Britain moves towards a Retirement Income Covenant.

Posted on June 11, 2023 by henry tapper

We learned last week of an important shift in Government thinking on how we turn pots into pensions. If intentions turn to action ,we could be seeing an equivalent to Australia’s Retirement Income Covenant, in the UK within the decade.

The Department for Work and Pensions (DWP) is expected to announce DC schemes’ requirements to provide a decumulation product for members in its response to its Helping savers understand their pension choices call for evidence last year.

The quotes below are  brought to us by Pensions Age, I arrived late for the session but I had a chance to speak with DWP’s Julian Barker after the session who confirmed the import.

“ we would want to place duties on trustees to consider the needs of their members at the point of accessing their pension. That would mean that, whilst we would not be prescriptive, we would require schemes to provide some sort of product for members to expect to get at the end of their DC accumulation journey”.

“whilst we don’t expect schemes to necessarily provide that themselves, we would expect them to partner up and do other things to make sure that while the member is in accumulation, they have got a pathway and communication journey towards what’s expected”.

Barker stopped short of calling for a default

“as we want members still to have choices because we recognise that no one pension scheme solution could fit everybody, but we do think it is important to ensure that members have at least some sort of expectation”.

But he was clear that collective decumulation was very much on the table

“Laura Trott, is very keen that, in time, that duty to provide products would mean that amongst the products available to members, it is important to have a CDC product”.

This idea that CDC could be a “product” available to members at retirement is new to Government (but not to this blog).

Julian Barker told me that the DWP was open to approaches from organisations that would like to bring such products to the market and he insisted that they needn’t be regulated as CDC schemes (avoiding a non-refundable application fee of over £70k)

“It shouldn’t be hard”

At a seperate session , Stefan Lundbergh told a small audience that creating such funds should not be hard. Indeed funds that provide longevity protection by sharing the risks of those within the fund are springing up in Australia, Canada , the UK and the Netherlands.

But other ideas are on the table. Franklin Templeton promoted a product that locked in investment gains by swapping them with annuities.

Steve Webb and LCP are keen on later life annuities  where pots turn to pensions when pensions are most valued.

Legal and General’ Jesal Mistral spoke about investment pathways.

In short, we are already well down this road. What is needed is for the DWP and TPR to come to the table and provide the leadership we have seen from the Australian Government and Regulator.

Thankfully, it looks like we are finally getting there. But we must not allow this project to disappear down the rabbit-hole that the dashboard is down. We must keep our eye on the prize and realise that with the wealth of experience we have -and can draw on from around the world – it shouldn’t be hard.

 

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Dashboards – where we went wrong

Posted on June 11, 2023 by henry tapper

At some point over the past few years , the dashboard stopped being a place to see pensions and pots in one place and became an open university designed to educate rather than inform.

On the day the Pensions Minister was announcing the drop dead point for dashboard data was now 31st October 2026, the Pensions Regulator was urging industry professionals to consider the way we should be presenting pension projections.

The advert is illuminating

 

“Pensions Dashboard V1” as PASA is calling the “early” version of the dashboard (eg the one we won’t be getting for three years or more), is about “looking after the scheme”.

The implication is that pension dashboards should be taking into account pension scheme rules and  we are invited to think of pension schemes abandoned on the platform and in need of care and attention. This is putting the scheme before the member.

It is scheme members who are the victims of these ongoing delays and the issue they face is too little information and too much education.

Herein lies the tale of where it all went wrong

We have become obsessed with the risk of showing people what they have got, for fear they will misinterpret the information. So we are trying to build guidance around that information – the subject of the seminar. Here is the Pension Regulator’s call to action

Join Geraldine Brassett and Paul McGlone, members of the Client Experience Sub-Group of the PASA Pensions Dashboards Working Group, at 11am on Thursday 8th June for the launch of new PASA Guidance on value data for pensions dashboards.

Trustees, managers, administrators and providers of UK registered pension schemes will be responsible for making value data available on pensions dashboards. PASA recognises there’s a need for ‘good practice’ guidance to deal with a number of common issues which arise when deciding how to approach and calculate value data.

Phase one of this guidance will be released on 8th June and covers 20 frequently occurring issues affecting DB and DC Schemes including late retirements, retirement ages and Additional Voluntary contributions (AVCs)

Join us for the launch of the Guidance to find out what is covered, how to use it and what comes next.

Not much came next!

What came next was a delay of a year in getting data on the dashboard. Any momentum behind developing dashboard services has been dissipated and the 20 frequently occurring issues in question will remain discussion items for many further webinars.

These minutiae as deemed important to “look after schemes” and the inference is that if the dashboard does not answer queries from savers about these issues, then the dashboard will be creating more work for scheme administrators.

So the dashboard becomes a source not just of information but a kind of pension open university.

We should never have allowed the dashboard anywhere near these 20 rabbit-holes. That we did is down to the lack of leadership shown throughout which has lost focus on what matters to people – finding pots and seeing all pensions in one place.

By loading up the dashboard with all this paraphernalia , we have sent it to the back of the queue of Government priorities. We have blown it – because we are obsessed with pensions and not people.

All that we need is the pot and the pension

The idea of combined forecasts of what we get has been knocking around since 2002 and has always been wrongly conceived. What people want to know is what they’ve got to date rather than a projection of future value.

People want to know what they are likely to get in the future but accept that this is down to markets, inflation , mortality and a bunch of other factors that mean that at best the future is a good  guess. What people have got today should not be a guess, it should be available with a swipe of a finger.

If finding out what has happened to their money to date makes us curious to know what will happen later, then we can consult advisers, modellers and the free guidance from the Government to do so.

But the priority of the dashboard V1 is not to provide an open university of pension knowledge designed to answer all the frequently asked questions, it is to let people see their current pensions net worth on a single screen.

Most of all, the pension dashboard is not about pension schemes. The schemes that stand behind the promotion of pots and pensions are only a click away but they are not important to ordinary savers, they don’t see schemes, they see pots and pensions.

Priorities

Every vested interest in the pensions dashboard wants to protect itself, that goes for the ABI, PLSA, TISA and PASA as well as TPR and FCA. Already we have volumes of regulatory guidance to prevent the risks of showing people pots and pensions on a single screen.

Against all this is the harsh reality that no one is seeing anything called an official pension dashboard for several years,

We should stop prioritising our time worrying about pension dashboards and get on with other more important priorities, helping people turn pots to pensions, making sure that DB pensions get paid, improving the value of people’s money.

So if you didn’t make PASA’s session on the “client experience”, don’t worry. Get on with the things that really matter. We don’t need a pensions open university, we need open pensions and pension pots that can be seen on a phone.

We should not abandon the dashboard, it is needed more than ever. But we need to acknowledge that we’ve gone very wrong and scale back the ambition we have to educate rather than inform.

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The day of reckoning for the populists

Posted on June 10, 2023 by henry tapper

Quite a Friday afternoon

It started with Nadine Dorries resigning because she didn’t get a peerage, it continued with Boris Johnson resigning because he was facing a “kangaroo court” and it ended with Donald Trump facing 37 criminal charges and a picture of national secrets stored adjacent to a toilet.

High drama and high farce have seldom been so proximate as in this picture

State secrets stored in one of Donald Trumps toilets

Meanwhile I was listening to a discussion on Oedipus Rex and a king who is brought down through his lack of awareness and his desire to know. Quite the opposite of Trump, Dorries and Johnson who are people who know too much and desire us to know nothing.

It is only too easy to side with these three as can be seen by all three punching way above their weight in matters of Government.The case of Trump is particularly extraordinary, what was the purpose of having all this toilet reading? Did he really think that in these boxes was some secret to promote his case for a second term of Government or at least to bring down some of his opponents?

Does Boris Johnson think that resigning because he has a world of pain coming his way, is going to create a political martyr of him. Does he take the British public for the American, do we really hope that Johnson is the great tyrant who can stand up to the recidivism of centre left and centre right? Oedipus was revered by the Athenian populace for being a proper king, Johnson has little on his political CV but failure. He, like Trump is no tragic hero brought low, but a two-bit clown who will in future bluster from the sidelines.

Dorries did not want to bluster from the sidelines, she fancied the tea-room of the House of Lords to chat with our peers and invite her guests. She says she is too old for politics and then laments she is not going to be a member of this most august political club. If one member of the House of Lords tweets regret that they will not have her company, I will be surprised and furious.

Managing the message of your demise

The populists, the players to the gallery, the immoral minority who considered a soundbite an adequate alternative to a thought through policy, got a triple whammy yesterday.

Ironically, while the stuff in the boxes by the toilet may never have been read by Trump, it has been read and the American Department of Justice is urging the public to read the indictment rather than to listen to Trump’s bluster. As a political commentator told the FT

The DoJ has “done a very careful job” of making the indictment “available to the public right away before Trump is able to shape the narrative by spinning what’s happened”

Johnson at least to manage the message because he was given privileged information about the case against him before the public. He is now able to defame the political process before we get to hear what his accusers have against him.

He is so far from the tragic Oedipus, he is the man trying not to find out about himself, the man who puts ignorance first in the hope that his noise will drown out the truth.

Johnson like Trump , expects to be back, both trust in the immorality of their own charisma.

Nadine Dorries will not be back, she is playing the limited cards she has left in the deck, that she is not male, did not go to Oxford or Cambridge and  is the victim of a political system that denies her opportunity. She thinks this will go down well with half the nation that aren’t male  and 99% of it that didn’t go to Oxbridge. But the public will judge her by what they can remember of her, and very little of that has anything to do  with public service.

Getting on with it

The distraction of Trump and Johnson (and to a degree Dorries) will continue. They are all likely to feature in elections, Johnson is likely to see his former seat change hands, Trump will have to fight an election while fighting for his personal liberty, Dorries is so desperate to be noticed that we can now expect her to be on everything, saying anything (but to lesser effect).

We have drunk at the poisoned well of populism these past ten years and are now feeling the effects. We are keen for either Keir Starmer or Rishi Sunak to get on with it – very possibly the two in harness.

For me, the politics of the centre left and right are both capable of getting on with it. The politics of Johnson, Truss and Dorries and of the militant left can’t get things done. Trump couldn’t get things done either, which is why his brand of populism has failed his country.

Those boxes in the bathroom are a potent symbol , while the populists look for a scapegoat, populism goes down the toilet.

Daily Star – front page 10/06/23

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Robert Holford – VFM as an economics tool

Posted on June 10, 2023 by henry tapper

Thanks to Robert Holford for picking up on the DWP’s recent statement that the VFM Framework is going to involve the employer.

Quoting my blog to Nico and Darren is a great way to get a discussion going and the discussion that ensues is interesting.

We’ve got used to a view on this podcast that workplace pensions are a commodity and should be treated like a utility (water co, phone operator etc.)  – pile em high- sell em cheap.

Pensions a utility – you betcha – the AE funded workplace pension is the SERPS substitute that doesn’t need competition to work – yup – that’s where we were in 2012 and where a lot of deep thinkers think AE will end up.

Except – people didn’t like SERPS much – although it was a whole load more efficient than any workplace pension. The bottom line is we decided to swap an unfunded promise for  a big fat pot and now we have to live with the consequences. The consequences are generally ok – except where sometimes they’re not – and when they’re not – then someone has to do something.

After all, we’re dealing with something very important here – other people’s money.

Cue employers.

Excuse me for recognising a kindred spirit – I expect that there is somebody out there already fuming that I’m talking my own book,  but Robert sounds the kind of VFM enthusiast who turns up on the podcast because he wants to. Infact the point of the podcast is to hear contrarian views – to the status quo and to your own. Wanting to get employers involved in VFM is contrarian – it is not what trustees or providers would prefer, they would rather the VFM assessment remains where it is today, in a quiet backwater of regulation where nobody goes.

Robert comes at this thinking big picture , having been at both TPR and FCA. His analysis of the differences between the FCA and TPR’s style and purpose of regulating is excellent.

To Robert, VFM is about the investment return – reducing outliers and increasing the efficiency of the investment process so that overall we get more.

Robert also has an excellent characterisation of a single pot as a suitcase not a collection of handbags. I guess that may be a little male but when you’re dealing with something “inhuman” like saving for something that won’t happen for 40 years, who cares about the fancy stuff. Robert doesn’t sound much of a fan of engagement (or handbags).

None of this goes down very well with Nico and his view (from about 54 mins) that we over value pensions in the UK is well worth listening to.

I have to admire Darren on this podcast, not least for his capacity to keep the peace with such enthusiasm – on the back of two and a half days revelry in Edinburgh.

Mark Ormston next week, Ros Altmann on her way, Adrian Boulding on the horizon, this looks like a podcast with legs – well done the boys. The ongoing capacity of the pod to capture the big fish is because it is not afraid to include the Robert Holfords of this world.

 

 

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Forecast “fair- outlook stormy” – PLSA investment conference in uneasy calm.

Posted on June 9, 2023 by henry tapper

 

As a barometre of industry feeling , I would mark this year’s PLSA conference as reading “fair – outlook stormy”.

A stormy outlook for investment strategy

Having survived a total breakdown in its funding strategy only 8 months earlier, the investment side of the pensions industry is giving itself a pat on the back. The reality is rather different. The Treasury and Bank of England know now that pensions have been found wanting and have needed a further bail-out, the price of the October 2022 intervention looks like an October 2023 intervention where the demand will be for investment in UK Growth.

The PLSA has done its bit – to manage what that intervention might look like, by launching a 12 point plan to make it easier for its members to invest in illiquid assets that meet the agenda of pensions, society and the broader economy but these do not look to me – sufficient to stave off a much more brutal approach where trustees  sponsors and savers  face the loss of Government incentives – unless action is taken to invest more productively.

The “stormy” outlook is partly the gathering threat of the Treasury, demanding more risk be taken and partly the realisation that in  a world without quantitative easing, the mainstay of pension funding – gilts –  is looking an increasingly risky means to protect future liabilities.  One of the most asked question of the PLSA’s investment conference, was “who is going to buy the gilts if we offload them?”

With interest rates set to remain high, mature DC savers are particularly exposed to falls in gilt prices but as DB plans get in the long queue for buy-out , the question is just how long are they prepared to maintain their hedges at the high  cost of new collateral buffers.  With UK pension schemes owning the majority of long-dated gilts, the worry is that they are trapped – and will have a tough time if they choose or are required to “re-risk”.

A stormy outlook for cashflow management

A further legacy of the events of 2022, is the ongoing lack of liquidity to meet pension payments. Many schemes sold their liquid assets to meet collateral calls as gilt yields spiked and now have a lot higher exposure to private markets than they intended.  Selling gilts , private equity or even illiquid growth assets to pay pensions is tricky, risking further falls in the asset base of pensions.

A lot of reliance is being placed on the quality of the private credit that has been bought and there is concern that not all of it this debt is  easily redeemable. Cover for pension payments has fallen sharply as a result of 2022’s calamitous rewrite of valuations of all pension assets and the prospect of relying on ongoing valuations of assets in the private markets to meet today’s obligations is clearly not making many CIOs comfortable.

The uncertain outlook for DC investment

For all the talk outside the conference, there was actually very little discussion about DC investment solutions.  As mentioned above, the exposure of many mature savers to falling gilt and bond prices has left many savers facing big falls in their pots without a proper explanation about why this happened because of a low-risk investment approach.

There was a lot of “fantasy investing” of DC defaults in growth assets but – when the conversation turned to what today’s reality is , the consensus is that – for all but a handful of schemes , there is little budget for such assets and no capacity to pass on extra investment costs to savers. There was also concern expressed that DC’s excursion into private markets risked purchasing at inflated valuations where trustees found themselves outsmarted by venture capitalists, hedge fund managers and other wheeler dealers.

For all the talk of “fiduciary management”, I sensed a fear about “fiduciary incompetence”.

If DC is to be required to invest more in illiquids, I worry about implementation and management.

Uncertainty of purpose

The one conversation I had expected to have had at PLSA’s investment conference was about strategy and purpose.  The very high preponderance of sellers to fiduciaries was part of this, but more worrying was the lack of sponsors in the hall. UUK was the only sponsor I had a meeting with over three days.

Without getting to hear from the sponsors about what their plans are for pensions , it is difficult to gauge what the future of DB and DC plans will be. LGPS is fine and seems to sit outside this debate, but I wonder what the corporate appetite is for risk sharing. UUK are clearly exploring conditional indexation , not just with USS but with the DWP. Are other such conversations happening and is there an appetite for resetting the employer covenant to  funding best endeavour approaches with a defined contribution while allowing liability management to happen through longevity pooling and a new deal with members that schemes pay what they can by way of pensions.

These discussions were notably absent , we need to hear more from sponsoring employers and we need to hear from commercial DC providers, to what extent they’d be prepare to organise such pools. There were sessions on risk-sharing but we are a long-way from it happening for anyone but Royal Mail.

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The lack of an accountable dashboard owner is at the heart of the problem

Posted on June 9, 2023 by henry tapper

The Pensions Minister Laura Trott has announced a delay in the connection deadlines to the dashboard till October 2026. In her announcement yesterday (June 9th) there was no mention of the promised CEO for the dashboard. The Pension Dashboard Programme simply commented

Guidance will be published that will detail when pension providers and schemes are expected to connect to dashboards.

The bet I never wanted to win

In 2018, I made a bet with MaPS then CEO John Govett that the dashboard wouldn’t be ready by 2028, by which time I’d be drawing my state pension. He laughed, so did Guy Opperman. Who’s laughing now?

Well not me – that’s for sure; the announcement by Pensions Minister, Laura Trott that the drop dead hook up time for dashboards is now the end of October 2026 means I’m closing in on a pyrrhic victory – that’s the kind of victory where no-one is laughing.

MaPS took on the task of delivering the dashboard without a clue what that meant and by January 2019 John Govett had proved he wasn’t the man for the job. A couple of fallow years followed, Caroline Siarkiewicz arrived and she’ll have gone early next year. A third  CEO  will have to get to grips with a problem that MaPS was never designed to solve.

I saw Caroline at the PLSA event – a grand dinner.We exchanged pleasant conversation, I didn’t mention the D-word. I didn’t know whether she felt any accountability for the bet, everyone was having a fine time. She told me that we could expect news on the dashboard very soon – she was right, if what the Minister said was “news”.

I wonder if she is responsible for recruiting the new CEO of the Pension Dashboard Program , mentioned in the March update from the Pensions Minister but not in the June one. Who would want that job?

As far as I can see – no one is responsible for the dashboard delivery, indeed we don’t even know what delivery means any more. The Dashboard Availability Point has never been set (just as well). We are told by Laura Trott that it could be earlier than the drop dead data date, but then it could be later. Who knows? ……….Who cares?

Well nobody seems to care much at PDP/MaPS/TPR/DWP or even FCA. Infact this further delay is being sold as a windfall for the data managers who now have another years to scrub their data  shiny clean. It’s a godsend for everyone except the punters who had been given an expectation of a dashboard by 2019 and now should put aside any hope of help on finding pensions indefinitely. The narrative I’m hearing is

If you’ve lost pots, then tough, better they stay lost than the dashboard launches incomplete

Year after year we wait, my business has a  business plan which has had implementation pushed back four times – make that five.

There are trade bodies such as PLSA, PASA and ABI who can urge members to keep their eye on the prize. On the day of this latest announcement, PASA published guidance on “dashboard values” which looks at

“good practice approaches to providing value data to dashboards”

The ABI and PLSA severally produce statements welcoming what they see as “clarification”.

There are noble organisations like MoneyHub, Bravura and Altus  who have been piloting for nothing. They have no choice but put a brave face on it.

There are other organisation like the Lang Cat who sit between the advisers and their clients and are less enthusiastic.

Then there’s the rest of us. The public are on a promise and it is hard for them to work out who is breaking it.

There is a sullen indignation amongst the general population against all parties to this slow train crash. It will be stoked by the newspapers and broadcast media, there is only a matter of time till Panorama or similar makes a documentary about the long string of failures that have led to what Professional Pensions refers to as

20-plus years in the making and still not there yet

Set against the risks of being scammed out of data or even pot, the PPI’s published figure of £28bn of “pots” gone missing is a gloomy reminder that we are no closer to finding lost pensions than we were in 2002 or 2016 (when the concept of a pension finding service was introduced) .

There is more suspicion created by the pensions industry not being able to show people their entitlements than concern over data and pots we do not know we have. We know we don’t know, but we don’t know what it is.

A “reset”

When the Pension Dashboard Program was set up, it put Chris Curry in charge. A huge public project was made someone’s “second job”. Chris is a brilliant ambassador for the dashboard but he is part time and he does not have the clout of MaPS’ CEO , let alone a Government Minister.

Consequently , we were promised a new CEO of the Pensions Dashboard and to date we have no such person. Instead of leadership , we have had design by committee and this has led to scope creep. The Dashboards Available Point is simply too ambitious but there is no one who can call this out , at least not within the Pensions Dashboard Programme.

For the DWP, the dashboard is an albatross that hangs around their neck . It’s new idea is to make itself unaccountable for the staging of dashboard connectivity meaning that the pensions industry will have to argue among itself in what order they hook up to the dashboard infrastructure.

The concern is that the bulk of data providers leave it to the last moment and , instead of an orderly queue, there is a disorderly scrimmage as the “drop dead date” approaches.

The DWP is paying the problem scant attention, it’s eye is on other things. Frankly it needs to rethink the scale of its concept and scale it back. Alan Chaplin is right

Forget the presentation of a holistic view of people’s pension entitlement. Let’s start with a simple pension finding service, deliverable prior to the “drop dead date” and let’s put someone in charge whose sole focus on making that happen. All the rest, all the stuff that requires FCA regulation and actuarial argument, can come later.

The alternative is that I win the bet I never wanted to get paid out on.

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DWP latest ; employers will be assessing pensions VFM.

Posted on June 8, 2023 by henry tapper

In a move that will surprise up to  a million and a half employers , it looks like assessing its chosen workplace pension will become part of the employer’s duties.

Answering my question at a session of the PLSA’s 2023 Investment Conference, Des Healy said for the first time that the DWP had moved its position over the course of the consultation and would be involving employers in the assessment process.

Unless there is a  radical change in the VFM assessment process, the heavy lifting will be done by trustees and GPP providers who will need to rate their schemes red, orange and green for performance, cost apportionment and quality of service. Healy added that these tests would be robust and would require schemes to beat certain benchmarks.

The proposition is intriguing as it opens up the likelihood that employers will have to engage with not just auto-enrolment compliance but the quality the scheme is providing for their and their staff’s money. The DWP has made it clear that should it find that a workplace pension is not delivering to its benchmark, the framework will require schemes to be withdrawn.

In Australia, the first failure of a scheme results in it losing future contributions and the second requires assets to be passed to another provider , a process known as consolidation.

While it’s expected that the majority of large workplace pension schemes will continue to give value for money, many trustees , commercial providers and even insurers face an existential threat if the tests aren’t passed.

I sat next to Robin Ellison when the announcement was made and he confirmed my opinion that this widens the scope of the VFM framework considerably.

Why get employers involved?

The Government’s known since the publication of the OFT report that employers are not good buyers of pensions.

Despite this , employers were able to choose a workplace pension without having to take advice

Consequently . many decisions taken in the later part of AE staging  were made with little or no due diligence , let alone a formal VFM assessment. The suspicion is that many employers are allowing payments to be made into workplace pensions that aren’t offering value for money – as determined by the DWP’s tests.

Though the VFM Framework won’t need an adviser to explain it, I expect demand for advice to pick up , especially where VFM assessments are unfavorable. Many employers have grown since the start of auto-enrolment and the amounts in workplace pensions will have grown exponentially. What started out as a payroll compliance exercise is now an employee benefit worth nurturing and promoting.

Questions begged.

Currently , the only criteria that a workplace pension needs to be eligible for auto-enrolment is that it is accepted by the Master Trust Assurance Framework, meets the approval of the FCA having an independent governance committee or GAA or is compliant with AE regs  is a single employer occupational scheme.

There are a wide variety of definitions of VFM being applied and more than a suspicion that where schemes mark their own homework, the evaluation process shows VFM as positive.

The new VFM framework will operate on a standardised bass across all three types of scheme , begging a number of questions

  1. Will the VFM framework take over from trustee Value for Member statement and indeed the statements on VFm made by IGCs and GAAs?
  2.  Will VFM assessments be generic or employer specific? Nest has around 1m employers with NOW and People’s pension having numbers well into six figures. These schemes tend to offer a standard default and standard terms and would expect to publish a standard VFM assessment
  3. Will those providers who underwrite terms and offer employer chosen defaults provide individual VRM assessment based on what members receive rather than standard assessment.
  4. Will the proposed system of net performance testing be fit for the purpose?

My verdict

I have long thought that the VFM Framework would need to have a purpose to match the effort put into its construction.

It now looks like the consultation response will be produced sooner rather than later, I am told that it is nearly completed and awaits only the sign off of senior civil servants and the Minister, we may see if in June or July. What needs to follow hot on the consultation’s heels is draft regulations that can be set before parliament as soon as possible.

Bearing in mind the time taken to get previous pension bills through both houses any delays beyond autumn risk the VFM framework being washed up prior to the next election.

Normally I would expect slippage, but not from Des Healy, my expectation is that the VFM framework will dominate the pensions policy agenda. With the pensions dashboard being given another big kick down the road today and with no sign of an end to the DB funding code saga, it looks like the DWP are clearing the way for the smooth procession of the VFM framework onto the statute books next summer.

That is unless they make him the next Celtic manager.

Des Healy

 

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A proposal to Treasury to improve DC defaults (and saver outcomes)

Posted on June 8, 2023 by henry tapper

The big issue for the PLSA conference and indeed the PLSA is how it should respond to the Government’s call to celebrate risk and reintroduce it into the pension schemes within its scope.

There have been calls for the mandation of a 5% “demi-tithe” on the default funds operated by the remaining workplace DC funds, with the tithed allocation being reinvested in UK growth funds such as those proposed by Sir Nicholas Lyons, the Tony Blair Institute and endorsed by senior politicians

The Prime Minister in this photo , seems rather more interested in Lyons’ ideas, than the PLSA conference so far.

The Conference seems to have got the message that DB schemes aren’t going to invest in illiquids for fear they will need to be sold at a knock-down price at buy-out.

DC schemes are pleading poverty of aspiration as the revenues they are collecting from their “squeezed AMCs” make the cost of including private market assets in portfolios prohibitive ( to their competing for mandates).

The PLSA. in its call for Government interventions – notes that “employee benefit consultants” are responsible for this, though intelligence I have suggests that it is employer procurement teams who have cottoned on to the headline AMC as the one measure they can influence to improve outcomes.

Short of providing better measures (which I think the Government is considering through the VFM consultation), mandation is – so far- the only game in town.

Proposals to HMT to encourage the use of Growth Funds in pensions.

Forcing DC schemes to invest in UK Growth is unlikely to be high on a Conservative agenda (though Labour’s Rachel Reeves has said she “would not rule it out”.

A more feasible option would be to restructure tax privileges for pension schemes so they were focussed on those which embraced UK growth at least to a minimum level.

This could be done through the taxation of gains on scheme assets ( for instance restricting CGT exemptions for non compliant schemes) or on contributions (for instance restricting corporation tax-relief to employers choosing workplace pensions that did not carry the requisite weighting UK Growth,

The appeal of this incentivisation is that it would reshape the market , without the risk that a Conservative Government was considered meddling. Employers could continue to promote schemes with ultra-low AMCs but would have to explain why they chose schemes with lower growth or less relief on contributions.

Creating an investment culture

The concept of “risk mitigation” is at odds with the embracing  and celebration  of risk advocated by Treasury Minister Andrew Griffiths in kicking off this year’s PLSA investment conference.

While the majority of delegates, including the Pensions Regulator continue to advocate LDI, DC lifestyling, CDI and “end-game” investment strategies, savers and pensioners are being denied access to the areas of UK economic growth for want of appeal to the employers who sponsor plans.

Whether DC or DB, workplace pension plans are being sold to employers as presenting low-risk. If the Government is serious about wanting such plans to take on rather than avoid risk, it will need to do more than deliver short videos to be streamed at Conferences, it may have to adjust the tax incentives it offers so that they reward risk taking rather than risk reduction.

After all, giving employers access to Government debt at the 25% discount afforded by corporation tax relief is not an inventive aligned to stated policy but a giveaway that simply recycles the existing problem.

We know that the Treasury are currently exploring a number of ways to generate UK growth through pension fund investment. Of all the ideas I have heard and read about so far, restructuring tax reliefs to “celebrate” the adoption of risk, looks the best so far.

Creating a VFM framework which measured value in terms of better outcomes is a longer-term project. Adjusting the pension taxation structure could see changes in behavior in months rather than decades.

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Is there anybody there? PLSA’s lost audience

Posted on June 8, 2023 by henry tapper

The reality of a public conference where the audience is invisible is that it is as easily watched on youtube or Teams.

There have been sessions where the audience has been engaged. Stefan Lundbergh managed it in a session on turning pots to pensions , Rene Poisson was at his curmudgeonly best talking about illiquids in DC , the smaller arenas brought the audience and speakers together , sadly the plenary sessions  struggled to create engagement.

David Spiegelhalter actually talked to the audience about the use and abuse of the statistics, showing that you can rouse a crowd with an engaging performance,

But for the most part, delegates might as well not have been there. Questions were asked by the app and chairs were used not to create a debate but to feed tame questions to over-prepared presenters, one panellist answered each question with the help of a slide.

Unsurprisingly, this is meaning the audiences become disengaged. Use of the PLSA conference hashtag is virtually zero (I’ve tried). Even the Queen of Pensions – Jo Cumbo – has given up on tweeting publishing an article on a Canadian fund manager rather than reporting on the sessions.

I am asked why I am not knocking out tweets, my response is that no-one is saying anything worth the tweet. We really need more questions from the floor.

Which doesn’t detract from the importance of the experience

You can argue that the audience is that a live audience is an irrelevance when the event is streamed and sessions recorded. The quality of what has been said on the podiums has been very high, the matters debated, of national importance.

The conference app allows for “speed dating” where delegates can book time with each other and have intense 20 minute meetings one on one.

The Exhibition remains the social hub, lubricated with coffee , alcohol and breakfast for those like me who have  been forced out of Edinburgh’s extortionate hotels (£200 per night for  a Premier Inn).

The Conference dinner featured Rory Stewart as the after dinner speaker and the gangs of besuited pension warriors found  roaming the Haymarket into the early hours, suggests that there is still a lively after-party (oh to be thirty years younger!).

Protest

It wasn’t as funny or rude as the Brighton Beach protest, which inspired the pensions industry to create the PPF.

Extinction Rebellion protested the venue telling us that BlackRock is burning our future. BlackRock were presenting in the final session of the day and I looked forward to asking what the house view was. Sadly my question didn’t get a chance to be asked as the session was talked out by L&G, BlackRock and JP Morgan. In any event the Chair had dismissed the protestors as misguided.

I tried to concentrate on what was being said but have failed to remember much more than the site of phones managing emails to my left and right, the audience, such as there was , was making its own protest, bagging the CPD while using the hour to catch up with BAU.

One person was taking notes, hats off to Pensions Expert whose  commentary you can read on this link.

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TPR calls for lifestyle strategies to be reviewed

Posted on June 7, 2023 by henry tapper

Louise Sivyer -TPR

Louise Davey, acting head of policy at TPR has written a blog to coincide with the PLSA investment conference, “Trustees must not lose focus on protecting members from economic volatility”

Indeed they shouldn’t.

we remain determined to ensure trustees do not sleepwalk into a defined contribution (DC) crisis for savers approaching retirement.

Sadly that is precisely what has happened to thousands of DC schemes that ran lifestyle programs through 2022 to the present day which had

  1. 100 of the accumulated fund swapping into bonds
  2. Made no allowance for the predilection of DC savers to take 25% tax-free cash
  3. Advertised such strategies as “low risk” or “de-risked”.

TPR knows this and it knows that we are now in the “benefit statement season” where the bad news gets delivered.

Louise Davey is keen to point out that elderly savers who see up to 35% of their savings wiped out , may feel a little fragile.

We issued a clear message in January that savers must be supported amid concerns the value of some DC pots has fallen. That message remains just as relevant today.

So today I am once again calling on DC trustees to use our guidance to protect savers who are close to retirement and could be impacted depending on the investment strategy of their scheme. These are the savers with the least time to make up losses.

Too late! The horse has bolted leaving the stable full of manure.

The blog references the clear signals available to DC trustees that interest rates were rising in 2022. Few DC trustees took any more action than DB trustees took over LDI.

What can be done?

I took the opportunity yesterday to ask Nest’s new CIO, Elizabeth Fernando what can be done for those in their maturity and in a lifestyle program.

I am 61 and have two pots, one big one and a small one (which is in Nest). I was asking for a friend (BTW- Nest’s 2% contribution charge doesn’t apply to transfers-in).

The answer (not advice apparently) was to invest in a balanced fund – diversified into private markets as well as listed securities, with investments in property and infrastructure to boot.

I look forward to finding out more as I explore the pre-retirement fund options available at Nest.

But Fernando told the room that like everybody else, they ran target dated lifestyled funds for the 99% of savers who don’t make a decision. She admitted that these had been advertised as low-risk and she accepted that for savers, bonds can be high risk.

I wonder if she’ll be getting a call from Louise.

My way out of being lifestyled into bonds in 2022 was to push my lifestyle back at the end of 2021- it is now targeting my 75th birthday and happily I am largely invested in a growth strategy, but I suspect I’m the 1 in 100 who doesn’t rely on the default.

Nest admit they got caught out last year, so did everyone else. Low risk funds that lost people 10 to 30% of their savings were so commonplace that only a handful of master trusts came close to delivering a positive return.

The task – as Lou Davey goes on to point out in her blog, is to find a way to get people’s savings back. With bond yields still  above 4%, that looks a hard ask unless a default unwinds the lifestyle and puts people like me back in growth assets.

That’s the task facing DC trustees and indeed the providers behind workplace GPPs. I see precious little happening to suggest DC mature DC savers are gong to be any better off in 2023 than 2022. I look forward to hearing to the contrary over the next couple of days, but more in hope than expectation.

It’s only DC you see.

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