Bamboozled by vultures! – The Work and Pensions report on Port Talbot

time to choose

Though it reveals little new, Frank Field’s report into what happened  in the British Steel Pension Scheme is nothing if not a good read.

But we shouldn’t allow headlines about sausage ‘n’ chips suppers and factory-gate skulduggery to get in the way of the report’s conclusions and recommendations.

This was a serious inquiry that has thrown up some important messages.

  • Even as good a pension as the British Steel needs a sponsor; without the support of TATA, this scheme’s natural home was the PPF which is where it went.
  • Giving people a choice of lifeboats was for a substantial minority of steelworkers for themselves, they’d have swum for themselves – pretty well no matter what.
  • The job of protecting such people from the worst consequences of an emotional and irrational decision was simply not done; either by the Trustees or advisers.
  • This was out of a misjudgement by the Trustees and out of opportunism amongst a small band of entrepreneurial advisers (who I bet now wished they hadn’t got involved).

My part in all this is rather over-represented in the report, as I have the gift of the gab and am quotable. But I am pleased that I and Al Rush and Rich, Stefan and David, were able to highlight the systemic problems with transfer advice in the UK today

  1. That where demand is strong (there were over 15,000 CETV quotations in circulation out of a transferrable population of 43,000) , then advice tends to be commoditised. Stories of advisers doing 7 transfers in a day abound.
  2. That the new kind of SIPP (see diagram below) has allowed some advisers to subvert the RDR and get paid via the back door. There is nothing illegal about these SIPP structures, but they do the same financial vandalism as scams.value chain
  3. That where demand is so strong, a feeding frenzy will emerge and that Port Talbot was entirely predictable (indeed I predicted it in August to a group of BSPS Trustees and their advisers).

Having been an IFA in the 1980s and 1990s, I totally understand both the good and bad advisers I have been in contact with. The Pension Freedoms are a side issue in this. What created the feeding frenzy ,was not the capacity to spend the money when they liked (only 4% of members in an early poll wanted to control their money themselves), it was the telephone numbers , the financial and emotional response to Tata’s covenant and the failure on everybody’s part to explain why transfer values are so high.

poll bsps anon

One person I spoke to explained that they thought the transfer value for their £30,000 pa prospective pension would be £30,000. It turned out to be over £700,000. Can you blame that person being amazed?

What added fuel to the fire was a perception that TATA and the Trustees were acting in unison to prevent transfers. While Time To Choose talked of BSPS2 and PPF, the steelworkers talked of lifeboat v transfer. The Trustees and their members weren’t having the same conversation.

I’m now finding myself talking to the Trustees and managers of other large pension schemes and it turns out (surprise surprise) that they have their own Port Talbots. Indeed some of the advisory firms “volunteering” not to advise steelworkers are also causing “de-authorisation issues” for other schemes.

Port Talbot has changed the landscape;

  • 9 firms have removed themselves from the transfer market
  • 1 firm (Active Wealth) has gone into liquidation
  • The FCA’s sampling suggests that in 53% of cases where transfer advice given the advice was either iffy or downright dodgy
  • As a result, all transfer advisers can expect the “inspector to call” in 2018
  • and the Pensions Regulator and FCA have agreed to establish a joint pensions strategy.

I hope that we will see in 2018, a diminishment- if not the end- of conditional pricing, the practice of only charging a client if they don’t go ahead with the transfer recommendation

I hope we will see an investigation into advised SIPPs as part of the platform review


I hope that the FCA will weed out the IFAs who have the qualifications but not the integrity, needed to help people in this most difficult area of financial advice

And I think that those, like me who advise trustees, will recognise we hold a part of the blame. We are supposed to be able to look at the future and predict things with help of data from the past. I could tell, as a former adviser, where things were heading , but it looks like the better qualified advisers talking with the trustees – couldn’t. They shouldn’t be able to walk away from the consequences of Port Talbot (even if they don’t know where Port Talbot is).


taibach al

If you want to hear me spout some of this on Radio 4’s today program, the link’s here (minute 1.17)



Posted in BSPS, pensions | Tagged , , | 3 Comments

It’s payroll wot dunnit- and don’t let’s forget it!

The DWP are right to be proud of auto-enrolment.


It’s such a success story, even Guy Opperman wants some visibility !


Ok – cheap shot!

I’d have enjoyed our Pensions Minister cuddling up to Workie, but Workie appears to be on the Island of Misfit Mascots.

So instead I am bringing you the story in graphic format, from the tweets of the dyspeptic David Robbins.dave r tweet

David is right to point out that all the hard work of getting the last 610,000 employers into auto-enrolment has little impact to Britain’s immediate macro-economic position

61% of the >1m employers to have reported compliance did so in the past year. But these small firms account for just 17% of workers.

But this is to miss three really important points

  • These 17% of workers are like the lost sheep , there’s rightly rejoicing in the Kingdom of Heaven, for finding them!
  • The 600k employers who are now “in” contain among them the Vodaphones of the next 50 years; 17% today – ? tomorrow!
  • Workplace Pensions are now business as usual for everyone – they’re part of employing people!

Another cheap shot!

It is easy enough for David (or me or Guy Opperman for that matter) to take general praise or show Olympian vision on these matters.

It is easy because we are pensions people and ultimately so much of the benefits of AE accrue to the pension industries. We all bask in the sunshine – but down below, others are doing all the work.

It’s more than a cheap shot – it’s an accurate stab to the solar-plexus “it’s payroll wot dunnit!”  Payroll has made auto-enrolment happen, payroll with the help of actuaries and regulators and the guys who throw cheap shots on blogs!


Payroll take a bow!

Come on lads , don’t be shy. Here’s my friend Matt .

Matt Port

and here’s what Barry Matthews has to say!

Matt Port 2

On the subject of Barry, I’m really pleased to announce I’ll be involved in a series of talks to STAR customers in June, I’ll be making the point that payroll needs to move from “commodity to consultancy” asap!

We have more hard work, more skill and more integrity in the payroll industry than we know. Pension people – especially Pension Ministers – should be recognising that.

This is not just me sucking up to payroll , (I do it all the time), it is me telling it like I see it, after 30 years of waiting for something as good as auto-enrolment to come along.


Posted in pensions | 1 Comment

Are you feeling DC sick?

DC sick

We’ve all been there!

Joy for DB is pain for DC!

ppf good

DB looking good (according to PPF)

equities one month

FTSE 100 – one month – feeling a little DC sick?


I am sure I am painting too simple a picture and that I’ll be whacked over the head by my learned colleagues, but the general jubilation breaking out over UK pension scheme solvency levels, is coming at a time when the average DC investor is suffering a “market correction” wiping as much as 10% off their market savings.

I believe this is called a barbell, what is good for Peter is bad for Paul and vice versa.

It’s a bit like Boris Johnson wanting everyone to enjoy Brexit, even if for the remoaners , it’s a pain in the bum. I don’t need people whooping it up in the land of the perpetual gilt (on the road to buy out) , when I’m trying to get on with business as usual!

Business as usual for me is the incredibly boring world of FABI, where funding levels do not jump up and down because Mark Carney breaks wind over monetary or fiscal policy. FABI is based on real world economics, what people make and how companies prosper, rather than the seemingly arbitrary decision of the Bank of England or the Fed.

As a DC investor, I am into patient capital, I am 56, I don’t want to start drawing down till my appetite for earning diminishes (and it’s showing no sign of diminishing). Consequently, what happens to interest rates is of no consequence to my pension.  I’m looked after by my former employer (thanks very much Zurich Financial Services) – I’m very happy for them if they are a bit more solvent but I was even more happy when they carried me through periods of insolvency.

So I’m alright Jack – but what about the rest of us!

I do appreciate David Robbins tweet .

Higher yields produce lowest aggregate s179 deficit in nearly four years. But headline £51bn shortfall = £174bn of deficits minus £123bn of surpluses. £174bn arguably more relevant for potential PPF claims.

— David Robbins (@David_J_Robbins) February 13, 2018

If David is worried about the impact of those schemes in deficit going into the PPF, then he should remember that those in DC have just taken a PPF style haircut (10% off) in one month!

And if he’s worried about the financial resilience of the PPF, he should remind himself (I’m sure he does) that the biggest winner from the recent uptick in gilt yields, will be the PPF itself, which is inexorably heading for self-sufficiency at a heady rate.

As we in the Friends of CDC maintain, the PPF looks like a very ugly CDC scheme right now, ugly in that it is full of ugly assets , but friendly as it is going to pay out pensions to millions of people in the most efficient of ways.

DB has a strong chin!

The DB world, and especially the PPF, can look at that  £123bn shortfall with the calm eye of a champion boxer;

“give me your best shot”,

knowing it’s got fitness, a strong chin and resilience!

Because of strong DB schemes (like the one I’m in – praise be!) and because of the PPF, we have a lot of people in this country who have certainty of a supplement to their state pension. They are the lucky people with a DB promise. I am one and I thank goodness I am.

But DC does not know how to cover up!

As said before , I’m not worried that I’ve lost 10% of the paper value of my DC in a week, there are ten years plus of work in me yet!

But there are many I know, including those I’ve met through working with BSPS members, who do not have any way to cover up. If you are in an equity based DC scheme, especially in drawdown, you are hurting. If you are about to drawdown for whatever reason and are in equities, you are in an uncovered position right now.

I am sure most people reading this blog, are able to live with that, but it’s the people who don’t spend time reading pension blogs (eg 99.99% of the population) who I am worried about.

We need to think about them – just as the CWU have been thinking about the 142,000 postal workers. For while the Royal Mail DB scheme , is safely tied up in the harbour (close to 100% gilt funded – immunised from stormy weather), those in DC are taking a right pummelling from the financial storms.

Former DB members of Royal Mail are being offered a CDC alternative, one that pays a wage for life , not a “pension pot”. They can rightly look forward to a pension – albeit a pension that is to a degree – market related.

Those who have and are transferring out of DB schemes have no such prospect (yet). those who are being shoved into DC schemes (as those in USS and BT are about to be) have no such comfort.

Feeling DC sick?

So while I am happy that DB is looking more secure, while I am comfortable that the PPF is heading for self-sufficiency, I am not happy or comfortable for most people in DC. Most people in DC are feeling DC sick right now, having been tossed around by the market for the past couple of weeks.

If you are DC sick and want some relief – come and join the Friends of CDC!


target pensions

Posted in CDC, pensions | Tagged , , , , , , | 3 Comments

Complaints about complaints


The haunted eyes of Franz Kafka


The Pension Ombudsman has been in touch with me over this blog and wants me to point out that some of the cases with him have taken 4 years for resolution. Clearly some cases are “broke”! Apparently the lease is up in Victoria and – in response to Eve’s question, I do believe that the current support will be enhanced. I am not sure that everyone in TPAS is as pleased to see this, and I’m not sure that Canary Wharf is where I’d like to see the Pensions Ombudsman, but if Mr Artur has the good will to call me up to allay my fears, then I have the good grace to publish the upshot of what he says. I hope that we will have an upgraded system!

+++End of Update+++

If it ain’t broke..

I ‘ve just read news that from April, will see 350 TPAS volunteers, who currently deal with dispute queries, housed under the same roof as The Pension Ombudsman in its Canary Wharf offices.

This does not feel me with a warm inner glow. Canary Wharf is a kind of incubus for complaints for other reasons. It is Europe’s capital of corporatism, even the FCA are desperate to get out!

I have a vision appearing of a Ministry of Complaints , a Kafkaesque building in which TPAS volunteers are wracked with anxiety and guilt , turning into monstrous vermin in their metamorphosis from their current happy state.

The delicacy of TPAS and the current system

The process of escalating a pension complaint is currently a delicate one. Many complaints are dealt with by the expert case handlers of TPAS under the care of Michelle Cracknell and this leads to many of them being resolved by the Pensions Ombudsman.

In my experience, the system works well, it relies on common sense as much as on a rulebook and much of the concern and worry that is at the heart of the complaint, can be diffused and dissipated by TPAS’s experienced case-handlers.

This may sound a little rustic and old fashioned, but when you look at the quality of the case handlers, you have to ask – is this system broke?

I hope I am wrong, but I do not feel that referring my complaint to a Canary Wharf based Pension Ombudsman, is going to go down well with the worried and concerned.

The politics of “process”

This has the whiff of politics about it. The decks are being cleared for the new super-guidance- quango, the Single Guidance Body. Is this too to be streamlined in this way? Will it in the process, be shod of its charm and personality in favour of “process”? Will it be subject to a dashboard of performance indicators reviewed by panels of faceless bureaucrats?

The Pension Advisory Service is a national treasure, it gives to the pension community and on a tiny grant it has become a beacon of good sense in a naughty world. Dismantling it and merging it into the  corporate mainstream would be a big mistake.

I hope that whatever the intention is – for the new guidance body – it retains the integrity it has generated for itself in its Belgrade Road location and that it remains under the leadership of its current management.

Complaints about complaints

We may have complaints about the complaint procedure, I agree that it is hard to escalate and many give up rather than see their grievance through.

But you cannot resolve the heartfelt problems of those who feel aggrieved through digital decision trees.

Complaints get resolved by people talking – often meeting – and resolving differences in the way that human beings can.

Taking the complaint procedure into the corporate miasma of Canary Wharf and generating a super-complaints ministry, does not inspire me with confidence, it fills me with dread.

Workers Accident insurance institute

The Workers Accident Insurance Institute, where Kafka worked

Posted in pensions, TPAS | Tagged , , , | 1 Comment

Oxford’s and Cambridge’s role in the demise of USS – Mike Otsuka

kings cambridge

To be more precise: what follows is an account of the role of these two universities, and their constituent colleges, in the demise of USS as a multi-employer scheme that promises a decent, defined benefit (DB) pension to its members. In the past, this promise has been generous and affordable, owing to the risk pooling across 68 well-established UK universities that the last-man-standing mutuality of the scheme makes possible. It is clear, however, that Oxford and Cambridge now want out of such a DB scheme. The clarity of this desire is revealed in the following figure:

From “Development and Background to UUK/EPF Guiding Principles” (February 2017)

It is striking that 73% of “Oxbridge” institutions — which must include constituent colleges as well as the universities — oppose the mutuality of USS’s last-man-standing arrangement, as compared with only 14% of all other USS universities (designated ‘Pre-92’).

They want out on grounds that last man standing exposes them to too much risk arising from “weaker” universities. In their submission to the September consultation, Oxford writes that “the level of risk being proposed is not appropriate for all institutions and allowing weaker institutions to rely on the strength of other employers in a manner which makes their pension benefits appear affordable must be addressed”. They conclude that a “DC-only structure…would help reduce the University’s concern regarding underwriting the risk of future benefit accrual for other institutions”.

In their submission to the September consultation, Cambridge objects that:

The University (and the other financially stronger institutions) continues to lend its balance sheet to the sector, which contains the cost of pension provision for all employers. In a competitive market for research and student places the University would be concerned if this appeared to be having an adverse effect on the University’s competitiveness (by allowing competitor universities access to investment financing or reducing their PPF costs in a way that would not be possible on a stand-alone basis).

Although this may strike some as an uncollegial, dog-eat-dog attitude towards their academic peers, Cambridge assures us that this is in the service of the greater good of society: “the University wishes to protect the long term health of the University as a major asset to the UK economy”.

Regarding the mutuality of the scheme, Cambridge writes:

· The University has a strong preference for sectionalisation, if this can be arranged, of both past and future service benefits and associated assets, with individual employers responsible for funding individual deficit amounts and future service benefits.

· If sectionalisation is unacceptable, then the University would look for the covenant reliance [i.e., level of investment risk that employers carry] to be reduced much more quickly….

The following question arises: if Oxford and Cambridge so dislike the ‘we’re all in this together’ last-man-standing mutuality of the scheme, why don’t they just leave the USS?

The answer is that this would be too costly for them, as it would trigger the need to buy out their liabilities on a ‘section 75’ basis. This is the cost of purchasing annuities from an insurance company that are on a par with the DB pensions they have promised their workers. This would be prohibitively expensive, since insurance companies are required to fund annuities out of a bond-weighted portfolio with much lower returns than USS’s portfolio. USS has estimated that the purchase of such annuities would be the equivalent of about 60% of pay, as opposed to the current 26% contribution level for DB pensions.

Oxford and Cambridge have, however, devised another, less expensive (to them) way of leaving the DB scheme: namely, pushing for its closure across all 68 pre-92 universities, with the upshot that everyone leaves it. This explains why they have been making the case to university employers (UUK) that DB is so risky that future pension contributions should either be entirely or at least very largely diverted into individual DC pension pots. Oxford and Cambridge are the most prominent and apparently hawkish members of the 42% of employers who ‘broke’ the September valuation by calling for a lower level of risk than USS proposed. Against the contrary views of the other 58% of employers, USS obliged the wishes of this minority, thereby rendering DB unaffordable.[*]

Oxford and Cambridge have, moreover, been moved to take action against USS by an exaggerated impression of the genuine risks to themselves of the last-man-standing arrangement. It should be emphasised that USS employers have explicitly refused to pledge any property or other assets held by universities as security against pension liabilities. The unfunded liabilities arising from a university that goes bankrupt would, instead, be covered only by increased pension contributions earmarked for deficit recovery, spread out among the remaining institutions. Moreover, the increase in such contributions arising from universities going under would be very small:

· If the smallest 50 institutions (by payroll) default, the subsequent increase in contributions of other institutions (as a % of payroll per annum) is 0.001%

· If the largest institution defaults, the subsequent increase in contributions of other institutions (as a % of payroll per annum) is 0.1%

· If the median 10 institutions default, the subsequent increase in contributions of other institutions (as a % of payroll per annum) is 0.005%

If these two great universities are so worried about risk, they would be better off moving their constituent colleges and other buildings, stone by stone and brick by brick, out of the flood plains on which they lie and onto higher ground. That would be taking action against a greater risk to their existence than the mutuality of USS.

Thanks to the many new readers who have come to my blog to read this post. Please click here to read my other posts on USS.

[*] Note: The individual constituent colleges of Oxford and Cambridge are among the 350 institutions that belong to USS. The 42% figure involves a headcount by employer. Since we have been able to identify so few universities that fall within this 42% (see comment thread), one wonders whether these colleges have been counted as many of these employers. If so, this 42% figure will have been inflated, in a manner that involves double-counting. Assurance from UUK that this is not the case would be welcome.

Mike 27

Posted in actuaries, pensions, USS | Tagged , , , , , | 2 Comments

BSPS – with the benefit of hindsight.


“I wonder how many of the financial advisors who recommended transfers out , predicted a 10% drop in the stock market in one week? Not many is my bet.”

This is a post on the main British Steel Pensioners Facebook page.

So far it has attracted two comments; this sage advice

“No one can predict things like this . That’s how investments like these work , especially with pensions . It’s a long ride . What you have to worry about is when you retire and what your investment looks like then , not short term

and this savvy observation

10% drops good for me transfer is pending.

actually there is a good deal of money “pending transfer” some estimates suggest that only a third of the transfers requested, have so far been completed.

All the same, there are a lot of steel workers who will have lost more in a week than they will earn in a year.

Easy come, easy go?

“Is it ever real money, until you can spend it?”,

a question a relative of mine asked over the weekend.

“Personally I will withdraw my entire pension fund on the day I am able to, in order to secure it as my own money and to prevent it disappearing due to mismanagement”.

a comment (8.58am 11/02) in the Daily Telegraph behind Katie Morley’s article on pension freedoms.

What this suggests is that privately held pension pots aren’t seen as “fungible”, that is , they cannot be exchanged for goods and services, pension money is not real money.

The arrival of billions of pounds into the pension pots of those leaving BSPS, was not anticipated as a transfer of wealth by most steelworkers. As one person commented on a recent post on this blog, most steelworkers feel they are transferring fiduciary control of their money from trustees to financial advisers. Many expect their cash flow plans and drawdown projections to be met with the same certainty as they expected their BSPS pensions. That is not something I can prove, it is simply an observation from conversations I have had.

The lessons ?

This week I will be talking with two of Britain’s largest pension funds about the lessons of Port Talbot.

I have put the Facebook quote at the top of the article on the front page of the slide deck we will be using.

This week Frank Field and the Work and Pensions Select Committee will be publishing their report into the British Steel Pension Scheme. I hope they will addressing that very question.

And as one inquiry closes, another is opening. The same question will be asking whether there is use for collective DC pension schemes.

I think that if I was a member of the British Steel Pension Scheme and was offered a transfer value worth £400,000 and had the choice of that or a pension sponsored by an organisation I loathed or a pay out from a Government lifeboat, I would consider that a good alternative.

That the invested value of that money could fall £40,000 in  a week would not touch me, since the £400,00 was not “fungible”, it did not translate into spendable cash.

And yet that £400,000 represented only 95% of the fair value of the BSPS pension being given up (an insufficiency report was in place) and those who still have rights within BSPS have not been impacted by the recent sell-off.

For most people who have or who are taking a transfer, the penny has not dropped. The lessons of exchanging a pension for a pot, will be learned over time. Perhaps over time, we will come to understand why the FCA consider over 50% of the advised transfers they have recommended  – unsuitable.

Another way

For those whose money has left BSPS, there is no way back. I do not expect to see mass restitution, even if the Government demanded it, the SIPPs into which most of the money has transferred are not financially resilient enough to afford the restitution payments.

The “other way” for people to get paid a pension, maybe a better way – is to return to a collective pension – written as a collective defined contribution scheme.

If you remember the poll conducted on the Facebook pages at the commencement of the BSPS Time to Choose,  you will remember that most people who responded said they did not want freedom to do what they wanted, they just wanted a new organisation to manage their money (pot).poll bsps anon

I suspect that had BSPS had the leadership of the CWU- as Royal Mail had – they would have been asking – as 142,000 postal workers are asking – for a “wage for life”.

The postal workers have a settlement with Royal Mail , but the steel-workers who have transferred, have no settlement with Tata.

I hope that the Work and Pensions Select Committee will make the connection and for see how the postal workers settlement could have been a BSPS settlement. If not sponsored by Tata, a CDC “wage for life” – could have been offered to steelworkers as a default transfer option.

In my opinion this wold have made the “Time to Choose” a whole lot better. But that is with the benefit of hindsight and as I type today – with some trust in Government foresight.

There is still no certainty that Royal Mail will get its pension settlement. If the argument for why we need a new type of pension lies anywhere , it is in that statistic that 83% of steelworkers responding to the poll “wanted to take their pot and let their IFA manage it”.

time to choose



Posted in BSPS, CDC, pensions | Tagged , , , | 1 Comment

“Savers to be discouraged from raiding pensions” – NS Sherlock

no shit

Apparantly DC pension providers are considering giving pension savers guidelines as they start drawing down money so they don’t run out of money. (Daily Telegraph- savers to be discouraged from raiding pensions). Presumably a responsible pension provider would also encourage those drawing down a bit slow of the risk of not having a life as they get old.

The move comes as the FCA prepared to review the drawdown market in April. To date the only coherent advice I’ve had on how to drawdown my pot is from Adrian Boulding (wrongly described by the Telegraph as current char of PQM). Adrian “advised” me of the 4% rule of thumb – which would allow me to solve the hardest, nastiest problem in finance with the calculator on my phone.

Of course Adrian was tongue in cheek and of course managing a drawdown takes an adviser, well it does if you work for Royal London.

Steve asks a rhetorical question (one which he knows the answer to). Steve – the author of the Defined ambition of Pensions Act 2015, knows that single firms can give advice to all the people in a collective DC arrangement by pooling their life expectancy and their assets and paying them a pension based on mutuality.

Mutuality is of course what Royal London believes in, so Steve is struggling a bit not to agree with me! I won’t tweak his tail any further as I would never want the author of the pension freedoms to be seen on the side of collective pensions!

What will the FCA conclude when they look at drawdown in April?

I suspect , judging on experience in countries more reliant on DC pensions than the UK, with mature DC systems than ours, that most people struggle to manage the hardest nastiest problem in economics themselves, and that most advisers can’t help them very much – other than to advise them of the consequences of the decisions their clients have just taken.

If you had decided to buy a car from your pension pot and drawn down £10,000 in one go half way through January, you would have found yourself depleting your drawdown by considerably less than if you’d cashed out 10k about now (Feb 11). We cannot account for the vagaries of a stock market that decides to shed 10% of its value in a couple of weeks because of “sentiment”. We should not try to catch a falling knife.

But could an adviser foreseen the timing and incidence of the stock market fall – any better than their client?  I very much doubt it. I think that advisers are good most of the time like I think absolute return funds are good most of the time. The test of a food adviser (and an absolute return fund) is to manage the tough times – as we’ve been having.  And before John Mather leaps to comment, I think the best advisers are brilliant in managing retirement cash-flows and will be worth every penny you pay them.

However, they are not able to predict crashes or corrections and will tell you that if you are using your pension pot for major capital expenses (buying cars and houses etc) you are running big market-timing risks.

What the big pension fund providers who offer drawdown should be saying to non-advised clients is this.

25% of your pension pot can be taken as cash and if you want to use this for big cash items like cars and kids house deposits, then take the money and put it in a cash ISA or a bank account and do not rely on the stock market for this money.

The rest of your pension pot is designed to pay you a pension (that’s why you got the tax-relief on the contributions that built it up and why you get tax-free growth (nearly) on the money in your pot today. If you want certainty on this money, buy an annuity, if you don’t – then invest. But if you take the risk of investing on your own, then you run the risk of ruin – and if you don’t have the appetite to lose some of your money, then don’t invest. If you want someone to help you, take an adviser, but don’t think that by having an adviser, you are guaranteeing you will be alright.

Now if that is what the providers are going to tell their customers, I would be perfectly happy, because that is what I believe to be the case. If anyone disagrees with me, they are welcome to say so in the comments box below.

Now for those people who read the above explanation who don’t want an adviser and don’t want an annuity and aren’t happy with the prospect (however remote) of their money running out, I would propose another paragraph.

If you are not happy with the above, I suggest you wait a bit and investigate transferring your pension pot into a CDC scheme. These schemes don’t exist yet, though the Government promised you could have one in 2015. However, it now looks as if they are likely to come along reasonably soon. When they do come along, they will be addressing the problems you currently have.

For the moment you have our sympathy, you are faced with the hardest, nastiest problem in finance, and there’s not much that anyone can do for you.


Posted in CDC, dc pensions, pensions | Tagged , , , | 6 Comments

Aegon stung into action by the Bee!


The repression of nearly 900 Aegon customer’s is coming to an end

Let your people go!

It looks like Aegon has backed down and agreed to treat its customers wishing to transfer to PensionBee, fairly.

This report, based on what appears to be a press release from Aegon, suggests that Aegon will release the 874 policyholders who they’ve trapped in their departure lounge for up to 214 days.

pension bee tracker

By any standard , Aegon’s behaviour has been reckless.

    • Those stuck in the lounge have been forced to pay high charges for funds they no-longer want to be in. Financial loss will be quantifiable, Aegon are running severe risks of litigation – especially if a class-action is invoked from those who can prove loss.
    • Nearly 41,000 people have watched PensionBee’s customer video explaining to potential customers how to leave Aegon. The video has been well-liked , even by Aegon’s senior management in the Netherlands
  • Aegon’s UK management have messed with Aegon’s corporate brand, holding it up to ridicule on pages such as mine and in the financial press. They risk much wider coverage , should a national get hold of the story.
  • Aegon’s behaviour should be of interest to the FCA; they have not treated customers fairly and at a time when we are trying to get better pension engagement with ordinary people, Aegon have contravened just about every unwritten and written rule in the book
  • Aegon have shown up the timidity and lack of independence of their IGC which has done nothing to bring it to heel.
  • Finally Aegon has shown itself thoroughly incompetent in its conduct of due diligence. If it cannot see a good’un like PensionBee, how could it spot a bad’un.

During the course of the 8 months that it has turned off the tap to PensionBee transfers, PensionBee has received a substantial equity injection from State Street. Did it not think to refer to that due diligence and ask itself why one of the world’s largest fund managers was backing the management of the organisation who’s integrity it was questioning.

In a report by Money Marketing, Aegon  confirmed it will resume electronic transfers to PensionBee, providing it gets “personal assurances” from the directors of the company about key aspects of transfer process.

 “We are seeking assurance from PensionBee that they always capture clear authority from clients to carry out the transfer, and that they provide appropriate warnings and information to customers to ensure they understand any features within their current policy which will not be replicated within the PensionBee pension.”

This ranks as one of the weakest climb downs in the history of financial services – “personal assurances”? Knowing the management of Pensions Bee I have personal assurance a plenty of their good intentions. I can also see that the customers who’ve been able to escape the departure lounge are extremely happy in the Pension BeeHive.

pension bee trust pilot

I have never seen a trust pilot score this high (Pension Plowman)

So what is going on?

Why should Aegon hold itself up to general ridicule, risk the wrath of the FCA, the pension press and most importantly its own stakeholders – it’s shareholders and customers?

I don’t know. I don’t know why the Aegon IGC have not intervened as they could, I don’t understand why BlackRock, which recently sold its DC platform business to Aegon (and which manages the greatest part of Pension Bee’s money) didn’t intervene.

I don’t understand why the FCA hasn’t commented.

I don’t understand why the start-up, is being bullied in this way and why Aegon cannot see how embarrassing it is to their staff, who are being tarred with the corporate brush.

None of this makes any sense at all.

In one sense, I don’t care much, so long as the 874 people in the departure lounge catch their flight in the next couple of days and buzz off to happier pastures.

Corporate dis-Grace.




But I don’t think we can just let this matter drop. It is time to hold Adrian Grace and his management team to account for the distress they have caused PesnionBee’s customers and PensionBee (which is also out of pocket over this).


If we think it is ok for Aegon to trap customers in the pension departure lounge, we presumably think it’s ok for others – including NEST – who frankly haven’t got a much better record, nor the various third party administrators running our single employer DC pension plans.

While they debate standards for the passing of data to the Pensions Dashboard, many administrators still haven’t got to first base when it comes to passing DC transfer values to third parties.

Aegon is actually in the Origo transfer network and so is PensionBee; there was no excuse for Aegon not to have treated PensionBee as it does the other members of the network and exchange monies with them as pension partners.

But most of the occupational DC pensions are not subscribing to the Origo pension service. NEST tell us that they do subscribe but only have a process to take money in – not pay money out!!!

In short, if we allow Aegon off the hook, then we allow a great part of the pension industry to assume that pots can follow members at the pace they – the fiduciaries dictate.

This is as ludicrous as the attitude of Aegon. Driving up administration standards for occupational pensions is as important as changing the customer care of some insurers.

Support PASA in improving transfer standards.PASA

Fortunately, the rights of ordinary members of occupational pensions to first class administration are championed by an independent body for which I have great respect.

Margaret Snowden’s PASA organisation, which (among other things) campaigns for the rights of deferred DC members is holding a session of its conference in London on 13th February (next Tuesday afternoon).

margaret snowden

Margaret Snowden

Margaret (Princess that she is) has released a press release which tells us

“With GDPR, IORP II and Pensions Dashboard on the horizon, data management must be top priority for trustees and it is important that deferred members are not forgotten in this process.

Although active members may present the potential challenges for years to come, in actual fact, it is .. deferred members who pose the greatest number of current challenges for schemes.

Deferreds account for a huge proportion of overall membership and liability, so not giving them proper attention can lead to any number of problems.  These might include transfer requests and concerns about delays, as well as poor data quality hampering de-risking activities for schemes thinking about the ‘end-game’

.“Our conference has been set-up to provide people with practical advice on how to better manage data and improve transfer processes, whilst looking at how new kinds of technology might improve the way deferred members interact with administrators and create a more positive process for all”

I think they’re talking mainly about DB transfers , but DC transfer processes are just as important.

Sadly I can’t make it , but I hope that some people reading this article will, and will ask

“why so many third party pension administrators do not use the Origo clearance system”.

If you want to find out more about the good work PASA does, here is the link to PASA. 

If you want to register for the Conference, here is the registration link. I thoroughly recommend the event.



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

“No need for CDC to ape the Dutch” – quips Con Keating.

Con the ape

This is a review of: The Legal Differences between CIDC and CDC by Prof. dr. Hans van Meerten and Elmar Schmidt, February 2018. It takes the form of a line by line commentary (in red) on the verbatim text of the paper, which is followed by some concluding remarks as to the paper’s utility in the current discussions on CDC in the UK.

The author is Con Keating , well known to this blog. The Ape is very much his animal. His remarks are in red.




Both Collective Defined Contribution (CDC) and Collective Individual Defined Contribution (CIDC) schemes place any risks on pension scheme members instead of an external risk-bearer. This is a gross oversimplification. There is nothing to prevent any CDC scheme from buying insurance against any of the risks it faces.

In CDC schemes, assets are pooled collectively, allowing for risks to be shared between pension scheme members. This is incorrect. The pooling of assets in any collective arrangement is the acceptance, by the parties to it, of a common risk and reward profile. There is no sharing of asset risk among these members.

In Individual DC schemes (IDC), the scheme members bear such risks individually. But CDC’s collective nature leaves little room for individual risk management This latter sentence is untrue. The members of a CDC scheme have available to them a similar set of risk management opportunities as individual DC members.

and the pension assets are allocated to scheme members via rules that are often complex and ambiguous. This may be true in some cases but it does not have to be the case. CIDC schemes strive to retain the desirable aspects of CDC and IDC schemes, while improving on some of the drawbacks. The veracity of this statement depends critically on the definition of CIDC.

The drawbacks of a CDC scheme are mitigated by the introduction of

1) individually quantifiable pension pots through individual accounts, Without definition of an individual account, the content of this statement is difficult at ascertain.

2) individual risk management This is nonsense, The important aspect of CDC is that it should treat members equitably.

and 3) a simplified scheme. Simplicity may be desirable in some cases but it is neither necessary nor sufficient for a sustainable CDC scheme.

The drawbacks of an IDC scheme are mitigated by

1) mandatory participation, This is a complete nonsense. Compulsion is neither necessary nor desirable in CDC.

2) collective management of assets,

and 3) sharing of risks. It therefore seems that CIDC schemes have a number of important advantages over CDC schemes. This assertion is a complete non-sequitur.

CIDC scheme members should be clearly informed of their legal position vis-à-vis their employer and pension provider, There is no need for any employer to participate. CDC schemes may operate as non-workplace pensions. The provider of course is the collective; for example, it may be a member mutual trust in which a member’s interest is clearly defined. and the contract should clearly define the risks. This can be achieved within CDC. Scheme members appear to benefit from individual risk management and individually identifiable pension pots, while employers and/or pension providers seem relieved from risks and enjoy the security of fixed pension contributions. Employers, when present, pay contributions for service rendered; that is all. The content of the first half of this sentence, because of its ambiguity, is impossible to judge.

The possibility to take out a lump sum seems contrary to the collective sharing of risks in both CIDC and CDC schemes. Lump sums are not a problem in CDC. Indeed, one of the unique properties of the form of CDC I have advocated is that the lump sum equates the monetary amount of the asset share basis of DC with the income share basis of DB. In general, transfers into and out of CDC schemes may be undertaken at any time at the net asset value of a member’s equitable interest.


In the simplest archetypes, pension schemes can be divided into Defined Benefit (DB) and Defined Contribution (DC) schemes. They can be told apart easiest by remembering who – in principle – bears the risk: in a DC scheme, the scheme members themselves bear the risk; the employer commits merely to paying a fixed sum as a contribution. This risk classification is incomplete – DC is simply a tax-advantaged savings scheme while DB promises an income for life in retirement. This distinction finds expression elsewhere; for example, the tax-free lump sum of DB is 25% of the pension income expected while for DC, it is 25% of the assets. Comparison of the two is inevitably one of apples to pears,

Pension benefits are determined by what has been paid into the scheme and the investment yield, minus costs. A pure DC scheme – also known as Individual Defined Contribution (IDC) – features no risk sharing, apart from statutorily required elements of solidarity, and the sharing of investment risks that appears inherent to the collective management of the investments. The misconception of risk-sharing in collective schemes is repeated.  In a DB scheme, the risk bearer is typically the employer or a pension provider. This is incomplete. The ultimate risk-bearer is the scheme member. It arises from situations in which the sponsor employer is insolvency and the scheme in deficit relative to the cost of replacing the benefit promised. This is compounded by priority rules among classes of scheme member.

The employer commits to a certain level of benefits to be received by the employee upon retirement. In the Netherlands, the pension provider has a number of options to compensate for underfunding without increasing pension contributions, such as a benefit reduction or non-indexation. Non-indexation is problematic. It is profoundly inequitable among members. Even pensioners in payment have different expected periods of receipt of their pensions, corresponding to their life expectations, and with that bear different proportions of the loss.

In reality, few schemes conform to the description of either archetype, and can thus be placed on the spectrum that exists between them. On that spectrum, Collective Defined Contribution (CDC) and Collective Individual Defined Contribution (CIDC) schemes can be found. There really is no continuum between the two types of scheme. In the Netherlands as in other countries, a discussion questioning the sustainability of DB schemes and their pension promise is taking place, as well as on their complexity. See my response to the DWP’s DB Green Paper.


Defined Benefit schemes feature collective pension pots and the assets are managed collectively, making the identification of who owns what complicated. There is an embedded misconception here. The members of a DB scheme do not own the assets; they have an interest in the scheme. The analogy of the relation between a shareholder and the company’s assets is perhaps helpful. The link between benefits and entitlements in these schemes is not easy for a scheme member to understand, and these collective pots allow little room for tailor-made solutions to accommodate wishes and risk-appetites of various age-groups. As stated earlier, the members of a scheme do not own the assets. Their wishes, risk-appetites and desires are irrelevant as their benefits and entitlements are clear; they are to a particularly formulated income in retirement. Freedom and choice has to an extent muddied the waters here, but that is merely transfer of the asset equivalent of their interest to the extent that it is secured by asset coverage. Scheme members have limited control rights usually implemented through voting on selected matters.


As a way to limit the risks stemming from DB schemes for employers, Collective Defined Contribution plans (CDC) were created. These are hybrid schemes: a combination of elements of DB and DC. The premium is fixed for a number of years – a typical DC feature – and the level of pensions is typically defined in advance – a typical DB feature – with the explicit caveat that the level of pensions is guaranteed only to the extent that premiums paid are sufficient to reach that level of benefits. The risk that the premium is insufficient to achieve the pension benefits is borne by the scheme members collectively. There is confusion here between premium (contribution) and assets.

In the Netherlands, CDC schemes of two types exist. In the first, an assessment is made annually of the annuity that can be purchased on the basis of the contributions paid. Most CDC schemes in the Netherlands, however, are based on a career average salary like traditional DB schemes, but with the clear message that no guarantee as to the level of benefits is given. The employer seems not burdened by any legal or economic risk regarding the level of pension benefits achieved. In the Netherlands, CDC plans can also qualify as defined benefit schemes if there is a sufficient amount of certainty that the agreed upon level of pensions will be attained. Members of CDC schemes should be clearly informed of the manner in which the amount of the contributions have been determined and how likely it is that these premiums will achieve the indicated level of benefits.

In a Collective Defined Contribution scheme, the assets are pooled collectively. Such collective pooling allows for risk sharing between members “both within the same generation of members (i.e., intra-generational risk pooling) and risk sharing between different generations (i.e., inter-generational risk sharing).” As noted earlier there is no risk-sharing in collective investment of this type and it is notable that the paper continues not with an asset illustration but with mortality, where risk of different lifespans may be efficiently shared. For instance, if one scheme member lives longer than expected, the increased cost of that scheme member’s good fortune can be financed through another’s misfortune of living shorter than expected.

In contrast, in “pure” DC schemes, or IDC schemes, the scheme members bear the risks largely individually. In collective schemes without sponsor guarantees like CIDC and most CDC schemes, surpluses or deficits are not transferred back to the sponsoring undertaking or made up by it, but are rather shared by the scheme members collectively between young, old and future generations “by adjusting either contributions, or benefit levels or both, which leads to inter-generational transfers.” It is important that contributions are fairly priced, neither repairing past deficits, nor distributing surpluses Ex ante, the contributions are set in such a manner that a newly entering generation funds its own retirement, but ex post, it may turn out that a given generation is a net payer or a net receiver. What is omitted here is that the aggregate risk faced by a member is far lower than in individual DC. It is clear, then, that in comparison to a DB scheme, any risks are transferred to the scheme members. But the risks in DB are not borne by members equally. The risk for a high paid/high pension member in CDC may be less than that in DB, the loss relative to the PPF cap. This need not be a problem in itself, although the scheme members should be duly informed of their new economic and legal position. In the UK the legal position would be the same if they are both trust based. The economics could though differ.

Although CDC schemes allow risk sharing, their collective nature appears to have as a consequence that little room is left for tailoring such risk management to the needs of individuals. In my vision of CDC, a member could transfer at any time. A criticism leveled at such schemes is that the pension assets are allocated to scheme members via rules that are “typically incomplete [read: unclear] and often modified”, and the collective nature of CDC schemes makes determining an individual’s pension assets and risk-sharing arrangements ambiguous. The criticism may be levelled but it is not warranted.  The rules according to which these risks are shared can be complex and arbitrary, but they do not need to be so.

In addition, for a CDC scheme, the premiums are not determined individually but collectively.15 In the Netherlands, a system of so-called average premiums is used for DB and most CDC schemes, whereby all pension participants – regardless of their age – contribute the same percentage of their salary and receive a set percentage of accrual in return. This system of average accrual has been under discussion recently in the context of talks on pension reform,16 as it is said to be unfair to young employees whose contributions still have years of investment returns ahead of them, while those of older employees do not – yet under the current system, they are valued the same. This analysis is incomplete. At very low rates of expected return, the old in fact support the young, and in any event, the young may expect to grow old. “Valued” here is ambiguous; in scheme valuations a common discount rate is applied to all liabilities making the stated present values reflect the age of the member.


This system finds its origins in the post-war era, when it was necessary to enable older employees to build up a decent pension in a relatively short period of time.18 The Netherlands Bureau for Economic Policy Analysis (CPB) notes that this system is “not ideal or even problematic”, as it leads to a structural redistribution from younger to older scheme members, and from scheme members with low life expectancy to those with a high life expectancy. The first part of this sentence is not necessarily true and it fails to recognise that the young will grow old. This system hinders portability and labor mobility. As CDC may permit transfers at any point in time at the net asset value, neither of the assertions holds true.



CIDC schemes strive to retain the desirable aspects of CDC and IDC schemes, while improving on some of the drawbacks. A CIDC scheme features a fixed premium and collective asset management (as in a CDC scheme), but with individual pension accounts. The individual account appears to allow for clear definition and individualization of the sum in the scheme member’s pension pot and the risks involved. In a system without average contributions (back-loading), the accrual of pension rights would be actuarially fair: the benefits correspond directly to the contributions and their investment returns. In this arrangement we have the same one to one mapping of contributions and investment returns as with individual DC – there is no risk sharing or pooling. The sole potential benefit would arise from economies of scale and scope in investment management.

The drawbacks to the IDC and CDC schemes are addressed in a CIDC scheme in the following ways. The drawbacks of a CDC scheme are mitigated by the introduction of 1) individually quantifiable pension pots through individual ‘semi-legal’ (see below) This appears to be absent accounts, 2) individual risk management through tailored investments, enabled by individual accounts This runs entirely contrary to the collective-wide risk pooling and sharing. and 3) a simplified (and therefore more understandable) scheme. I wonder how many will understand the implications of or ways to hedge the risks they face in CIDC. The drawbacks of an IDC scheme are mitigated by 1) mandatory participation, This is an appalling idea. Opting out of a pension scheme has been a right in the UK at least since the early 1990s – compulsion has numerous other deleterious effects on a collective scheme. Under compulsion, trust will not develop easily. The absence of exit (or non-joining) will lower the governance discipline and increase the likelihood of management abuse.2) collective management of assets, leading to scale economies and 3) sharing of risks, such as investment and certain longevity risks. Longevity risk is shared by redistributing leftover funds from scheme members who pass away early into a “collective pool”, to the benefit of surviving scheme members, just like in a CDC scheme, but in a CIDC scheme only risks are shared, that can be shared, such as micro-longevity (A gets to be older than B). It appears that annuitisation is also compulsory in this model. Furthermore, a CIDC scheme is fully funded per definition. This can only hold true if the entire proceeds of the accumulation phase are utilised in annuitisation by all.

The collective nature of DB and CDC schemes leaves fairly limited room for individual freedom of choice for scheme members: This is simply not true. The member has the freedom to transfer at any time, to arrangements which permit the desired actions.


“CDC plans pursue the same uniform investment policy for all participants, even though older participants would typically make a more conservative trade-off between risks and return than younger participants.” Embedded in this is the idea that members cannot tolerate market volatility at older ages – one of the principal attractions of CDC is that the collective may insulate older members from this while not foregoing investment return. In CIDC as described in this paper this advantage would be lost.

Contrariwise, younger scheme members could benefit from a more aggressive investment strategy. In a system in which more and more risk is shifted to the scheme member, a dearth of options to adapt the scheme to personal preferences could be problematic. I cannot understand this convolution.

The individual accounts in CIDC schemes make individual tailoring of investments possible. This also makes it possible to share only those risks that are appropriate to share, such as micro-longevity risks that occur within a certain collective rather than macro-longevity risk. It now appears that members of CIDC schemes may opt into or out of some aspects of risk pooling or risk sharing while remaining within the scheme. This introduces different classes of member;it also begs the question as to when this decision may be taken.

Even though IDC schemes can afford scheme members with more options for personal decisions, they do not insulate such members from the potentially far-reaching consequences of the many decisions they must potentially make in such schemes. Default options can provide solace in such situations, but the absence of risk-sharing in such schemes can place scheme members at risk of adverse developments in, for instance, financial markets or life expectancy. Future needs are difficult to anticipate and the future consequences of decisions made in the present are difficult to foresee: individuals are left to invest in the “unknown and unknowable”.



Both CDC and CIDC schemes aim to fix the afflictions of the current pension system in the Netherlands. From the perspective of the employer and/or the pension fund (the scheme sponsor(s)), an appealing feature is the absence of a guarantee of a certain level of pension benefits, and the contributions are fixed for a number of years. The risks in both schemes are transferred unambiguously to the scheme members, and they should be clearly informed of that. It seems, however, that CIDC schemes hold a number of advantages over CDC schemes for scheme members. If there are any they have not be shown in this paper.The more individual nature of CIDC schemes not only makes the identification of a scheme member’s pension pot easier, it also allows for more individualized risk management and appears to afford more scope for personal freedom of choice. It does so at the cost of abandoning the collective risk-pooling and sharing of CDC.


In addition, there appears to be a lower risk of inequitable transfers between generations. In fact, with CDC this risk can be entirely eliminated.

Since 2015, UK pension scheme members have the option of withdrawing the funds in their pension pot as a lump sum for DC schemes. The result of such a withdrawal is that those choosing the lump sum withdraw themselves from a pool in which risks can be shared. This conflates several aspects-the longstanding tax-free lump sum may be taken and the balance placed into a drawdown arrangement, which includes the possibility to take all, after payment of income taxes. The tax-free lump sum may be taken with the balance being used to purchase a life annuity of one form or another.

Other options – such as a fixed-term annuity or a drawdown arrangement – appear to allow for (limited) risk-sharing, but a lifelong, fixed-rate annuity does not appear possible without some form of external risk bearer. In fact, the member may structure their drawdown profile such that it resembles a life annuity, though of course the funds may be extinguished before the member dies. In the case of a flexible annuity or a fixed-term annuity, the risk can stay with the scheme members within their risk pool and an external risk bearer does not appear strictly necessary. In that case, the amount of the annuity can fluctuate based on the investment returns and life expectancy. Indeed, with risk-pooling and sharing this fluctuation may be minimised within CDC.

Perhaps the most important thing to recognise is that the individual member’s need to annuitize at retirement is intrinsically the same as the need to buy out pensions on sponsor insolvency. In one case with timing known and the other unknown.


However, opting for a lump-sum would mean not only an end to risk-sharing in the payout phase – in which the sharing of longevity risk seems most important – but it seems to be contrary to the idea of a CIDC scheme (and indeed a CDC scheme). Allowing members to withdraw the net asset value of their equitable interest at any time, by transfer or as tax paid cash, is perfectly sensible. It will tend to engender trust and confidence in the scheme and its collective benefits. Such schemes are meant to share such risks: if not, the first ‘C’ in the CIDC/CDC name will become meaningless. This is incorrect. It would still only reduce the collective risk sharing to that associated with the award process and the definition of a member’s equitable interest, if all members were to do this. The UK legislator could bar the possibility for taking out a lump sum for CIDC or CDC schemes. They could but this would lower income tax receipts.


In the Netherlands, the qualification of CDC and CIDC schemes is not always clear.


The Dutch Central Bank (DNB) requires those CDC schemes which are based on an average career salary to comply with the same funding requirements as a ‘conventional’ average salary DB scheme, which – in principle – guarantees a level of pension benefits. DNB states in its guidelines that the maximum premium for CDC schemes should not be fixed for a longer period than five years. This is in contrast to a DC scheme, for which the DNB allows a fixed premium for an indefinite period. No explicit guidelines appear to exist for CIDC schemes, but it seems that DNB’s approached could be extended to these schemes as well. These rules have little merit for a CDC arrangement and should not be imported to the UK. This section is discussed further in concluding remarks


We would like to conclude with a caveat. In the Netherlands, the discussion on the revision of the pension system to a certain extent revolves around creating a system that allocates “clear and individual property rights” to pension scheme members, and CIDC schemes are favored by some because they are said to be able to provide such rights. In the UK members have well-defined property rights in trust based DB and DC. However, such terminology is confusing as the assets in the scheme do not belong to the scheme member as such. In a DC and CIDC scheme, it is possible value an individual’s pension pot, but that is not the same as saying that the participant owns that sum. It appears that their Individual Accounts of CIDC are in some ways similar to the equitable interest of a member in the scheme, though not as fully or completely developed. Their use in the management of an equitable balance among members appears to have passed unconsidered.


Concluding Remarks


If this paper is to serve any purpose in the UK context, it is to illustrate why we should not pursue here a Dutch approach to CDC. The paper exhibits a number of important misunderstandings; most notably over the risk properties of collective investments. The key proposal in the paper is the introduction of individual accounts into CDC. It becomes clear only by inference that these are simply replications of the individual accounts familiar from the world of DC savings. The paper does not develop these in any meaningful way (see earlier comment)

The paper proposes the introduction of compulsion for membership and schemes from which exit is extremely difficult or impossible. This is certainly not necessary and runs against the grain of UK pensions thought. The ability to opt out as well as the exercise of access rights under freedom and choice are valuable to individuals. They also tend to engender trust and confidence in the scheme and system.


The Dutch Central Bank (DNB) requires those CDC schemes which are based on an average career salary to comply with the same funding requirements as a ‘conventional’ average salary DB scheme, which – in principle – guarantees a level of pension benefits. This framework of regulation fails to recognise that CDC differs from traditional DB and imposes upon it that regulatory regime. The demise of traditional DB was in large part caused by its regulation. In other words, it would be totally counter-productive.

DNB states in its guidelines that the maximum premium for CDC schemes should not be fixed for a longer period than five years. While there are a number of possible motivations for such a rule, it appears that the most likely is that the authors of the rule saw (new award) premiums (contributions) as a potential source of deficit repair. This leads directly to problems of intergenerational inequity. This is in contrast to a DC scheme, for which the DNB allows a fixed premium for an indefinite period.


The single most important take-away would be not to ape the Dutch model. That is fraught with problems which can be avoided.


Posted in CDC, pensions | Tagged , , , | 3 Comments

Self-employment; opt-out or cop-out?

gig 8.PNG


These are numbers produced by our Office of National Statistics. Detailed notes are at the bottom of this article.

We can safely assume that (without Government intervention) the trends have continued and that the 2017 and 2018 numbers will see more of the employed in workplace pensions and less of the self-employed contributing to any formal pension saving vehicle.

What the numbers do not tell us is why these two groups are diverging at this pace.

The Taylor Review was set up in part to answer questions like this. The Government has now analysed the review and launched four consultations into its findings. One of these consultations is on employment status.

This consultation will look at how to increase clarity in the employment status framework, especially among those designated as ‘workers’, the so-called gig economy participants whose status lies somewhere between ‘employee’ and ‘self-employed’.

Any redefinition of a ‘worker’ could have an impact on pensions as those individuals classified as such are not currently eligible for auto-enrolment

Choosing not to be “in”.

This is a time of very full-employment. Most people who want to be employed can be employed and those that are self-employed , generally choose to be – even if they are in the grey area of the gig-economy.

I think it reasonable to infer that if you choose not to be “in” employment, you are likely to choose not to be “in” a pension. I am sure there are some of the 75% of the self-employed not saving formally in a pension who are unaware of the delights of pension saving but I suspect most self-employed people simply don’t see the need.

They are (in this) very much like those employed without access to a workplace pension. There were plenty of these before auto-enrolment came along, there aren’t so many now.  Whether auto-enrolment would increase the numbers of the “can’t be bothered” converted to “can’t be bothered not to” – depends on the conviction of the self-employed to be “out”.

I am with Steve Webb on this.

I don’t think the self-employed are opting out of pensions. I think they’ve lost the services of financial salesman who used to kick-arse on pensions in return for commissions. The commission went at the end of 2012 (with the implementation of the retail distribution review) and the salesmen went with them. Having spent the first twenty years of my career harrying the self-employed in this way, I do not mourn that era’s passing. Nor- I suspect – do the self-employed.

Of course the pensions we were selling were pretty rubbish and I hope we can do something to improve their outcomes through the “not workplace pensions” review going on at the FCA.

But there is no reason why the self-employed can’t have decent non-workplace pensions going forward. The new-style streamlined SIPPs with default investment pathways for the hard of advice, are going great guns. Pensions Bee, Evestor and the robo-advised Nutmeg are good examples of sensible products that do not need a PHD in economics to invest into.

Steve Webb want to see the self-employed hooked up with these kind of products (I would be unkind to promote Royal London’s offering as part of this). He sees this happening through HMRCs collection of tax and national insurance contributions. Opting out of a higher rate of national insurance doesn’t seem much different from opting-out of pensions (if you are employed). If the higher rate of national insurance was a  pound for pound payment into a non-workplace pension. then bring it on.


Notes to the ONS numbers above

Posted in auto-enrolment, pensions | Tagged , , , | 2 Comments