Pensions Awareness Day 2023 – some somber thoughts.

Posted on April 15, 2023 by henry tapper

I have spent much of my life embarrassing myself in the cause of “pension engagement”

Pension Geeks – the embarrassing early days!

This photo was taken at the first of the Pension Geek’s pension awareness days and I see I am promoting a right odd assortment of organizations that got behind the Pension Geeks and their bus. I wrote about this back in 2014

Nearly ten years on I am an older and more skeptical person. I wrote this on Linked in the light of  what has happened in the past 18 months,

The main reason “engagement” has been seen as so important is because it is seen to increase contributions. It may do, but this is surely not why we have a VFM framework. A framework that is designed to increase engagement is a marketing not a VFM construct.

I am not minded to change that view, harsh as it is on the many communication practices that exist as a means to encourage engagement , nor the marketing departments of workplace pension providers who pay them.

It is important that we promote higher contributions , because more saving for retirement means a better retirement and where there is “net disposable income” pensions don’t tend to get the priority they deserve. The smart use of language, as pioneered by Quietroom’s Vince Franklin and latterly Joe Craig is important as is the tone of what we say and the means we use to get our message out.

But we have to put this stuff into perspective, the sizzle is not the sausage.We have learned to love ourselves a little too much and have allowed our award ceremonies to go to our heads.

Our attempts at engaging the public are at the margins, the big issues – when we get our pension , how much we get and how much the tax-man gets, are discussed on Martin Lewis’ Money Show and in the pages of the popular press, we are incidental to the conversation. Robert Cochran makes this point very well on the latest VFM podcast.

A cautionary tale.

Pension Awareness is too important to be entrusted to the marketing departments of insurance companies. This story is here to remind me and you, that what matter is what people do and not what they say. Hats off to Jonathan Bland and Rachel Parkinson, thanks to James Biggs and those who have supported them much better than I

I went up to Peterborough one Sunday, knowing that Aegon had their pensions office there. I thought it would be good to stand in the square and answer questions. I met a fair few people , including Mark Ormston who was passing by.

Guy Opperman came up from London -giving up his Sunday

Nobody from Aegon showed up.

But Aegon did show up later. Two year later , Aegon bought the Pension Geeks who are now an integral part of Aegon’s pension strategy.

The press release contained this statement.

Aegon has been working with Pensions Geeks since 2018 and the relationship has gone from strength to strength as the Geeks have become increasingly important to enhancing the company’s workplace communication approach

I read this and thought of all the people who had been on that bus in Peterborough , giving up their day to help people with their pensions and then I remembered that even though it had an office 200 yards from the square, no-one from Aegon turned up.

Pension Awareness and “customer centricity” are hard to marry! This was how Aegon CEO , Mike Holliday- Williams greeted the acquisition.

“We’ve been massive fans of the Pension Geeks work for a number of years and have seen first-hand how powerful and popular their communications and events are with people. Strategically, customer centricity is a significant focus for us and we’ve invested heavily in member experience and personalised communications recently, so today’s acquisition further strengthens our capability in these areas.

The bus has been scrapped.

But to Aegon’s credit, the Pension Geeks have not been scrapped. Even though I had thought they had been subsumed into a morass of corporatism, they survive.

So what’s the future for  “Pensions Awareness”

Will there be a Pensions Awareness Day in 2023? Yes there will.

It’s between September 11-15th and the Pension Geeks are still driving things forward.

But it will be with a new team from the DWP and in a new financial environment.

A new and more serious mood has taken over

The nation has moved on and so has Pension Awareness Day

2022 was a shocking year for pensions. The State pension went up by less than a third of the cost of living and our workplace pensions generally went down in value by 10%. Only DB pensions seemed in better shape by the end of the year, though no one believes that having lost £500bn from their asset base, they really are.

The DWP’s focus is now on the value that people have got for the money they have saved.

There are fewer good news stories and a lot more people have barely survived last winter. Our mortality and morbidity statistics for the first quarter of 2023 are truly shocking – on a par with those in the second and third quarter of 2020.

Here are the messages from the Geeks

HOW TO TAKE CARE OF YOUR FINANCES

Tackle the tough times and take care of your finances. Watch our video for the top tips now.

CAN I PAUSE MY PENSION CONTRIBUTIONS

While pausing your pension would bump up your take-home pay, it could cost you more money in the long run.

WHY DOES MY PENSION GO UP AND DOWN?

A more sensible way forward.

Here’s my thinking, having listened to a podcast on awareness and engagement with Robert Cochran.

  • We’ve drunk too much of the Kool- Aid. We’re sick of it
  • We want to know fact not speculation – straight answers to tough questions
  • Pensions aren’t fun – they’re bloody important and a lot of people feel bewildered
  • We need to get a proper system in place so that people can work out if they’re getting value for their money.

If Pension Awareness Day focusses on these issues, then I think Pension Awareness Day will become more relevant and less incidental. The Pension Geeks now trade as Pension Awareness, I wish them well in all they do.

And I hope that after a terrible 18 months, we can use this year – to deliver these serious messages to people – with their usual flair.

Engagement is not just about getting more money into pensions, it’s about making sure that money works as hard as the people who earned it.

 

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“Engagement” is a marketing concept – it is not a measure of value.

Posted on April 15, 2023 by henry tapper

I really like Robert Cochran.  Despite working for a large financial institution he is his own man, draws his own conclusions and speaks from the heart. You can hear him talking to Nico and Darren on their podcast here. I’d recommend minutes 38 on especially.

Robert talks about the conversations he has with his pension peers on linked in and in the workplace in the same way (which suggests that there is a standard way of talking about hard things like value for money).

How does engagement happen?

Towards the end of the conversation he tells of a recent meeting at a works where everyone who came up afterwards wanted to know how to increase contributions. Thinking he was in engagement heaven, Robert started asking why. The answer was that most of these people found themselves paying higher rate tax for the first time due to the freezing of tax thresholds. Their unions were telling them to pay money they’d be taxed at 40% on , into their pensions.

Darren asked how this could be transmitted to a wider audience. Robert was on the money, it takes a Martin Lewis , a Money Saving Expert pensions special and the attention of millions of TV viewers to move the dial on engagement. But – equally important – it takes something we all know about – tax – to be a story. IFAs are finding their surgeries packed out by people convinced they are due a windfall from LTA and AA changes, most aren’t but the surge in interest has led to many new clients and potentially a lot of more engaged and savvy savers.

The lesson that Robert seems to have learned is that though things like Pension Awareness Day and the great work of the Pension Geeks were good at teaching him what mattered to people, they don’t actually move the dial with the general public. Tax does, benefit changes do, people riot on the streets of Paris over pensions, but only when they register loss. The best way to get people to a pensions show is to say you’ll be talking about why things are going wrong.

Robert’s experiment on linked in was to ask people what they saw as value for money and people actually told them what they valued. The running club that cost £1 a week, a travel bag that lasted, wine so good that it made you remember the taste not the getting drunk.

Durability and well-being are valued and while we can translate these into pensions conceptually, getting people interested in the value of their money is a stretch.

“Work is boring, pensions are boring – let your boss sort out your pension”

This is one of the big lessons the DWP has learned. The VFM framework is about letting bosses and their agents – the trustees – make good decisions on our behalf. Since most of us can understand a traffic light, the Framework is giving us simple nudges “stop, wait or carry on”.

That doesn’t mean we don’t have to take decisions and a lot of the podcast is spent agonizing on why people buy high cost pension products for what experts reckon the wrong reasons, brand- advertising – ease. I know who they are talking about and I can understand why it must annoy to see money moving away from what you see as high-value propositions.

For this reason, the pensions industry seems to have mounted a concerted attempt to get the Government to put a moat around “institutional” and chuck even more red flags at transfers to retail. XPS are currently red or amber flagging over 90% of transfers out, presumably on the basis that a non-workplace pension cannot be as good value as a workplace pension.

There will come a time when the FCA will address this issue but this is not the time.

The main reason “engagement” is valued is because it is seen to increase contributions. It may do, but this is surely not why we have a VFM framework. A framework that is designed to increase engagement is a marketing not a VFM construct.

The best that financial services companies can do is to market themselves well, for which Robert is one of the very few who gets that.

Robert and friends with a thumbs up for the Widow.

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“The LTA – so you think you know it all?” – Pension PlayPen Today

Posted on April 14, 2023 by henry tapper

Rosalind comments “very much looking forward to this next week .. talking to people who also think the definition of a good time is wading through the Finance Bill….”

Register at http://www.pensionplaypen.com

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PensionBee’s Annual Report

Posted on April 14, 2023 by henry tapper

 

This is a blog about PensionBee. If you don’t think that retail pensions can ever provide value for money and you see Pension Bee as the “yellow peril”, click away. This blog celebrates PensionBee as it celebrates the Royal Mail CDC plan.

Both offer people more and better choices. They address different circumstances but the same fundamental need people have – to have financial security in retirement.

Still with me? – Thankyou!

PensionBee issued its Annual Report 2022, yesterday

Set against a backdrop of extreme global market volatility, a war in Europe, and a cost of living crisis in the UK, PensionBee is a story of resilience and consistent delivery, as evidenced by the key takeaways outlined below:

Impressive growth across all key metrics

With brand awareness of more than 50% achieved, PensionBee continued growing its customer base, reaching a total of 183,000 Invested Customers on its technology platform by the end of the year.

Amid steep declines in global equity and bond markets that have affected pension values across the country, its Assets under Administration surpassed the £3bn mark and revenue grew by 38%, as compared to the previous year, totalling £17.7m.

Ongoing profitability is in sight (having already achieved pre-marketing profitability in Q4 2022)

This continued growth, combined with the foundations of PensionBee’s scalable technology platform and disciplined cost control, enabled it to reach key profitability milestones of pre-marketing profitability across the fourth quarter of 2022 and post-marketing profitability in November 2022, in line with expectations.

PensionBee is primed to continue to deliver on this path, expecting to achieve ongoing full profitability on an Adjusted EBITDA basis by the end of 2023.

Effective and efficient deployment of a sizeable marketing budget

Customer acquisition continued to be a core pillar of PensionBee’s 2022 strategy as demonstrated in its ability to effectively and efficiently deploy a sizable marketing budget of £16.6m, despite the challenging macroeconomic environment.

Across the year, the majority of the marketing spend was deployed on the top three channels as expected – TV, Out of Home and Paid Search – with the majority of the brand investment made in the first half of the year, supporting lower-cost acquisition activities in the latter part of the year. The ‘Yellow Chair’ and ‘Believe in the Bee’ campaigns, which were rolled-out nationally across all channels, resonated with a wide target audience.

Another strong year of continuous product innovations

PensionBee’s product developments have helped to attract new customers and enable them to contribute more money into their pensions.

Innovations include further enhancing of drawdown features, to enable PensionBee to offer regular withdrawals to its customer base over the age of 55.  Having launched the ‘Easy Bank Transfer’ in-app feature that enabled a rapid set up for both one-off and recurring pension contributions in 2021, PensionBee also expanded this product feature across the web estate to complement the in-app offering.

Focus on investment solutions designed for customers

PensionBee responded to customer demand for the UK’s first mainstream impact investing product, by working with the asset management industry across 2022, ultimately selecting BlackRock to partner with in the creation of the Impact Plan, which launched in early 2023.

This represents the latest in a series of PensionBee customer-led innovations for the UK pensions market. After many years of lobbying our asset managers, PensionBee secured proxy voting rights in respect of three of its investment plans, Tailored, Tracker and 4Plus, representing approximately 86% of the asset base. This means PensionBee can vote in line with its customers’ expectations from the 2023 proxy voting season onwards.

A median hourly gender pay gap of 0% across the company

Finally, PensionBee believes gender balance at all management levels will also reduce the UK’s gender pay and pension gaps. Therefore, it annually reports publicly on female representation and the gender pay gap at PensionBee.

For 2022, PensionBee achieved 52% female and minority gender representation across the entire employee base and a median hourly pay gap of 0% across the whole company. This gap was in line with PensionBee’s target of 0% with a variance of 5% above or below owing to the overall size of the employee base.

Comment

The non-workplace SIPP, of which PensionBee is a prime example of a product that provides savers with value for their money.

While it does not enjoy the economies of scale it will enjoy in future years, it has established a client base of enthusiastic savers who value the functionality offered by Pension Beekeepers who offer a quality of service that many “institutional” pensions can only aspire to.

People who transfer to Pension Bee and/or use it to accumulate further savings do so with full disclosure of the often higher charges in Pension Bee plans. But they can do so using innovative fund management that is in tune with the values of its savers and does not take undue risks with regards liquidity, private market valuations and speculative investments.

With Pension Bee , you get value for what you pay for and AgeWage is proud of its association with Pension Bee for whom we provide internal analytics and the opportunity for savers to compare VFM scores on their Pension Bee pots and pots they are considering moving to Pension Bee.

While the Government has yet to include non-workplace pensions in their Value for Money Framework, they are listening to its ideas for measuring quality of service. To my mind Pension Bee set new standards and are worth both the Government’s and your interest.

 

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Congratulations to Royal Mail on Britain’s first authorised CDC scheme

Posted on April 14, 2023 by henry tapper

A sight many of us  thought we would never see….

It is hugely satisfying that after so long, we can finally say that there is an authorised CDC scheme. Many congratulations to the management of Royal Mail , to its unions and to its advisers for staying the course.

Making a list of it

But the Pension Regulator is not technically publishing a list. A list is a number of connected items or names written or printed consecutively, typically one below the other.

The Royal Mail Collective Pension Plan is one of one, an incredible achievement for Royal Mail, an awful challenge for any other UK corporate looking to “make a list of it”.

In order to make a list of it, the Government is going to have to decide what problem it wants CDC to solve.

  1. Is it the strain on the corporate balance sheet of maintaining accrual to a Defined Benefit pension plan?
  2. Is it a systemic issue with public service pay , and  the impact of the SCAPE rate on public sector finances and services?
  3. Is it the perceived inadequacy of workplace DC pensions to replace defined benefit schemes?
  4. Is it the need to re-assert a default spending option for DC savers facing hard choices as they crystallise their pots.

Royal Mail solved a fifth problem, an industrial dispute in 2017 which was threatening the company’s future. It was created because some visionary people were prepared to agree a solution that was right for both the employer and the staff representatives. Now that solution is ready to be delivered – so what will staff get?

What are the prospects for savers in the Royal Mail Collective Pension Plan?

The RMCPP will in time replace DB accrual and the Royal Mail DC plan as the primary means of providing a pension to staff. Members of RMCPP will accrue a pension as if they were in a DB plan, making contributions in exchange for wage in retirement that lasts as long as they do, The increases in this pension and indeed the pension itself are dependent on the assumptions on assets and liabilities being as planned.

Now it is approved, I look forward to looking at the details again. The plan is not the only retirement benefit to be offered to members

As far as I am aware, the plan is still to fund a cash free lump sum through a cash balance plan that guarantees an amount relating to pay and service. Cash balance plans had a brief period of popularity around the start of auto-enrolment but are now an actuarial curiosity to all but a handful of large corporate pensions.

But with a guaranteed tax free cash sum taken care of, the members of RMCPP can focus purely on the wage the plan will promise them “for life”. The great innovation of the CDC scheme is that the wage is set to be much higher than could be provided by a guaranteed DB scheme, because the underlying fund is not set the task of guaranteeing anything.

If you believe that over time , equities and other real assets will outperform gilts , bonds and cash, then the only other thing to concern you is the sustainability of the sponsor covenant – or to use the language that savers understand – whether there will be an employer to pick up the cost of contributions and of running the scheme.

Royal Mail is one of the largest employers in the land and still manages one of the most valuable monopolies , the universal postal system. But whether it will survive as long as many of its staff, as an entity committed to the RMCPP is open to question.

The RMCPP is a magnificent statement of intent. But the extent to which that intent is realised depends on Royal Mail’s ongoing commitment to maintaining it and the capacity of the members to buy past service through transfers in and improve CDC accrual through AVCs. The reality for many more mature postal workers is that they will have a variety of promises including guaranteed cash, a legacy DB plan, a deferred DC pot as well as limited accrual in the CDC plan.

So the future pension for most postal workers will still involve a lot of decisions. Only those entering service at a young age can look forward to the full CDC pension  the plan is designed to give. The idea of CDC as “whole of life” , is another magnificent statement of intent.

What are the prospects of a list?

The Government has made it clear that it sees CDC as the way to close the gap between DB accrual and DC wealth creation.

The given reason for the Pension Regulator’s CDC Code is to ensure permanence of schemes that make it to the list not to encourage more schemes. I am afraid that the CDC Code is actually a barrier to many employers setting up a CDC scheme rather than stay accruing DB or switching from a DC to CDC approach.

There are other reasons, including scepticism that we would ever see a first scheme on the list. However, Royal Mail’s size, source of income , staff culture/ turnover make it highly unusual and maybe unique.

I know of no second candidate for the list.

The recently closed consultation on creating multi-employer CDC schemes was uninspiring. Far from engendering excitement from organisations keen to be on the list, it has generated zero debate.

If the outcome of the consultation is that the establishment of  a CDC master trust is commercially viable, then I suspect that there are many employers currently funding both DB accrual and DC schemes (with contributions way above the AE minima) who will consider participating in the CDC scheme.  But there are some big “ifs” here.

It may be that a consultancy committed to CDC – WTW, First Actuarial and maybe Aon, will set about it. It may be that Aon . WTW or another funder of a DC master trust feels it can create a CDC section re-purposing existing infrastructure.

It may be that some of the fund managers who have found themselves excluded from the explosion in DC provision, will see CDC as an opportunity and help create such schemes in partnership, so that they can vertically integrate their investment proposition. All of these ideas would become exciting if there was a sense that Royal Mail’s success at getting authorised a CDC scheme would beget a list.

For me, the prospect of a list of CDC schemes is something profoundly to be hoped for. I can see CDC as a means of providing people in their fifties and sixties with a better retirement income than can be achieved by buying an annuity or (mis) managing their own pension.

But for now, there is no regulatory imperative for CDC, insufficient demand either from employers or employees for a better way to turn contributions to pensions and an absence of incentive from Government to make it to the list, for there to be a list any time soon.

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Bravemansgame – the FCA and the Grand National meeting

Posted on April 13, 2023 by henry tapper

 

Bravemansgame winning the King George at Kempton for John Dance.

If you backed Bravemansgame to beat Shishkin in the 2.55 Alder Hay Chase at Aintree today, your ante-post bet is worthless. That’s because of an intervention by the Financial Conduct Authority. Last week it ordered a firm founded by the racehorse’s former joint owner John Dance to cease operations.

Bravemansgame, trained by Paul Nicholls, was due to compete under the sole ownership of Bryan Drew after Dance was removed as joint owner on Tuesday.

A spokesman for the BHA said on Tuesday: “The BHA can confirm that Bravemansgame will be able to take his place in the Alder Hey Aintree Bowl Chase having been declared in the sole ownership of Mr Bryan Drew. We continue to liaise with Mr Dance and relevant authorities regarding the FCA’s ongoing investigation.”

Since WealthTek was shut down, Dance, a prominent owner, breeder and race sponsor, has not had any runners in his silks. James Horton, Dance’s private trainer, does not have any entries for the owner, aside from early closing entries.

Dance founded Vertem Asset Management, one of three trading names for WealthTek LLP.

He is one of  Paul Nicholl’s top owner, but also an owner of top flat horses including Laurens (trained by Karl Burke) and more recently Lincoln, named to win a Lincoln.

Last week the FCA said a 48-year-old man, who has not been named, was arrested by Northumbria Police after “serious regulatory and operational issues” came to light at WealthTek.

The British Horseracing Authority released a further statement on Wednesday evening which read:

“In light of new information, including a court order, provided to the BHA by the Financial Conduct Authority, Bravemansgame is no longer able to take part in the race and has been withdrawn.

“The BHA will continue to liaise with the FCA and other affected parties.”

It is not often that the FCA influence the outcome of a horse race. It is not often that a financial services firm becomes better known for its owner’s equine investments than its work for clients.

I had never heard of WealthTek or Vertem Asset Management till the past few days and I suspect that neither had trainer Paul Nicholls or the British Horse Racing authority.

The ownership of racing bloodstock is a rich man’s game and the provenance of money used to buy top horses is going to become an increasing part of transactional due diligence.

What’s left of WealthTek’s advertising can be found on its linked in page

We are an innovative platform provider that utilises bespoke technology to provide sophisticated portfolio management tools, administration and streamlined client reporting, helping investment managers to efficiently manage their clients’ portfolios with ease.

Launched in 2020, we were founded by a group of experienced investment management professionals from both operational and investment backgrounds. Integrity is at our core. We believe in loyalty and working collaboratively with our partners, allowing us to build relationships of trust and secure strong financial goals.

Outsourcing complex middle and back-office processes decreases risk while reducing costs. Our experienced team are on hand to efficiently utilise your business, so you can concentrate on managing and building your client relationships.

Vertem is an, independent investment manager based in Newcastle upon Tyne. Founded in 2010 by John Dance, Vertem specialises in creating bespoke, flexible and appropriate investment portfolios for professional clients, private individuals, charities and pension funds. Vertem utilises a wide investment universe alongside a dynamic investment process to deliver portfolios suited to modern markets. We aim to deliver actual value to clients – focusing on risk analysis and superior returns.

FXVC

Another link between financial services and sport has been in the news this week as FXVC, a forex trading platform that had previously been a principal sponsor at Leeds United.

FXVC was closed down by the FCA in April 2021, it’s notice lists the reasons – all will be familiar by now to those who try to prevent scams.

Leeds United announced its extended sponsorship with FXVC only months before FXVC was closed down, announcing on its website

Leeds United are pleased to announce they have extended their partnership for the 2020/21 campaign with brokerage firm FXVC Online Trading.

This one-year partnership brings together a Premier League football club and a renowned brand in online trading that focuses on selling contracts for difference (CFDs), with both parties sharing the same values and brand loyalty which align perfectly with their ambition for success in 2020/21.

As part of the deal, which will see FXVC continue as the club’s official sponsor, the company logo will appear on the official Leeds United social media channels and around the pitch at Elland Road on matchdays. The Leeds United logo will also continue to appear on FXVC’s website, media and both online and offline materials for the company.

FXVC’s Chief Operating Officer, Jean Raphael Nahas, said: “We are proud to be the official partner of Leeds United. A club with such a great history and an even greater future ahead. The shared values of integrity, dedication, determination, desire to succeed, and — above all — commitment to our people, bind us together.”

Sports and financial services

Financial services firms look for validation by trusted brands such as Leeds United and football clubs look for money to finance their way up the football leagues and into Europe.

Leeds fans do not know who owns its football club and it is hardly surprising that the club do not hold themselves responsible for supporters investing with its main sponsor.

Racehorse trainers fish in a small pool for owners. Owners like John Dance are hard to find and hard to keep.

It’s embarrassing for one of Britain’s few trainers capable of taking on the Irish national hunt domination , that his star chaser is grounded because it’s owned by a company that has been required to cease trading by its regulator.

It’s difficult to understand why the horse should not be running, unless you remember that on the other side of the WealthTek/Vertem story, are people whose savings are at risk.

This week saw two LUFC supporters who had lost upwards of £200,000 in a couple of weeks with FXVC explaining how they trusted the sponsors because they loved the club.

Sport , emotion and money

We need to be wary of sport sponsorship and mindful that most top clubs have strong links to financial services organizations (mainly book makers). FTX (not to be confused with FXVC) is the highest profile sponsor of sport to have bought its credibility the easy way.

Sport should be wary of financial services . Easy money is not always the right money to build a business on.

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BSPS ambulance chaser crashes again.

Posted on April 13, 2023 by henry tapper

Good news for steelworkers and bad news for  Gareth Fatchett, his firm FS Legal and the IFAs that have been paying Fatchett’s legal bills.

Not only will they have to pay redress in full to ill-advised steelworkers  – but they  are now faced with picking up the majority of the FCA’s costs for fighting a spurious claim against redress.

The FCA ann0unced today

We welcome the British Steel Adviser Group’s (BSAG) decision to drop the legal challenge against our decision to set up a redress scheme for former British Steel Pension Scheme (BSPS) members. Our view all along has been that the challenge was without merit and that we would vigorously defend the scheme.

This challenge has, in our view, been pursued unreasonably with little intention to go to trial so we are also pleased BSAG has agreed to make a substantial contribution to our costs. We have publicly warned and taken action against certain BSAG firms for making unsolicited offers to former BSPS members.

Under the redress scheme, firms have to review the advice they gave former BSPS members to transfer out and pay redress to those who lost money because the advice was unsuitable.

Fatchett has crashed into the ambulance that he has been chasing and not for the first time. In 2018 he and FS Legal found themselves in another ambulance-crash as they harassed a trustee of charity -LKP. LKP had resisted Mr Fatchett’s blandishments reporting

Since December 2017, Mr Fatchett has made repeated overtures to LKP to become involved in the leasehold scandal, proclaiming his professionalism and track record in similar class action cases.

However, Mr Fatchett was fined £2,000 with £9,250 costs by the Solicitors Regulation Authority last April for professional misconduct in misleading a court.

Fatchett, Gareth Ward – 026689

This outcome was reached by SRA decision. Reasons/basis Mr Gareth Ward Fatchett of FS Legal Solicitors LLP, 1 Hagley Court South, The Waterfront, Brierley Hill, West Midlands DY5 1XE agrees to the following outcome of the investigation into his professional conduct. Background As a result of a complaint to the SRA in September 2015, the SRA commenced an investigation.

The result of these vexatious actions of FS Legal and BSAG has been to waste the time and money of all parties but much more importantly , to inflict further distress on the victims of the scandal – the steelworkers denuded of guaranteed pensions.

If you are driving an ambulance in Brierley Hill, Port Talbot or Scunthorpe – beware.

Gilt lining

There’s more good new for miss-sold steelworkers who didn’t take compensation the  advice of the BSPS action group to settle early for a pittance. They will not only enjoy full redress but will find it has gone up.

Higher compensation is due because the gilt yield has fallen in the last quarter from 4% to 3.75%. The fall in yield lowers  the discount rate for compensation and increases the amounts steelworkers will be offered.

Unfortunately it seems that some steelworkers accepted to settle outside the redress scheme, scared by advisers telling them the redress scheme wouldn’t happen. The BSAG case was largely based on the short term spike in gilt yields following the autumn mini-budget which suggested that advisers had been right along. The FCA has shown interest in these out of redress settlements.

BSAG’s miserable behavior has only served to delay redress , if there is a gilt lining, it is that compensation looks like continuing to go up as interest rates fall.

The compensation is for  events that happened six years ago, the most important fact is that 1400 steelworkers – whatever they are due – have still to get a penny.

So compensation which was originally estimated to be worth £71.2m and which fell in estimation to below £50m is creeping back upwards. No doubt  a new estimate will emerge. None of these fluctuations make any common sense.

 

The FCA responds to 5 years of missed deadlines by missing another deadline.

Another thing that makes no common sense is the FCA’s failure to meet the 4 week deadline it has to respond to complaints made against it through the Financial Regulator Complaints Commissioner(RRCC)

With Al Rush and 600 other BSPS victims complaining  about the delays occasioned by the FCA  to the FRCC, you’d have thought the FCA would have been able to meet this deadline but no – three more months have passed with no action.

Get on with it

With the BSAG’s bluff being called , the stage is now set for the redress scheme to go ahead as planned.

The spring of 2017 was when the BSPS Regulatory Apportionment Agreement (RAA) was announced and this whole farrago began. Had the RAA never have happened , BSPS would have been in and out of the PPF and steelworkers would have no choices to make except when to retire.

All that has happened since has resulted from the complex settlement put together by corporate advisers with Tata and the Pensions Regulator. The FCA has not covered itself in glory, nor FOS nor FSCS. The complaints of Al Rush and the 600 victims to the FRCC remain unaddressed.

It really is time that we got on with putting this matter to bed.

 

 

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Portfolio Resilience – the transition to LDI II

Posted on April 12, 2023 by henry tapper

Iain Clacher & Con Keating – joint authors of this article

Advocates of Liability Driven Investment (LDI) have been busy reassuring the authorities that LDI no longer constitutes a threat to financial stability. They have been doing this, in increasing volume and frequency since the end of the Bank of England intervention in the gilt market in October last year.

It is worth considering one aspect of the extent of leverage by schemes, borrowings under repo.

The ONS reports scheme repo as having risen from £192 billion at the end of December 2021 to £202 billion at the end of September 2022.

While the ONS indicates that borrowing had fallen from the £207 billion outstanding at the end of June, the overall long-term trend had been a steady and persistent increase.

The Bank of England monetary statistics[i] give us a fuller, more detailed level of insight, though only into the activities of the monetary financial institutions making these reports – basically authorised banks and building societies. There are of course other participants and sources of finance in the repo markets, notably the investment banks and hedge funds.

M4 lending to other financial institutions is shown in Figure 1 below.

Figure 1 M4 Lending to other financial institutions

The rise in lending from August 2022 is large but not in itself remarkable. However, the decline after September 2022 is stark: £23 billion in each of October and November 2022, and continuing to decline until the end of February 2023, by which point it is down by a total of £87 billion from the September 2022 high. By contrast, in these monetary statistics, M4 lending to pension funds by banks, shows a rise of £3 billion in the August/September 2022 period and this then declines from the height of £37 billion to £22 billion at the end of February 2023, a decline of some £15 billion.

M4 lending to fund management activities, presented in Figure 2 below, shows an abrupt decline after September 2022. Having been steady in a narrow range around £140 billion, it falls abruptly and continuously by £53 billion, to the end of February 2023 value of £87.7 billion. While some of this decline may be attributed to the ending of repo lending to pension funds, it seems likely that most or even all of it was deleveraging by the pooled LDI fund sector.

Figure 2: M4 lending to fund management activities

These statistics are consistent with the narrative that pension funds were complacent and satisfied with their LDI borrowing and maintained their positions until the September crisis hit. It is equally possible that trustees were largely unaware of what was being done in their name.

By contrast, there are no noticeable increases or decreases in lending to the private corporate sector, which implies that the extent of borrowing by schemes from their sponsor employers was limited and most likely met, where it happened, from their existing corporate cash resources.

Deleveraging

It is clear that significant deleveraging by pension funds has taken place, but it needed to, as at the end of September 2022, leverage was 18.2% of schemes’ much depleted assets. Note that this is not the overall leverage, which would involve consideration also of the derivatives exposures of schemes, for which we know only that it was substantial. The declines seen in repo exposure shown in the monetary statistics, 38% – 40% of the pre-crisis outstanding, would, if repeated across all sources of repo finance, leave repo leverage slightly above its 10.5% level at the beginning of the year.

Based on the ONS data, schemes sold some £18 billion of corporate bonds and £33 billion of equity over the nine months to the end of September, a total of £51 billion raised. Over the quarter ending September 2022, just £4 billion of conventional gilts were sold. The rebalancing since, as captured by these monetary statistics, suggests that sales to a somewhat greater value have taken place, perhaps around £68 billion. The question which must then be asked is which assets were chosen for sale. It is worth noting that the £19.3 billion of assets, sold to the Bank of England during their intervention, have been repurchased by pension funds – at a net loss to the sector of £3.8 billion.

This concern is more than academic. If yet more high yielding assets have been sold, there must be doubt as to the feasibility of the residual asset portfolio now being capable of delivering the returns needed to support the higher discount rates in use.

It is highly likely that during the crisis schemes sold what was easiest to sell, their most liquid assets – the net result being that schemes were not only smaller but also proportionately invested in less liquid assets. USS for example reported an increase in its proportion of private investment from around 30% at the beginning of the year to around 45% at the end of September.

If, as seems likely, the majority of the reported M4 fund management declines were due to pooled fund activities, then it is gilts which will have been sold, and in some minor cases, small amounts of corporate bonds. The £15 billion decline in segregated or own management borrowing is a very small fraction of the total outstanding of £202 billion. This could have involved the sale of any of the assets of schemes. The timing of the changes evident in these monetary statistics casts doubt over the assurances, in both timing and amount, that schemes have been rebalanced and are now resilient to 300 or 400 basis point changes in yields. It is also evident that this activity will have ongoing consequences in terms of costs for schemes.

Final thoughts

Regrettably there is no available data on DB pension schemes’ use of interest rate derivatives, before, during, or after the gilt crisis. Anecdotally, it appears that this was far larger than the use of explicit borrowing.

If the indications evident in this monetary dataset hold true for derivatives, the de-levering of the sector is far from complete and may not even be half finished. We must look to the ONS release of the December survey results for the answers to some of these questions. In the interim, we may gain some insight from the Bank of England’s monetary statistics.

By way of ending, we will note that the contraction in the broad M4 lending statistics is more than accounted for by these LDI effects and that it is far from obvious that monetary contractions of this type will have the same deflationary effects as, for example, contractions in consumer credit.

[i] We are indebted to Geoff Tily, Chief Economist of the TUC and author of Keynes Betrayed, for insights into the relevance of the Bank of England Monetary Statistics and the use of his data.

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Keith Richards – how the Consumer Duty applies to pensions.

Posted on April 12, 2023 by henry tapper

Keith Richards who has established the Consumer Duty Alliance spoke and answered questions about how the Consumer Duty applied to an audience, primarily interested in workplace pensions. You can watch the session here or from http://www.pensionplaypen.com .

Margaret Snowden led a series of questions focusing on the Consumer Duty’s relevance to those who manage occupational pensions.  She reported that at recent meetings she has had , many trustees remark on it being a retail duty that does not apply to institutional arrangements like theirs’s.

I followed up with a series of questions culminating in whether the Consumer Duty Alliance (CDA) had responded to the recent VFM consultation large parts of which deal with the Consumer Duty.

  • 29.FCA regulated providers will have an obligation under the Consumer Duty to consider the value of the pension products they offer, as well as other outcomes

  • 30. We consider that proposals for disclosure of VFM metrics and a more structured and comparable approach to VFM assessments by IGCs are consistent with the Consumer Duty and its aims of the setting higher and clearer standards of consumer protection across financial services and requiring firms to put their customers’ needs first. The publicly disclosed data and focus on pension saver outcomes will also support firms in meeting their obligations under the Consumer Duty.

  • 31. For workplace personal pension schemes specifically, the VFM assessments carried out by IGCs are embedded in FCA rules for the Consumer Duty. A provider must use its IGC’s VFM assessment in the provider’s own value assessment. Where a provider disagrees with its IGC’s assessment, the provider must explain why, and set how it considers that the scheme provides fair value, using the assessment framework for IGCs.

The CDA had not responded directly but Keith input through trade associations and told his audience he was going to talk to the FCA on how the Consumer Duty could apply here.

In my experience, the gap between advisory trade bodies and the organizations such as the PLSA and PASA that represent and set standards for occupational pensions has been part of the problem and it was good to have this discussion at this point.

And of course, most commercial pension operators are FCA regulated and have precisely the same issues as insurers and advisers who Keith has been used to dealing with when in charge of the Personal Finance Society.

By way of example, in this morning’s other blog , I explain how the payment of pensions to those so vulnerable that they cannot access their money using conventional or on-line banking can get paid through the Post Office. The Post Office is an authorised representative of the Bank of Ireland and has its own FCA registration. Many trustees will have members who need to use the Payment Exception Service – instigated by the DWP and operating through Post Office Counters for vulnerable customers who have no bank account. The capacity of Trustees to allow such cash withdrawals,  reflects on several aspects of the Consumer Duty – as well as the quality of service they are assessed for within the future Value for Money framework

Bridging the gap between institutional and retail

I have commented on this blog recently about the belief among some pension experts that their institutional world is inherently more valuable to the saver than the retail alternative.

This notion that institutional and retail pensions are different is a trope we really need to wipe out.

Large parts of the Consumer Duty rules explain how the consumer is at the end of every value chain. The fiduciary duty of any trustee is ultimately to the member of the scheme, it is hard to see how a trustee can avoid the responsibilities of the Consumer Duty and I hope in time the Consumer Duty will become the Fiduciary Duty.

For those wanting to find out more on this, the Pension Regulator’s feedback on the call for input from the Pension Regulator and FCA on the Pension Consumer Journey is an interesting starting point.

 

 

 

 

 

 

 

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Payments for the hard of banking

Posted on April 12, 2023 by henry tapper

Our perceptions of banks need to improve (in more ways than one)

Writing about off-line payments on a digital blog feels odd. But the subject of today’s blog is the body of people who find digital or telephone banking hard , whether for logistical or temperamental reasons. I know these people , they put cash in the collection at Church, they bet cash with the bookies, they pay cash for fuel for Lady Lucy.

Lauren Langton who helped set up the Northumberland Community Bank wrote to me yesterday pointing out that the use of cash is not confined to the financially excluded.

Access to cash is so inextricably linked with financial inclusion and financial education.  So many people are presumed to be financially excluded, simply because they prefer to use cash.  The reasons for that are varied, but decreasingly because they can’t get a bank account, more usually because they don’t trust the banks, they can better manage their finances by paying in cash and more and more frequently because the infrastructure (bank branches, ATMs etc.) are much less accessible.

Lauren has worked with former Pensions Minister Guy Opperman. Opperman  reacted to yesterday’s blog by reminding me how to find a post office when I need to pay cash into my bank account (First Direct customers can no longer use any bank branch to do this).

Lauren explains why it’s so hard to pay-in cash to a bank

cash is expensive to handle, so generally seen as a negative for the business models of these organizations.  Sadly high-street banks don’t see this as their responsibility.

First Direct and the Post Office work well together but this has not always been the case. In 2019, Barclays tried to stop a service that allowed customers to withdraw and pay in cash to Barclays accounts using Post Office Counters. They backed down when Frank Field and the DWP Work and Pensions Committee criticized them for “penny pinching”. Barclays were objecting to the cost they had to pay to outsource this service. You can read about it here. (1)

Guy Opperman has been campaigning for those in his constituency (Hexham) to have access to banking and sees two solutions to the problem facing those who pay in cash

1. Post office needs a proper long term partnership with banks – in reality they both see each other as competitors and a cash cow: the Post Office needs better management

2. Mobile services are the future – ideally one in each major town on a rolling 5 day a week basis

How this works for financial services and state benefits.

The Consumer Duty is notionally confined to firms authorized by the FCA which means it doesn’t cover occupational pension schemes or the DWP’s Pensions and Benefits payment system. At a Pension PlayPen event yesterday, Keith Richards – who has set up the Consumer Duty Alliance, was urged by Margaret Snowden and others to include pension organizations in his campaign for better standards.

One of the key measures for those considering their Consumer Duty, is how firms treat vulnerable customers. “Payments” forms a large part of this. For authorised firms, ensuring that customers get paid claims or have means of paying premiums for products falls under the Consumer Duty and the Banks , Credit Unions and  Fintechs fall within its scope

Indeed the Post Office is  Authorised and regulated by the Financial Conduct Authority (FRN 630318). Registered in England and Wales. Registered number: 08459718.

The DWP works with the FCA ,  the Consumer Duty dominates large parts of the DWP’s current VFM framework consultation. The  payment of claims is likely to corm part of the “Quality of Service” test, pensions will need to pass to continue to offer services in the future.

The DWP has been good at ensuring that those who do not have online banking because they don’t even have a  bank account, can access pensions and benefits in cash.

I wrote yesterday about the PES (Payment Exception Service) that Guy Opperman saw in in his time as Pensions Minister. It is working and working well – credit to a department that takes a lot of stick on pension administration.

With 700,000 savers a year, finding themselves able to access their pension savings through the pension freedoms, the DWP would do well to ensure that the Payment Exception Service is available not just to the payment of state but private pensions. This means working with the FCA and ensuring that schemes overseen by the Pensions Regulator are on top of their obligations either under the Consumer Duty or under Value for Members. In the longer term, the Value for Money framework must monitor and flag that this important aspect of service quality, is met .

(1) (https://www.theguardian.com/business/2019/oct/24/barclays-bosses-to-face-questions-after-ending-post-office-withdrawals).

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