Treasury flies a pension kite on a stormy weekend

For as long as I’ve been advising on pensions, the weeks running up to the budget have been filled with rumours of draconian reductions in the subsidies available to the rich to featherbed their retirement.

This FT story has the Chancellor restricting tax relief to 20%, which has been discussed ad infinitum on social media but which is easier to talk about than do.

The only way you can do this is to take away tax relief altogether and replace it with a flat rate incentive, which – while it feels like the same thing, is quite different. There are implications for national insurance which is almost as big a tax for employers as corporation tax.

Many employers already operate non contributory schemes and many more  operate salary sacrifice schemes which allow staff to choose to swap salary for pension to reduce national insurance. If the Chancellor isn’t very careful, he risks driving all fully-witted employers towards salary sacrifice.

The mechanisms around paying pensions are complicated and I doubt that there is sufficient resource within the Treasury to properly model the cost of the mooted switch to a flat rate contribution of 20% by March. Get this wrong and Sajid Javid and the Treasury risk a humiliating climb down , akin to that suffered by his predecessor over social care.

So why the FT story?

The FT do not fly kites, my sources tell me that there is a working party in the Treasury who are working on reforms to the pension incentive system that costs close to £40bn a year. But you’d expect that. There is clearly not enough in the piggy bank to pay for the extravagant promises of the Conservative manifesto without breaking the tight rules set on borrowing, the only alternative to borrowing more, is taxing more and squeezing pension tax reliefs is the easiest policy to justify in terms of social equality. 50% of that £40bn goes to the 10% highest earners.

The alternative to taxing us more on contributions is to tax investment growth or reduce the twin perks at retirement – the 25% tax free cash sum and the break that allows us to get pension income free of national insurance payments. I suspect that there’s sufficient financial planning  based on the tax free sum for it be considered an entitlement. It is hard to take away what is considered an entitlement using a cliff edge. Anything other than a cliff-edge cut would see the immediate cashing out of remaining tax-free cash accross the board, leading to chaos and justified accusations of financial vandalism.

Extending the scope of national insurance to cover pensions in payment looks a more likely means of recovering some of that £40bn.

Rather than consider the FT story as idle speculation on a quiet Friday, I’d see it as the first stage in the softening up of the FT readership to a consultation process that will result in an announcement in the autumn budget. There is presumably enough juice left in the plans that were ditched in 2016 when the Daily Mail told George Osborne he wouldn’t have a back-bench to support him if he pressed ahead.

This is not the FT flying a kite, but the Treasury. It’s going to be a stormy weekend, let’s see how that kite survives it!

Posted in age wage, pensions, Politics, Treasury, welfare | Tagged , , , | 3 Comments

If we can do it for baked beans… we can do it for pensions

Screenshot 2020-02-07 at 06.58.31

Not so long ago, the then pensions minister likened choosing a workplace pension to choosing baked beans. There are many brands of beans on the shelf at different prices. Shoppers buy not on money, but value for money. They have high-level information about calories and ingredients and more detailed information about additives. They also have memory of previous purchases and how they played with family/customers.

“Choosing pensions , whether we are employers or individuals should be no harder than choosing our brand of baked beans”  – I think that sums up Steve Webb’s argument.

In practice it is very difficult to make meaningful comparisons between the value we get from our different pension pots and it’s pretty tough for employers to work out whether the workplace pension they chose when staging auto-enrolment is doing what it said on the packet.

I am told this was the message of Edwin Schooling Latter when talking on behalf of the FCA at Just Retirement’s. (Sadly I was presenting elsewhere and got to the conference late).

Why can’t we know what we are buying?

This was also a week when the FCA delayed the disclosure of the “additives” on the pension can of beans.  For more details, read earlier blogs

Of course not everyone reads about the emulsifiers on a baked bean can, for me it is enough to know that information is available to me. But many do, and people notice if this information isn’t there.

The pensions equivalent of “additives” are the costs we pay for the management of assets, the hidden ingredients that can be as damaging to our wealth as nutritional additives are to our health.

And what about experience?

We will buy baked beans many times but we make meaningful purchasing decisions on pensions only once or twice in a lifetime. Our experience of our pension is controlled by the marketing of the pension provider, not by the good the pension did us.

Schooling-Latter’s point was, as I understand it. that we should have a way of comparing experience of a pension pot in a reasonable way.

By the end of today, my little start up will have explored the experience of 1 million pension pots, establishing the internal rate of return achieved on each and comparing this to a benchmark we have established with Morningstar.

We know which workplace pensions have delivered good outcomes and which are yet to do so. We don’t have detailed information on why , but from the conversations we are having with fiduciaries, providers and employers, we are beginning to understand what has worked over the past twenty years and what hasn’t.

With the co-operation of legacy providers, we hope to explore the ocean depths and do similar work on pension data going back to 1980 (we have a little- not enough).

We hope , through this work, to help first fiduciaries and then savers understand what has happened to their savings. How the savings have been influenced by the growth strategies of providers and how de-risking has contributed to or taken away from saver’s outcomes. We will also be able to see the impact not just of overt charges (AMCs and so on) but of the additional costs of the additives.

Finding out how your savers have done.

We are dedicated to confidentiality, if you are managing or have fiduciary duties over a book of people’s savings, we will analyse that book on an anonymous basis and we will only share your data with you.

The big data set we are creating, based on 1m + ratings, is expected to swell beyond 5 million by the end of the year, we will share this big data with Big Government because we want people like Edwin Schooling Latter that the private sector can help and partly because we want to counter the negativity of many in influence who think that allowing people to see what they are buying – might do them harm.

We do not have to have a list of additives and their contribution to performance listed in large print on the label (the label would indeed need be too big). But we can find ways of letting this information be shared at point of sale in a conspicuous way.

PS20/02 fails to find that way, I blame myself. I should have responded vigorously to the consultation with an AgeWage solution that I am now clear about. All is not too late and if IGCs, trustees, providers and employers want to know how AgeWage can report to them on the impact of cost and charges , you need only mail me at and we will analyse your data for free and deliver you an AgeWage report showing you what has actually happened with your savers.

I will also show you how we intend to develop our service to help the savers understand their workplace savings and compare them with savings in other pension pots.

If we can do it for baked beans – we can do it for pensions

AgeWage evolve 2







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Guy Opperman – we want you to stay


I first met Guy Opperman at a TPAS function when he gave my company First Actuarial a commendation for the work it had done on financial education.

It was one of the first times he had spoken as the Pensions Minister and he made two points

  1. That he had put himself forward for the job – because he wanted to be Pensions Minister
  2. That he had asked for the suffix “and financial inclusion” to be included in the title.

I took him seriously and continue to do so today. Guy Opperman hasn’t changed the world (he is only a junior minister) but he has been effective. His major projects, the dashboard and CDC are passing into legislation and nothing major has gone wrong with auto-enrolment. He is not an intellectual as Altmann and Webb are, but he is an enthusiastic advocate for best practice, understands open finance and he has stuck by the job.

If this sounds like an elegy, it’s because we have a ministerial reshuffle coming up and I fear that this may be the opportunity for Guy to advance his career as his predecessor Richard Harrington did.

I met Richard in one of the last days of his job he seemed a  pensions enthusiast. I met him a few days after he had moved department, he told me he never wanted to think about pensions again.

I hope this is not the case with Guy Opperman.

Guy – it would be good if you remained in post. Pensions need continuity and your projects need you. You are our first minister for financial inclusion and I hope you will not be our last. But there is so much more that needs to be done for the under- pensioned and you are – after all – on a promise.

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“State of the Pension” address


After doing a 30 minute address to to CIPP in 10 minutes, I’ve been called back to do another one – only this time I’m first on – which means I could gab on for ages and make sure no one got a coffee break.

You can see my slides here.

I’ve tried to keep things simple this morning and talk about what I know, which is what people are talking about. I’m dividing my talk into three Technology, Investment and Tax.

The state of the pension idea sadly didn’t make it into my slides. I thought Trump was really good the way he presented rubbish. Other orators have pulled off the same trick, it seldom ends well.

My state of the pension address is aimed at an audience of payroll experts who do the heavy lifting for pensions. I don’t want to paint a picture of pensions in crisis (they aren’t) but of pensions in change.

I wrote down Technology – Investment – Tax as the three things that need to change. If it takes some seaside humour to remember a talk, I’ll stoop that low.

Technology -Supporting the tough decisions at retirement

The big shift which the actuaries are picking up on is actually 40 years old this year. If you count the accession of Margaret Thatcher in 1979 as the start of market liberalism, then we have been dumping risk on ourselves for four decades.

The climax of this process was the announcement by George Osborne that no-one would have to buy a pension (annuity) again. Instead we have the opportunity to do our own AgeWage with the help of Pensions Wise, a diminishing band of IFAs (wealth managers) and some half-baked technology that could come out of the oven a pension dashboard.

When I bought my first wi-fi, I was told that my “system” was only as good as the weakest link. Our pension system’s weakest link is the support given to those with DC pots as they convert them to retirement plans.

One great change that is going to happen if we are to convert saving success (auto-enrolment) into pensions success will be the successful introduction of investment pathways. I do not think there is sufficient support for ordinary people in the “strait of Hormuz” between the calm savings waters of the Persian Gulf and the Indian Ocean of later life.

The only solution I can see to the job of engaging and supporting people through this process is through new technology. We should not consider ourselves suffeciently financially adept to work out what to do by reading up or by talking to Pensions Wise, we need to be able to see what happens to our finances using tools we can download from the cloud onto the founts of all wisdom, our phones , tablets, lap and desktops.

The dashboard can find us our pensions but we need tools to shape our pension pots into retirement plans.

Investment – getting people involved with what our money does.

We cannot become a nation of Warren Buffett, but we can learn from our own sages. Martin Lewis doesn’t do investment but he can show us how it differs from saving

We are  all investors. When we discover this we are like the poet that doesn’t know it, like the fool in the French comedy who delights in discovering he is speaking “prose”.

We invest our pensions but we know not where, or how or why. When we wake up to the fact that our money could be doing good or bad, we are anxious it does good. When we stop to think what the cost of doing good might be , we’re not so sure. When we discover that our investment can do good and help us retire, we start thinking like investors. Hopefully more of us will act like investors, that’s what gets things changed.

Taxation – wrong money – wrong people – wrong time

Another great change that needs to happen is to the pension taxation system. I admire David Robbins’ defence of the purity of EET but he is alone in offering an intellectual apology for the current system. For most of us the current pension taxation system is practically bust, delivering the wrong money to the wrong people at the wrong time

There is  practical reason to leave pension taxation alone; that is that changing it will cause huge transitional problems which the nation will not like. Those paying higher rate tax  will absolutely hate change.

We have one of those windows to make change happen, right now. The alignment of a new strong Government, a new start on Europe and a clean sheet of paper makes radical change to the pension taxation system more likely than at any time in the last decade.

The State of Pension – restoring or creating confidence

Payroll people have every right to be sick of pensions. They have had to do the heavy lifting on auto-enrolment and they’ve had precious little thanks for it. It’s payroll who deliver the key messages to people on their pensions – they make and signal the deductions that keep us saving and investing.

They are becoming – faut de mieux – the “go to” people in organisations  for information on the workplace pensions chosen by employers. They can deliver the messages on investment – if only we let them.

But for now, we are still telling those who manage our pensions that they cannot talk about pensions – that in telling people where to go for information, they are offering advice. While we should be empowering payroll to be our advocates , we are cowering them into compliance with regulatory “project fear”.

The way we restore confidence in pensions is not by droning on about judicial disputes like Mcleod and Sargent, or the case of WASPI, this is just noice. We don’t empower people by going on about GMP equalisation , de-risking . governance diversification and all the other things pension people like to talk about between themselves.

What we need to do is to make pensions relevant to the way we live our lives today.

  1. We need to make technology work for pensions – so that people have ways to get information about their savings and how to spend them
  2. We need to turn savers into investors by helping them understand what happens to their money
  3. We need to find a way to make pension taxation an incentive to save rather than a subsidy to savers.

Payroll can unlock workplace pensions to millions of new savers. Payroll do technology that pension people don’t. Payroll know how workers think and interact with them every day; if given the chance they can explain how investing works. Finally, payroll are the collectors of our taxes, working with HMRC using Real Time Information.

Winning the hearts and minds of payroll to be pension ambassadors is high on my wish-list when I think how to restore or create confidence in pensions.


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Can you judge value from your pension pot?

emmy lab

Emmy Labovitch

My friend Emmy Labovitch, who is now a Director of the PPF told me the one risk you can get off the table if you’re a consumer is cost. If you can measure cost then you can look at the value of your pension pot and start thinking about value for money. This goes for the PPF and your pots, it’s the same fundamental equation.

This is not going to be another blog about the FCA’s decision to let those running workplace pension fund platforms off the hook on cost disclosure.

It’s going to be an explanation for people who care about the “value” savers get for “their money”, on how big data can be used to provide evidence to trustees, IGCs, GAAs and employers on how to peek behind the curtain – the FCA has drawn.

And my thinking on all this resulted from conversations with Emmy. Whether your pot is £19bn or £19k, the issue is the same.

Outcomes matter most

What people care about most when they save is what will come out at the other end (the outcome). They don’t care too much about a smooth ride while their money is building up, they don’t care much about great comms , advice in the workplace or fund choice. They care a lot about responsible investment but  they care most about outcomes.

We should be able to look at the value of our pension pot and tell whether we have got value. That’s what people want to do.

We know this from the 2017 NMG survey on what matters to members of workplace pensions. This work was commissioned by the Independent Governance Committees of workplace pension providers.

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Jane Craig , who wrote the report , points out that low charges don’t figure high on the value list.

It’s important however to highlight that members fail to connect the impact of charges on their good returns – it is therefore up to the providers to help them do this.

This was what was behind the FCA’s proposals and rather than embracing the idea, the providers have rubbished it.

How do we show the impact of charges (as well as good returns)?

I have been struggling with this question for three years, ever since I read Jane’s report and I’ve come to this conclusion.

Although telling people how they’ve done is an imperfect measure, it is the only measure relevant enough to capture people’s imagination – to “get engagement”.

The initial testing that AgeWage has done shows that telling people how their pot has done – compared with the average pot – in a single number, is hugely powerful. We hope to spend some time in the FCA’s sandbox working out how powerful and how to channel that power for good, but everything points to a single VFM score being powerful

AgeWage evolve 2

You are probably trying to work out how you can give a pension pot an Experian style score.

It’s simple so long as you have access to two bits of data, the history of contributions made to build up the pot and a way of reinvesting those contributions in a notional benchmark fund. Provided you have these things, you can tell how you have done compared with everyone else.

We contend that people who get left in low value high charging funds lose.

We can’t tell you why you are a winner or a loser, unless we know all about the value you’ve got from your pension provider and know what charges you’ve paid. But our score can prompt you to ask those questions yourself, and try and work out whether you’ve been clever,  lucky, unlucky or – on rare occasions – ripped off.

Of course the people who aren’t keen on cost disclosure aren’t too keen on providing us with the data (well at first at least). Providing this kind of information which proves incontrovertible numbers is not the kind of thing you do if you are trying to keep money in your pot.

But hold on – there is good news – AgeWage has analysed getting on for 1 million pots in the first few months of trying and a lot of fiduciaries, sponsors and even some brilliant providers  have bought into this way of looking at funds. We are not ready to go to savers with these million scores but the hope is that providers who want their employers to get proper reporting and their savers to engage with issues such as ESG and investment pathways, will promote these scores directly to their savers.

But isn’t past performance no guide to the future?

Absolutely right, we don’t suggest that our scoring system is an absolute truth. It’s more like the star over the stable, it catches the eye and leads people to what’s important. What people do once they’ve got engaged is another matter (and critical).

One of the things that the score can do is to get people asking questions about costs and charges, exactly as Jane Craig suggested. I agree with Jane that it is up to providers to get them to do this (another reason I’m so incensed by the FCA – but still my beating heart!).

We should not take decisions just on charges, we should understand the value we have got for the money deducted and we should take decisions on aggregating funds on other stuff as well – such as the capacity of providers to pay us our money back in ways that suit us.

But if we can’t get to the charge line on the shopping bill, it’s not a bill but a shopping list.

I would argue that  what people want to see after they’ve been shopping is what comes out of the shopping bags (including the bill)!

When finding out about value for money – outcomes matter most!

value for money

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Workplace GPPs, incompetence not governance drives policy.

The argument in a nutshell nutshell

The FCA has decided to relax rules that would have made the management of workplace group personal pensions very difficult. These GPPs are run by insurers and a few GSIPP operators (Hargreaves Lansdown most prominently). They had argued that their products weren’t meant for this kind of disclosure and the FCA listened and agreed.

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I actually agree with the argument that the GPP and GSIPP operators are putting forward. However I disagree with the relaxation of disclosure requirements. It is not disclosure that is wrong, it is the product. It is not disclosure that should change, it is the product.

Why so many funds?

The tend towards unlimited fund choice goes back to the early 1990s when the concept of open architecture first took hold. Actuaries worked out that you could make as much money out of a product reinsuring someone else’s fund and offering it at your price on your platform as manufacturing the fund yourself. Organisations such as Skandia realised that insurers were better as fund distributors than asset managers and sold the public what we might now called “platform as a service”.

The regulators looked kindly on this, not digging too deeply into the commercials , but seeing unlimited choice accross from broad range of asset managers as a “good thing” for consumers.

The reality was quite different. The underlying funds were loosely wrapped by insurers but execution could be awful. The performance gap between the underlying fund and the insurer’s (reinsured) version could be 1% pa or more. The crimes against the consumer were manifold

  • Extra fees for the wrapper
  • Poor execution (most purchases were arranged over a fax machine)
  • Contributions kept in suspense accounts
  • Liquidity held in the wrapper (rather than the fund)

These problems could be magnified when the consumer was presented with a fund of funds where contributions could trickle through a variety of structures , each with dilution levies that sucked the lifeblood out of any performance gains.

These open architecture platforms soon became a racket and gave rise to a new , cleaner form of open architecture offered by technology focussed platforms such as FNZ, Transact and Cofunds which sped up transactions , cut down on costs and reduced the need for reinsurance.  These new light-touch platforms were adopted by SIPP providers like AJ Bell and Hargreaves Lansdown which quickly improved standards all round.

Well not quite “all round”. So long as advisers could be paid commission, the old style GPPs were valuable – at least to those who sold them. There became an art for insurers in paying advisers through complicated charging structures that meant insurers remained attractive – even when their products weren’t. The most artful of these structures was the ‘active member discount” which was basically a tax on people who changed jobs.

When the commission gravy train hit the buffers at the end of 2012, commission continued to be paid on products sold prior to the introduction of RDR and it wasn’t until 2014 that the charge cap and the abolition of the heinous “active member discount” saw workplace pensions become “safe havens”.

By then , advisers had all put disappeared from the workplace. Without commission on new sales, advisers stopped selling or advising on GPPs. The huge fund ranges which had been set up to give advisors something to talk to policyholders about, remained and do so to this day. They are an obscene relic to three decades of mis-management which has had everything to do with volumes and margin and nothing to do with value for money.

Insurers an SIPP providers will now try to bury the bad news about legacy funds in IGC reports (which they’ll do their best to make sure no one will read). Even if people do read them, there’s no certainty the IGCs will present the information. Read the 2019 OMW IGC report as testament.

Why people like me , Ros Altmann and Jo Cumbo are angry

The workplace providers who lobbied against proper disclosure on these funds are being lazy. These outlying legacy funds serve no useful purpose, like the Rump Parliament they are hanging around for no good reason, I am reminded of Oliver Cromwell’s speech

Ye sordid prostitutes have you not defil’d this sacred place, and turn’d the Lord’s temple into a den of thieves, by your immoral principles and wicked practices? Ye are grown intolerably odious to the whole nation; you were deputed here by the people to get grievances redress’d, are yourselves gone! So! Take away that shining bauble there, and lock up the doors.

In the name of God, go!”

That is the speech that the FCA should have made to the insurers and SIPP providers, replacing MPs with “non-disclosed funds”.

To my friend Tom McPhail who is trying to quietly usher us away from the scene of the crime,

I would be Cromwell

“Is there a single virtue now remaining amongst you? Is there one vice you do not possess? Ye have no more religion than my horse; gold is your God; which of you have not barter’d your conscience for bribes? Is there a man amongst you that has the least care for the good of the Commonwealth?”

For Tom knows that if a precedent can be set in this Policy Statement that allows platform providers to plead “too hard, too heavy” here, they can plead this elsewhere.

We are angry because platforms and fund managers are given a licence here to duck disclosures elsewhere. If they have licence, so do advisers operating DFMs and so 15 years hard work getting to MIFID II and PRIIPS is undermined. If this is the shape of post Brexit regulation to come, then I will have none of it – nor I suspect will Ros or Jo.

Between them , the IGCs and the FCA could have done for the GPP fund legacy what they did for exit charges. Instead the FCA has let incompetence and laziness drive regulatory policy and it’s a damned shame.


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FCA reverse the tank



It will be getting on for 10 years since the Government asked the OFT to look into workplace pensions. The result of the OFT’s investigation was a firm recommendation that members enrolled into workplace pensions should be given a proper understanding of what the management of their savings was costing them.

Information to be given to scheme members

2.34 We proposed that provider firms must require that scheme governance bodies ensure all scheme members are provided with an annual communication which includes a brief description of the most recent costs and charges information available and how it can be accessed. This costs and charges information should include all the information set out in paragraphs 3.11 and 3.13 of CP19/10.

And we are phasing our rules in and, for the first scheme governance 16 PS20/2 Chapter 2,  and disclosing costs and charges to workplace pension scheme members and amendments to COBS 19.8 year, scheme governance bodies will only have to report costs and charges information in respect of default options/funds, with a deadline for publication of 31 July 2021

Screenshot 2020-02-04 at 10.44.19

The reasoning is wrong. The complexity “respondents” complain of is of their own making. Workplace pensions only have 300+ fund choices because of demand from fund managers and advisers. This choice is not consumer led

The simplest way to reduce complexity is to reduce these otiose funds from the platforms. Instead , the FCA are sanctioning inefficiency and setting an alarming precedent. How long before other platforms are pointing to this decision to get round obligations under Priips and Mifid.

Who’s risk is it anyway?

In days gone by, the cost of managing money was borne by employers through the funding costs of DB plans. Many occupational DC plans (RBS and Lloyds Banking Group’s for example) pick up these costs as an employee benefit. But this hospitable practice is a rarity.

For the most part, the costs of workplace pensions fall to members and so the risks they bring. Over a savings lifetime, a 1% pa charge can reduce a retirement pot by a quarter.

Put another way, each 0.1% on the management costs is equivalent to a lifetime loss of pension of 2.5%. Imagine that as a salary cut – for the rest of your life.

If you want an example of what I’m talking about, look at the costs incurred by Fidelity’s default fund

Screenshot 2020-02-04 at 11.29.52

There is another way to see the impact of charges, it is by comparing the internal rates of return achieved on savings and comparing them with the return on the default. The research AgeWage has conducted suggests that IRRs are higher the lower the transaction costs. It is unsurprising that we meet considerable reluctance from workplace GPP and GSIPP providers  to sharing data.

Difficult to digest

These numbers are taken from Fidelity’s 2018 IGC report, they show that the costs incurred by savers in Fidelity’s default workplace pension fund were around 0.30%.

The built up impact of this 0.3% pa cost is around 7.5%, a 7.5% life time pay-cut on top of whatever Fidelity was charging you as a stated charge.

The impact of these horrible hidden costs were not laid out in the IGC report, indeed the costs attracted no comment from the IGC chair.

As far as I know, the FCA have not made any comment either.

The only person who has picked up on these horrible numbers is me. I wrote about them at the time and I wrote about them again in 2019 and I hope I don’t have to write about them in 2020 (though I probably will).

Disclosure is not enough

Hidden charges will stay hidden if they are tucked away in a report that nobody reads and nobody comments on. These costs are not justified by extra value created by Fidelity’s funds, they are simply ignored.

The key thing for savers is that they are confident they are getting value for money, but can they trust they are getting VFM if they aren’t told what is going on?

It is good that , after all these years, the FCA is gearing providers up to tell policyholders what they are paying and getting for the money they have saved.

But after all this time, we can expect that those paid to provide independent governance are taking action on our behalf to ensure that all this money translates into value.

It is after all the savers who are taking the risk, not the IGC and certainly not the provider.

Why disclosure is in reverse.

The headline of the FCA’s policy statement PS20/02  may be the concession not to require disclosure of transaction costs on all funds offered on a workplace platform.

But the opportunity missed is to make disclosure effective. This paper, which puports to be a policy statement shows the FCA in retreat, the tank is going backwards, the target is receding and the consumers wha are supposed to be protected by their IGCs will have to wait years longer to get what was promised them all those years ago.

All is not lost. We may still get simplified pension statements that detail costs and charges. We may get a proper paper on value for money before the end of the summer. But right now, if savers want to know what is happening with their pensions, they are going to have to read my blog, follow Jo’s tweets and hope for better.

Disclosure is in reverse because the consumer lobby is too weak, the ABI too strong and the FCA has lost its mojo.


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Millennials; A case of “arrested adulthood?”

Screenshot 2020-02-04 at 09.57.23


I hadn’t heard of Bobby Duffy till last night, he sounds like a Simon Cowell creation rather than the star of the FCA’s “live at the Kings Foundation on a Monday night” show.

But there was Bobby clambering to the rostrum after an intro from the main man Bailey.

Bobby Duffy is an accomplished speaker and he speaks to slides with expertise. I’m going to try to put the full deck on slide share and share on this but for now you’ll have to make do with a few posted shots from our phones.

Bobby (@bobbyduffykings ) used to be the main man at Ipsos Mori but’s gone to Kings to write books. If he writes as good as he speaks, somebody’s reading him.

Myth or reality?

The talk was about myths – millennial myths principally. The big idea is that there are three effects that govern generational behaviours

  1. Period effects – things that define a generation like a war or the financial crisis.
  2. Lifecycle effects – how getting older changes your outlook
  3. cohort effects – the way some generations stay the same over time (the ageing hippy for instance).

So most of what Bobby had to say was about misconceptions we have  like “millennials show up late”. Showing up late is apparently something that young people do and once adults have drummed it into them that they’re being rude, they are adults and start drumming it into the generation coming behind them. This is a lifecycle effect.

And sometimes you get cohort effects where the impact of something like rationing stays with you for your lifetime (my Mum writes the price she pays for tins of food on the tins – some of the tins in her larder are marked pre-decimal). She needs to know the price as well as the value like it was 1948.

We did quite a lot of this myth and reality stuff with expensively produced cards (I’ve nicked some and will recycle at my events).

Stupid Bias’

I was quite interested in finding out why we are so pessimistic about our future finances. We looked at life expectancy and Bobby’s stats showed what we know, that people reckon they’ll live shorter than they do. We could have looked at the various actuarial projections over the years that show actuaries refusing to accept we could live longer. Interestingly, when it got to the point that we didn’t want people to live any longer, actuaries became negative in a new way and now tell us we are living the 100 year life.

Bobby thought that negativity has been built in as a protection mechanism since the days we lived in caves and had to imagine a sabre-toothed tiger behind every rock. I can now understand the pessimism of financial economists and the demise of DB schemes , they are living the noeolithic dream!

What isn’t so clear is why we are so optimistic about having enough money to meet our retirement needs. Everyone in the room knew it would cost £600,000 to buy an escalating annuity at 60 for £18,000 pa. And everyone who wasn’t in the room is clueless.

I love Phil Jackson’s comment, he’s spot on – we need a lot more financial planning to get our AgeWage. As well as being over pessimistic about our longevity we are unrealistic about the cost of paying ourselves a living wage in retirement!

Not so stupid bias’

Apart from being stuck in the stone age on longevity and the 1990s over annuity pricing, us boomers seem to have got everything else right. We have the housing wealth, the pension wealth and it looks like we really are in a happier place than our kids will ever be.

This is mainly because of “arrested adulthood” which spawns the perception that millennials are “lazy, entitled, narcissist who still live with their parents”.

Perhaps in the interests of self-preservation (there were plenty of millennials in the room), Bobby pointed out that the only part of this perception which was true was that millennials live with their parents in “arrested development”.

It’s not just they can’t afford to own – they can’t afford to rent



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Pension incentives – a foundation for change.

At the time of posting, Tom has already had a mammoth response

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If you are reading this on Tuesday Am 4th Feb, you can add your views but the numbers look consistent whenever I’ve looked. People think the taxpayer should be incentivising not subsidising saving.

Thanks to Tom for getting us this insight, it is of course what the Treasury were thinking when they launched their last consultation on tax relief – subtitled “an incentive to save”.

There may be a wide variety of reasons people prefer “incentive” to s”subsidy” but I suspect they can mostly be put in the “leg-up not hand-out” bucket.

Time for a concerted voice?

Since the general election, it’s felt like we’ve come out of a Narnian hibernation. Everyone is expressing the need for reform that has pent up in three and a half years of policy winter and the will for change is emerging on blogs and other social media rather than from Government.

It seems  we are ready to debate, though not yet ready to get behind one remedy for what we consider a broken system.

I hope that what will emerge out of this noise will be someone authoritative who will take personal responsibility for bringing consensus.

This will mean establishing, as Tom is doing, the basic principles. If we can agree that saving is an incentive, then that can be a touchstone. Similarly if we can agree (as Darren Philp was arguing) that the Government should have outcomes in mind , then we can think of the behavioural impact of changes on different savers and target the right outcomes.

Retirement saving does not happen in a vacuum, the impact of greater saving has to be viewed in the context of our benefits system, the cost of meeting the health needs of an ageing population and the wealth tied up in non income generating assets such as our houses.

Finally, we need to understand the impact of change not just on those in retirement (increasing) , but on those still working (decreasing). How can we best distribute the cost of retirement savings incentives? What levers are best pulled, and what released?

Let us go back to the 2015 consultation.

It is within the power of Government to create a system of savings incentives targets a certain set of outcomes , at a pre-agreed cost which is spread between various interested groups fairly.

But for this to happen we need the consensus to be created independent of the vested interests of the pensions industry.

If this debate is conducted properly , it will be conducted by people who can genuinely be thought independent, people who the public can trust and who parliament will respect.

Such people exist and they are people who are making themselves known on social media. They are talking amongst themselves because they know now is a time for change.

I very much hope that an independent consensus will emerge as a result of these experts doing the hard work needed to address the big questions being raised.

No one comes to the table without some baggage, but it is the job of leaders to ensure the cleanliness of the process so that whatever emerges from these discussions has value.

I think that the Government Consultation on savings incentives in 2015/16 is the starting point, that the questions asked in that document are still relevant five years on and that all that has changed since then, is the successful completion of auto-enrolment and enhancements in technology that give HMRC improved powers of implementation.

The long-term trends towards freedom of choice and away from collective solutions persist. The absence of support for those making life-changing choices about how they want their savings paid to them remains an issue.

Above all, the fundamental issue, identified by Tom remains. The tax system is currently subsidising saving for those who have money to save, it is not incentivising saving for the needy. We are actually excluding 1.7m of the needy from incentives through the net-pay anomaly while 50% of the cost of tax-relief , goes to 10% who need incentives least.

Pension incentives – a foundation for change

I had long thought that the answers would come from Government and that the voices of those outside of Westminster would not get heard.

My opinion is changing as I understand that Government does not have the resource to find those answers by itself and that there remain institutions set up and maintained by the private sector that can help resolve what appear intractable problems.

Of course there are conflicts (as mentioned) but there are ways of driving through conflicts where the will for change exceeds the inertia to retain. The case for reform of the current pension tax-relief system was well made by Tom McPhail in a letter he published and is republished here.

So strong is the case for reform, that I see it as inevitable. The exact shape of reform is down to Government to legislate , but the foundations for the Government’s decisions can be established by the people who are governed.

I suggest that now is the time to have a people’s cabinet – dedicated to establishing the foundations of tax-reform – speaking to Government as all great campaigning movements do, with respect and with authority.

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“A pension at 15?” – maybe not!

It’s fun keeping my brain attuned to other people’s pension problems for the Times. I’m glad I did this one with my friend Ros Altmann. Thanks to David Byers for this cerebral nutrition!


Tina Foxall, 51, a school exam invigilator from the West Midlands, wants to start investing £50 a month for her son, who is 15.

She has been so dismayed by the appalling interest rates on offer from high street savings accounts that she is considering ignoring them completely and simply starting a pension for him instead, but is not sure how to do it.

“Starting to save for him in a pension would give him an amazing start in life,” she says.

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Illustration ELISSA FLYNN

“But I don’t know how you start a pension for a child. What would be the most tax-efficient way of doing this?”

Tina would also like to know about any competitive tax-efficient savings accounts that she might have missed.

She is not willing to take great risks with her investment and would like anything she pays into to be covered by the Financial Services Compensation Scheme (FSCS) although she is interested in hearing about stock market options. She also wants an account that he could not touch until he is at least 18.

Our experts recommend
With any pension, the money that you put in is boosted by the government. A Junior Sipp works exactly like a self-invested personal pension (Sipp). The holder, who must be under 18, can benefit from tax relief of 20 per cent on contributions. Parents or legal guardians can pay in up to £2,880 a year, which will be topped up by £720 from the government to a total contribution level of £3,600, says Henry Tapper, the founder of Age Wage, a pensions advisory service.

He believes that a pension may not be the most effective way to invest for a 15-year-old, given that he will be able to get the money only when he is 55. If Tina would like him to have access to it at 18, Tapper suggests a government-backed Junior Isa. The best rate is from Coventry Building Society, at 3.6 per cent — the ninth consecutive year that Coventry has topped the tables.

Junior Isas, just like the adult versions, are tax-free savings vehicles. Parents, grandparents and friends can put a total of £4,368 into a Junior Isa for a child each year.

As with adult Isas, the money can be invested in cash or stocks and shares, or both. You can hold only one of each type at any one time — one cash Junior Isa and one stocks and shares Junior Isa — but you can switch your account to a new company as often as you like. If an authorised investment company goes into default and is unable to pay claims against it, the FSCS will cover up to £50,000 of your investment. It will protect up to £85,000 held in a regulated savings account.

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Tina Foxall wants to invest £50 a month for her son

Baroness Altmann, a former pensions minister who is now a consultant, suggests that Tina could pay into a Lifetime Isa for her son once he turns 18. The government-backed products aim to encourage people under the age of 40 to save for a first home or retirement by offering a 25 per cent bonus (up to £1,000 a year) on anything saved. If you use the money before you are 60 for anything other than a first home worth up to £450,000, you have to pay a penalty that more than cancels out your bonus.

“A Lifetime Isa would gain an extra £12.50 for every £50 invested monthly — but the minimum age is 18,” she says.

There are also some relatively competitive interest rates elsewhere in the junior savings market. Halifax’s kids’ savers account pays 4.5 per cent, fixed for a year, on deposits of between £10 and £100 a month, but doesn’t allow withdrawals.

“Most children’s savings accounts have an upper age limit of 15, so if Tina wants to go for this option, she needs to open the account before his 16th birthday,” says Rebecca O’Connor from Royal London, an insurer.

“The rates on these accounts usually last a year before reducing down to less than 1 per cent. So she should then move the money to whichever is the highest paying account on the market to maximise interest payments.”

For an ultra-safe alternative, Baroness Altmann suggests Premium Bonds. “They pay no interest, but monthly prize draws give the chance to win £25 to £1 million,” she says. “Premium Bonds are completely guaranteed by the government, so they can be cashed in with confidence in the future. She can buy them online through the NS&I website, by phone or by post.”


Taken from The Times – Portfolio


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