% effective uplift for the employee , simply by sharing the saving 100% of the NI saved on his/her earnings, a maximum of nearly 26% uplift if the employer savings are shared.


The minimum wage dilemma

So why don’t salary sacrifice/exchange schemes operate for those on minimum wage?

I asked the question to payroll’s answer to Martin Lewis – Kate Upcraft and this – is -what – she -said!

No problem for us to administer – we simply reduce gross pay but it’s illegal to reduce gross pay below NMW and given the amount of unpleasant and damaging publicity about NMW non compliance at the moment, including the sleep in debate I can’t see the law changing

I had to look up “sleep in debate” – I thought that this was an all-nighter at the House of Commons- but it’s about carers who sleep at their client’s house in case something happens in the night (and get paid for attendance).

Kate’s substantive point is that the Conservative Party wouldn’t risk annoying other parties by allowing people to choose how they had their minimum wage paid to them.

Salary sacrifice is not something that happens to you like auto-enrolment, it’s not done on an opt-out, you have to opt-in to salary sacrifice, and you’d only opt-in to something, if you thought it was good for you.

Earning between 12% and 26.8% uplift on your pension contributions looks like good news. I’d choose that if there were no downside. I could try and construct a downside to pension salary sacrifice -SS (as opposed to the same contributions being made with SS) but I’d be struggling.

Denying people on minimum wage the opportunity to get more paid into their pension pot seems perverse. The Labour opposition should join with Steve Webb in calling for this practice to be allowed. Kate Upcraft has no practical objections and I’m sure she’ll join with Steve Webb in campaigning for a better deal for those on the minimum wage.

So do I.


The net pay dilemma (pt 94)

When the history of HMRC and the Treasury’s pension policy comes to be written, the net-pay scandal will be writ in black type as one of its darkest hours,

How can 300,000 people be auto-enrolled into workplace pensions on a promise of a 3% contribution from the boss and a 1% top-up from the Government, only to be told that the 1% never turned up because their employer used the wrong kind of pension contribution? It makes special pleading about the wrong kind of snow look rational!

HMRC continue to pass the buck to tPR who pass it back to HMRC (this actually happened last week in front of a live audience at Reward Strategy.

Then everyone blames operators (of DC trusts) for not moving to relief at source and nothing happens. In April 2018, the minimum contributions that will not get Government incentives double, by April 2019 they will have doubled again. NOTHING is happening – NOTHING.


Salary sacrifice +NET PAY    1+1 =3 ?

I commented in John Greenwood’s “on the money” article on salary sacrifice yesterday.

John picked up the comment which appears in later editions. He writes my words better than I can – so I hope you don’t mind me quoting myself directly from Corporate Adviser!

First Actuarial director Henry Tapper says: “Many of those on low earnings are not only unable to exchange salary for pensions, but unable to get the Government Incentive – basic rate tax relief – because they are in net pay schemes.

“Salary sacrifice/exchange gets round the net pay problem as all employees are treated equally – whether RAS or net-pay, tax-payers or below the income tax threshold.

“I would suggest that if it we were to make it easier for employers to offer salary-sacrifice to the low paid, we might go a great way to solving the net-pay problem.”

I was partly thinking of the (up to) 26.8% NI kicker – which mitigates the loss of the Government Incentive.

But I was also thinking that as soon as you get people thinking about the social consequences of denying the minimum waged the right to the NI kickers, you think about the Net-Pay scandal.


Pension tax credits

I am no expert on the HMRC’s capabilities but sorting this out does not look impossible. , It strikes me that anyone who chooses to sacrifice below minimum wage is special, if only for choosing to have a notional salary below minimum wage. Can we not make that election a trigger for  special treatment that puts money into people’s wage packet by way of a tax kicker from HMRC. For every pound sacrificed , could not HMRC put 20p onto the wage? Could we call this a pension tax credit?

Once you are sacrificing salary, the differences between RAS and net-pay are irrelevant. Everyone who sacrifices salary for pension in the nil-rate band should have the Government incentive of 20p in the pound paid on top of net salary as a pension tax credit.

I hope I am not being fanciful. The double impact of an NI kicker into the pension and a pension tax credit could incentivise pension contributions to the low-paid to the kind of levels enjoyed by the high-paid.

Though a word of caution has been uttered by Thomas Coughlan in his comment on this article

This might help low earners, but it wouldn’t help really low earners. If salary below the NI primary / secondary threshold (£8,164 per annum) is reduced there is zero benefit. So, whilst eliminating the NMW barrier might help those earning between £8,164 and about £14,500 (annualised NMW), it wouldn’t help those earning less than this.

This coupled with no income tax benefit via salary exchange for those earning less than £11,500, and I’m not sure getting rid of the NMW barrier would be that beneficial. Much better for low earners to pay to relief-at-source personal pension and get 20% income tax relief.

 

All this is food for thought for employers operating net-pay schemes. If I were running a net-pay scheme I’d be putting the risk of a class action from low-paid employers on my risk register. That’s when they find out just how much they are losing out on at the moment (both from being denied the NI and the tax incentives that are available to others).

There seems to be some social justice here. There seems to be some commercial risk-management too. But most of all, there is an opportunity here to get the low-paid to a point where they have decent sized pension pots – a whole lot quicker.t

Whether tweaking the rules for a workplace pension is the answer, whether LISA is the answer or whether there is merit in Alan Chaplin’s suggestion , I don’t know.

Looked at the Help to Save scheme today – https://www.gov.uk/government/publications/help-to-save-what-it-is-and-who-its-for/the-help-to-save-scheme.

Looks better than pension to me for anyone eligible… For those eligible but unable to afford maximum contributions, maybe employer can top up instead of paying pension contributions. At the end of the saving period, take the money and put into pension and get another 25% “bonus” in tax relief??

One thing’s for sure, something had better change about the way we deal with low paid worker’s pension rights and the incentives attaching.

Posted in accountants, actuaries, advice gap, pensions | Tagged , , , , , , | 15 Comments

Con Keating -“CDC is no hardy perennial”


hardy

 

A critic of CDC began a recent blog with: “Collective Defined Contribution is a hardy perennial”, which, to my mind, is only appropriate for a scheme of arrangement capable of delivering pension benefits more efficiently and equitably than any other – including occupational DB. An entire mythology of “problems” with CDC has developed.

I suspect this is another debate, rather than discussion, where the entrenched position is not subject to change or adaptation, but I write in the hope that others may be more amenable to discussion and reasoned argument, and be able to see the many advantages CDC brings. I take extracts from that recent blog, italicised below, as a straw man to illustrate the waywardness of the flawed negative analysis. The blog was described to me as having been circulating on Twitter (to which I do not subscribe) and I do not know the author.

Like the three bears’ porridge, chairs and beds, CDC has a number of conditions that have to be ‘just right’ if they are to appeal to Goldilocks, or in this metaphor, UK plc. If just one of those aspects is missing, CDC simply cannot work.” This is simply untrue at many levels. CDC does not have to appeal to UK plc or indeed any external sponsor. The employer does no more than make a contribution into a scheme – something it is already doing with DC and in a few, increasingly rare, DB arrangements. There is no further recourse. Let’s now deal with the so-called problematic elements.

“Compulsion in enrolment. CDC relies on inter-generational risk sharing.” This is untrue. It does utilise intra-labour force-generational risk-sharing, and that means that there are circumstances in which young subsidise old and others where old subsidise young. It is valuable to all. An attraction which will hold across generations, as they arise.

“Or, more simply, it relies on young people to take the financial strain for older people if assets do not perform as expected.” This is again untrue. Any financial strain from asset underperformance may be shared equitably across all members.

“Risk sharing cannot happen if younger people opt out.” This is true not just of younger members but of any and all, but it involves moving to an arrangement which is riskier for that member. Given the attractions of CDC, opting out is an act of self-harm.

“Scale. CDC is a hungry beast and needs feeding with people and money. If you want to share risk, you need lots of people to share it between.” The lower bound for the value of the risk-sharing properties of CDC to be material is around 400 members; it is not a hungry beast. Larger scheme populations are superior, in a probabilistic sense, but they are not in any sense necessary. It takes just two to share. One of the attractions of CDC is that it may easily attract members from many differing employers. Diversity in membership is attractive.

“It would be nice to know whether ‘along the lines of the Dutch system’ includes permitting non-consensual conversion of already-accrued DB pensions. If it does, that should be expressed openly, so we at least understand exactly what we are debating. If it does not, UK CDC could only realistically emerge from the conversion of existing DC, and lots of it.” There is no plan for any non-consensual transfers. Indeed, schemes may prefer to start from a tabula rasa. The idea that schemes could only emerge from the ashes of DB or DC is simply fallacious. If they chose to do so, schemes could accept (even new) members and their ‘pots’ at any point in time. In this they might constitute an attractive decumulation option to individual DC savers.

“Compulsion for employers. CDC requires a constant stream of people to be able to risk share. While today’s 60 year old may want to risk share with a 25 year old, today’s 25 year old needs to be confident that there will be some 25 year olds in the plan in 35 years’ time. That is going to be very hard to assure if employers are able to walk away from the system. Few employers will want to make such a commitment.” The question of employers walking away shows a fundamental lack of comprehension. No employer has any obligation beyond making the current year’s contribution. There do not need to be any 25-year-olds entering or in the scheme in 35-years-time. Risk-sharing takes place among those members present.

“Compulsion in retirement. If risk sharing is to work, then disgruntled pensioners wouldn’t be able to transfer their benefits, because that might permit them to ‘select against’ the other members and generations. They would have to see their CDC pension through. Non-transferability was one reason that annuities were unpopular.” This is again untrue. Members would be able to transfer out at any point in time. The transfer value would be their equitable share of the scheme’s assets at that time. In transferring, they are leaving an arrangement which has value to them and also exercising an option which is most valuable when unexercised.

“Indexed pensions. CDC’s safety valve is in escalating pensions. Once risk has been shared between the generations, if there is still not enough money in the pot, pensions in payment would have to be cut. It’s pretty much unthinkable that this would mean actual reductions to pensions in payment, so CDC advocates usually propose that instead, pensions simply would not increase in payment.” CDC’s safety valve does not in escalating pensions – CDC may offer either, or both, fixed or escalating pensions. CDC’s safety valve lies in adjusting the entitlements of all members equitably. This applies to both gains and losses. As this may require cutting pensions in payment, there are further inter-temporal measures that may be considered and applied subject to the agreement of members – a further dimension to the most basic risk-sharing properties of the member mutual.

“There is just one problem here; it requires the member to want an escalating pension in the first place. If they wanted a level pension, they could probably do better by simply buying an annuity, because some expectation of escalation will have been priced into CDC.” This is just nonsense based upon an earlier misconception.

“The trouble is, most people do not want escalating pensions. Take a look at figure 6 on page 26 of this FCA paper. It shows us that from 2008 to 2012, every year just 7% of DC retirees bought annuities that escalated in payment. That means 93% went for level annuities. ‘Like an escalating annuity, but it might not go up’ does not strike me as a winning product. That first 100,000 members is beginning to look even further away.” The author of this blog is piling ossa on pelion. There is no doubt that people did select fixed rather than escalating annuities, which was a product of the terms then offered. However, surveys of what people actually want show the following preferences:con graph

That FCA data predates freedom and choice, but that is likely to have simply exacerbated the gap between what CDC could theoretically offer, and what real people actually want. Indexed pensions are on offer from DB plans, but we are seeing unprecedented numbers of people voting with their transfer forms and moving to DC.” The level of CETVs is a product of the nonsensical valuation standards about to DB liabilities and the unwillingness of trustees to commission insufficiency reports and apply the findings rigorously. This of course suits many employer sponsors as it discharges liabilities more cost effectively than bulk buy-out.

Indexed pensions bring to life the central problem of CDC. CDC pensions do not need to be indexed. CDC could theoretically offer a better pension, but everyone has to fit in with the way it works. One size has to fit all. It does not.

The way CDC works might well be what society and government (and some sections of the pensions industry) think people should want and should have. We think that it is what most people want- it is what they say they want. But, for better or worse, with its reliance on compulsion and its almost complete absence of flexibility, the way CDC works does not remotely match what people’s actions tell us they want. CDC does not rely upon compulsion. The actions we have observed are in a world without CDC – a world with many problems which condition member behaviour. CDC is actually more flexible and efficient than occupational DB. Actions, such as those cited, are responses to particular circumstances. People do not all want the same thing. This is one of the few things in this blog which is true, but few well-informed people would wish to make inferior choices.

I am not saying these tenets cannot be achieved. But I am saying they cannot be achieved without forcing a lot of people against their will.” There is absolutely no need whatsoever for compulsion.

It should also be understood that CDC has eliminated the risk of sponsor insolvency. The member mutual organisation means that pensions promises are promises made to themselves, which renders the concept of scheme insolvency economically vacuous. The risk-sharing arrangements are beneficial to all; the key is equitable participation for all within this arrangement. The technology to facilitate this, cost-effectively, exists.

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