The post office – our bank of last resort

Posted on April 11, 2023 by henry tapper

This blog is about the ongoing and increasing importance of post offices for those who cannot bank – or cannot bank online.

I had been under the impression that the Government had stopped using the Post Office to make payments to people who had no bank account. Since April 2022, it hasn’t been possible to use a Post Office Card Account (POCA) to get p benefits paid. The DWP estimated that the numbers impacted were small

  • 5,600 individual child benefit recipients
  • 2,000 individual tax credit recipients

Most of these people who used to get paid through post office counters now use current accounts with high street banks.

But I was pleased to find  that  for those who can’t, the Post Office remains the payment system of last resort.

The DWP makes it clear that getting pensions and benefits paid through the Post Office is a last resort but information is available though it seems you need the web or a phone to find it.

The Payment Exception Service

You can can find out about this service online or by phone using this link

This information is from MoneyHelper.

If it’s not possible for you to have a current account, the DWP will make your payments through the Payment Exception Service. You can receive your payments through one of the following three methods:

  • a unique reference number via a text message (SMS) on your phone
  • a unique PDF voucher via email
  • a Payment Card: the DWP will send you a Payment Card and a welcome letter. The Payment Card is pre-loaded with vouchers that you can use to take out money at any PayPoint retailer or Post Office branch. You do not need a computer or smartphone if you choose this option.

To collect a benefit or State Pension payment, show your card, voucher or text message at a Post Office or PayPoint outlet. You can find your nearest PayPoint retailer on the PayPoint website.

If you have chosen to be paid through emailed vouchers or the Payment Card, you will also need to show proof of your identity to take out your money

Reading this, you realise that the Government is still relying on access to digital technology to get most people who can’t get a bank account – paid.

The issues with bank closures.

Over the weekend, I wrote about the concern expressed – mostly by older people – that banks were closing physical branches, and like the DWP, relying more on digital technology to provide us with services. The blog received a lot of comments, some of which are more interesting than the blog. They included these from Ros Altmann,

Very interesting comments here – I think this all goes to show that there are serious differences among the population and the drive for ‘modernisation’ of banking may suit banks and their shareholders but is truly disenfranchising millions of elderly people.

They will never get online, they often can’t afford a computer and even if they have a mobile phone they can’t afford wi-fi and other connectivity or live in areas without good signal. I think we underestimate the numbers of elderly people who are isolated, often at home, with just shopping, posting a letter or other trips as needed.

Having never learnt to use a computer, those in their 80s and 90s will be around for another 10 or 20 years perhaps, and are unlikely to do so. They would undoubtedly struggle with someone trying to make them go online. So they are being marginalised by society in the name of progress (aka cost-cutting and profit enhancing) for the crime of being digitally disabled. Banking, parking, shopping are all essential services, parts of people’s life, which they should not be excluded from.

I think campaigns to keep bank branches open are fighting a losing battle against the trend to bank online which is leaving branches underused and an expensive overhead. How many mortgagees would prefer better mortgage rates and savers better interest rates than keep redundant branches open.

Managing the transition to online services is not going to be easy, but we do have hope that the improvement in profitability that it will bring in payments can be used in part to manage it.

Broadening wi-fi coverage , subsidizing the cost of getting and staying on-line and giving older people the confidence to do things themselves, or at least to entrust others to do things for them, is part of a just transition to a near universal digital payment system.

There must of course always be a non-digital last resort, though it’s hard to park your car these days and pay cash. Most of the facilities that benefit those who are house-bound depend on the householder being able to order online. Those with limited mobility cannot expect the world to come to them or they to get to the world without the capacity to interact digitally (either in person or through a carer).

As for banks , building societies and credit unions that decide to rely on the post offices for cash payments, there must be investment in the post-office system. The decline in rural post offices that was such a feature of the past two decades must be reversed so that they become the multi-purpose hubs in small towns and villages which replace the bank branch.

The latest Post Office report to parliament (delivered in 2021)continued to see a small but steady decline in post offices in the UK  over the past five years

But at the same time , demand for payments through the post office soared

Hand in hand in investing in helping those excluded to get bank accounts and bank digitally. shouldn’t we also be encouraging a resurgence in post offices. Properly rewarding them for providing payments seems part of this, but encouraging more post offices in areas denuded of banks, seems another.

I’m pleased to see that the unconfirmed numbers of post offices in the UK is now reported (March 2023) at 11.705. Here is the latest coverage distribution

 

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Keith Richards and the Consumer Duty Alliance – Pension PlayPen – Today

Posted on April 11, 2023 by henry tapper

Nope, it’s not the ageing rocker . it’s the smiley former CEO of the PFS who will no doubt not want to take questions about how the Personal Finance Society is doing right now.

PROFESSIONAL BODIES06 APR, 2023

PFS launches governance review in fresh bid to end CII standoff

Adviser professional body has commissioned Integrity Governance to review the role of its CEO and board as well as its parent organisation, but trust issues remain.

Instead, he will want to talk about the consumer duty and who can blame him? I’m gearing up to three hours reading chapters one to a zillion of the FCA Consumer Duty Encyclopedia and hopefully I’ll be done by the end of Easter.

You on the other hand, can spend a happy bank holiday content in the knowledge that Keith can answer all your questions on why we have a new consider duty and why it matters.

You know the form, be there to hear it from Keith Richard’s mouth. There is no one better at this kind of thing.

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Stand on your own two feet – says Andy Haldane.

Posted on April 11, 2023 by henry tapper

Andy Haldane

In today’s world of “polycrises”, we can hope for renewed macroeconomic moderation, or a spontaneous growth spurt…..hope is not a prudent policy strategy. It is time to reconfigure our safety nets, in finance and beyond, and reinvigorate capitalism in anticipation of the next big crisis. – Andy Haldane- Financial Times

Economists don’t talk simply but Andy Haldane’s message to us as we come back from the Easter’s break is simple enough – it’s time we stood on our own two feet.

Haldane, who used to be chief economist at the Bank of England is now in charge at the Royal Society of the Arts. He compares the interventions by Government to ease the impacts of COVID and the resulting cost of living crisis as lessons learned from similar shocks in the latter years of the 20th Century. But he says we are now paying the price as Government tries to quell rampant inflation and a legacy of expectation that we will be bailed out – whether as individuals or as businesses.

Without a prolonged period of macro-economic stability as we did in the Blair/Brown years and again in the period following the financial crisis, we will be in a “doom-loop” that sees us plunge into ever worsening crisis.

And the period of stability needs to be accompanied by a genuine growth spurt within our economy to get us back on our feet.

The scale of the  bail-out in developed countries is staggering . Haldane tell us that during the pandemic, quantitative easing in major central banks was expanded by over $10tn and fiscal policy by over $7tn.

Direct support to households and businesses, in the US, UK and eurozone alone, amounted to around 25 per cent, 20 per cent and 12 per cent of national gross domestic product, respectively.

During the cost of living crisis, support to households and companies across Europe averaged a further more than 3 per cent of national GDP. This support dwarfs the equity injections to banks in 2008/09.

Haldane paints a picture for us , as we return to work, of Britain in a state less able to meet further financial shocks and subdued by years of social insurance which has dampened our entrepreneurial zeal.

Andy Haldane is sounding today, rather like Tony Blair and Gordon Brown sounded in the 1990s. Are we going to continue in the doom-loop or can things only get better?

 

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Doesn’t our duty to older consumers extend to online banking?

Posted on April 10, 2023 by henry tapper

I listened last night to the Up all Night radio phone  which – despite other topics being available – was dominated by elderly people complaining their local bank branch had been closed. People were taking about 3 hour train and taxi rides to visit a branch. They were phoning in, emailing in and texting in – concerned about using digital banking.

This morning my  twitter feed contains this

Why the problem is now acute

I am not in the pay of a bank but I do see the expense of keeping open branches where tellers and support staff are so under-deployed. Ros Altmann is right to see the closure of bank branches as a windfall to shareholders and I hope she considers coordinating some action to ensure that the elderly are not excluded from online and telephone banking.

The arguments for keeping branches are well rehearsed but they look increasingly weak. The only retail banking activity that can’t be carried out online is the physical withdrawal and depositing of cash. Cashpoints are usually available at supermarkets and petrol stations and excellent telephone banking is also available for those nervous about banking online. I don’t support arguments that banks are financial social clubs, that’s patronizing and  wrong.

Time to get more of  UK’s elderly accessing online and telephone banking

Isn’t it time we looked at this problem the other way round? Elderly people can do internet banking and many do. They can use devices that make it easy for them to pay in cheques , pay bills and set up direct debits

For the cost of keeping banks open , banks could close branches and provide the physical support to elderly people to allow them bank digitally.

I’m suggesting  a coordinated campaign organized by the charities for the elderly and focusing on delivering support through the places older people go – their clubs, places of worship and health hubs like surgeries and outpatients. This work is already going on and I can see evidence of it on the web. 

But getting to places like The Royal British Legion and offering help using the internet is a partnership waiting to happen. What better way to show you are taking the consumer duty seriously?

This campaign could and should focus on getting elderly people help with the instillation of home broadband, the purchase of simple devices enabled to access the web and training on simple skills needed to navigate banking apps.

Banks should be targeting resource at the over 70s with a view to making it unusual for any pensioner not to have had the opportunity to bank online.

Making it easier for carers, family and advisers to help

As this kind and sensitive article in the Daily Mail, points out, the most able to provide this support are younger relatives with the skill and motivation to help.

Many elderly people are prepared to do their banking with their children or carers and while there are obvious risks from sharing security details, I’ve got first hand experience of managing affairs both under power of attorney and through tutoring. Financial advisers – either to the family or to the elderly themselves, can help a lot.

More could be done to make the joint management of online accounts safer and more popular. Arguments that accounts are less secure digitally than through branch banking don’t hold much water, elderly people are vulnerable to fraud however they manage their money and the worst danger is that by closing banking branches, elderly people store cash at home.

It looks urgent that we pay attention to this area of vulnerability in our banking system as the cost of maintaining the branch networks relative to usage can only increase.

Do you agree that we have a consumer duty to help the vulnerable old get access to on-line or phone based banking? Have any firms written such support on digital banking into their consumer duty implementation plans?

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An epic weekend of sporting nonsense!

Posted on April 10, 2023 by henry tapper

The Masters

Fallen trees, a wash-out on Saturday and then it all came good. All the stories are around a handful of golfers who come into our living rooms at major championships (or at least do eventually – if you have Sky).

Rahm the gentle giant – Koepke – a similar player with none of the charisma. Continental rivalries – memories of the Spanish romance with Seve Ballesteros (born the day of Rahm’s triumph and winner of the Masters 40 years ago to the day).

Sport still grips us like nothing else

The  National

Royale Pagaille

Today is the Irish National in which I’m backing English raider Royale Pagaille , trained by Venetia Williams to shock the Irish in their own backyard.

Next week is the Grand National, which is still free to view – providing you’ve paid your TV license. It’s the same – jockeys, trainers and horses are front of mind for a few hours and then disappear to all but a cognoscenti.

We’ve been up to Aintree for three out of the last four years and will miss it this time. I have compensated with anti-post bets on almost every runner (and a few non-runners)

The Football

What a game – I mean Yeovil’s battling draw against Aldershot though you may have been watching Liverpool v Arsenal which I admit had a slightly higher quality factor.

Whatever level you watch (or play), the back end of the season creates  tension. This year, it’s like a spring, everything seems to be 2 months behind because of the World Cup.

Scotland did not let us down either. For Des, a 3-2 classic in the old firm, for Andy , Patrick’s 4-0 demolition of Queens Park. Dundee United beat Hibs on Sunday for Callum and only St Johnstone failed in the Plowman’s Acca – going down to fellow highlanders Ross County.

And the cricket

The story of Rinku Singh hitting five sixes in the last five balls to win the IPL clash for Kolkata Knight Riders over Gujurat is something again.

It’s a joy to start our weekly meetings on a Monday with a discussion of the weekend sport. Half of our team are living in India, half in or around London, sport brings us together.

Rinku faced probably the worst bowled final over in limited over history and his sixes are not things of beauty but the backstory is!

There is nothing that beats an epic Bank Holiday sporting weekend!

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Choose value from purpose experience and comparison.

Posted on April 10, 2023 by henry tapper

Robert Cochran is a very reasonable man – a child of the enlightenment. I like this post on linked in very much.

It is very important that we get back to thinking about value for money from the consumer’s not the industry’s viewpoint and Robert solicits 50 comments from people answering as consumers – even if they may have responded to VFM consultations from a corporate standpoint.

I tried to cheat Robert’s call for VFM anecdotes and look at how we measure VFM

Two things, you can’t be sure you have VFM unless you can compare your choice with the alternatives, and Alistair McQueen is right to measure it as return on investment. Your bag choice is another good example. We use our experience to determine VFM – so experienced performance is probably the best measure.

Robert pressed me for an example

Buying wine. You can only tell if you’ve got value for money after drinking it. Past performance is a guide to future enjoyment though it’s useful to compare the experience of others through surveys as loyalty can be taken too far.

My father introduced me to a red wine made in Lebanon, over the years that wine has increased in price but remained the same in quality. I can now buy similar wine at a much lower price and have done so. I can buy three times as much wine from a rival vineyard for the price of a bottle from Chateau Musar

By any estimate, the enjoyment of a fine bottle of wine is subjective. But the measurement of that enjoyment needn’t be. One measure is of course demand – which of course influences price. But a better measure , if there are sufficient reviews, is a wine’s rating.

Buying wine at £35 a bottle may not seem a comparator for buying a workplace pension for your staff (or considering ditching the one you’ve got). But the person running the business may well take both decisions in a day, using the same fundamental logic.

This , I assume, is what Robert is looking for. Some underlying logic to determine how we measure value for money.

One of the themes running through the responses  to Robert’s questions is the durability of the experience.  I suspect that many people will regard paying a lot for a bottle of wine as poor VFM because the experience is short-lived. If repeated regularly, drinking fine wine becomes boring and even dangerous. The “treat” factor is made valuable by it being a once in a while experience. You can only apply my formula of comparability and experience to fine wine, if you think you can compare a Musar with a Lafite – Musar is marketed as “The legendary Lafite of Lebanon”.

The comparison is interesting and suggests that Musar considers it is a better value Lafite rather than a comparable to the Co-op’s Coteau Les Cedres at £9.65 per bottle. If the experience you are looking for is that of a fine French claret, then Musar is value for your money, if you are looking for a wine you can drink every month, then a triple pack of the Co-op wine is better value for your money.

Why we need to be careful about purpose

My example is germane to the VFM debate Robert that Darren and Nico are engendering.

There are many people in workplace pensions who consider that in a “bottle to bottle” comparison, a workplace pension run on institutional lines would provide better VFM than a non-workplace pension run on retail lines.

To use my wine analogy, they could suggest that buying Cedres through the co-op you get three times the value than buying Musar through Waitrose. If you want to buy Lafite Rothschild 2003 through Berry Bros and Rudd , it will cost you £962 a bottle.

Lafite £962

I can point you to a workplace pension you can join as a self employed person at an AMC of 0.3% (Nest) , I can point you to a high-function SIPP at 0.75% (Pension Bee) and I can point you to a fully advised wealth management proposition from SJP at 2.4% pa

The purpose of these three propositions is different. Transferring your pension savings into Nest will give you a different experience to Pension Bee or SJP and you would only trade up to a more expensive model if you felt the purpose of that model better suited you.

If the only criteria of buying a bottle of wine was to swig it down regardless of the experience, you could buy a lot cheaper than any of the wines on show on this blog. There would be no reason for Chateau Musar and Chateau Lafite Rothschild would probably have been closed down by the French equivalent of the Serious Fraud Office.

But the choice is still there and there will be people who consider the purchase of a £962 – a purchase worth making – on oenaphilistic  grounds.

What the DWP has decided to do , is to exclude Pension Bee and SJP from the current VFM framework and to focus on the kind of workplace pensions that people are auto-enrolled into. Necessarily they will be the equivalent of the £5-10 wines.

The best things in life are free.

Alistair McQueen’s answer to Robert’s question is really good

Joining a running club. For fitness, fun, friends, personal improvement, sense of achievement, memories. Costs about £1 a week. Huge return on investment.

Indeed, many responses promoted subscriptions or items that could repeat an experience. I could add my prescription drugs which cost about £10 a month and keep me alive.

VFM from going to church, walking the hills or caring for children or adult dependents are activities  that produce  a great Return on Investment and can be labelled VFM if experienced and benchmarked.

Alistair may have been prompting us to  compare our £70 pm gym membership with his £1 pw running club.

Poor value for money

One final observation. None of the responses to Robert’s post mentioned an example of poor value for money. We are very wary of owning up to poor purchasing decisions, especially where we persist with them.

This I think is where the pensions industry finds the DWP’s VFM consultation difficult, because by  focusing on experience (past performance and quality of service) and trying to benchmark good and bad, it will inevitably create losers as well as winners.

Nobody submitting their pension to the DWP’s VFM framework wants to be told that it is poor value for money and should be withdrawn. We have got used to submitting our products to award ceremonies where every submission is short-listed and celebrated.

But in the harsh world of VFM, some pensions will fail, some will scrape through and some will be lauded and every pension will be given a rating of green, orange or red.

The wines that appear on the shelves of the Co-op, Waitrose and Berry Bros and Rudd have all succeeded by selection. Not all workplace pensions will pass the selection test and the public will feel better for knowing that there is an objective process behind the choice of workplace pension into which they are auto-enrolled.

We now have sufficient experience of workplace pensions and a proper means to compare, we know the scope of the consultation and it doesn’t include Pension Bee of SJP. But to dismiss their propositions would be like banning  the sale of more expensive wines.

Lafite £962
Musar £35
Cedres £9.65
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Happy Easter – may war end

Posted on April 9, 2023 by henry tapper

Although the orthodox Easter isn’t till next weekend- we wish them happy Easter today!

Easter never falls on a Friday. We do not celebrate death though we can call it good.

For three days we wait and then we sing our that Christ the Lord is risen today.

Meanwhile

While London is bathed in sunshine, on the other side of Europe, Ukraine suffers.

Suffering happens everywhere but in Ukraine it is intense and commonplace. We prayed for peace in that land and we prayed for peace in our hearts.

Easter is a time of resurrection. It falls on a Sunday and marks new life.

I wish you happiness, new life and an end to suffering.

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What a wash out! Masters tree terror followed by flood (of complaints)

Posted on April 9, 2023 by henry tapper

The provision of information in a digital age is not what the Masters is about. On Saturday, the most memorable event was the falling trees.

Yesterday it got a flood on the course and a flood of complaints off it – for TV coverage of the day’s play .

In the morning , late starters for the second round were forced to play through a monsoon leaving monster-hitter Jon Rahm having struggling to get to the green of the par-four 18th in two shots. But we could scarcely see what was going on.

For the few holes where the weather relented, no one was able to watch the dual between panto nasty LIV’s Brooks Koepka and PGA hero Jon Rahm live! The dual was broadcast later in the day due to the silly rules laid down by the Augusta National club that runs this event.

Koepka is a villain because he’s the best of the golfers that have sold-out to Saudi money. He is reckoned to have a big ego and no love of our local loser Rory Mcilroy.

I’m not sure if this is accurate but it made me laugh as I waited for something interesting to happen yesterday.

Yesterday  was about watching the ground staff and the umbrellas

and what live golf we did get, was generally played in a Dunkirk spirit

unless you were Tiger

What a wash-out!

For one of the world’s great sporting occasions, access to the golf is pretty non-existent other than through the CBS/ESPN feed. The BBC were reportedly unwilling to pay £1m for limited rights to show highlights so we get nothing but radio coverage. Yesterday’s radio coverage was an announcement that play had been suspended, it starts at 9pm.

As for social media, the draconian rules surrounding using cameras on course mean that there are virtually no private photos on the web and certainly no private videos!

People are pretty fed up with what has been over-billed and under-delivered.

Today is supposedly the last day when golfers will be trying to play up to 29 holes in one day. The rate of play being what it is – I doubt they’ll finish before it gets dark which will leave the finale to Monday.

Will the old farts who control the coverage of this event , right down to the de-digitalization of scoreboards, relent? I doubt it. They’re probably busy advising the DWP on its VFM framework.

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Savers want Value for Money – not “institutional” mumbo-jumbo

Posted on April 9, 2023 by henry tapper

 

Darren
Nico

 

After 13 podcasts and 12 hours of recording time, Darren and Nico “out” their views on how value for money should be measured.

The podcast is going to be submitted as part of their response.

Their 6 key messages are;

  1. Yes performance matters most
  2. Performance should be measured gross
  3. The framework should show the unbundled cost of investment management
  4. VFM should be subjective and be based on the beliefs and intentions of trustees
  5. Governance should be given its own pillar
  6. Retail pensions and decumulation should be in the scope of stage one, employers should be mandated to participate.

I may have got some of this wrong as Darren and Nico seem to differ in their views at times. Darren says at one point that outcomes are based on contributions (the argument for “engagement” as a pillar), there is a lot of bickering and no clear statement of what the two see the point of a VFM framework to be. The following comments are meant to put clear blue water between what I see as the purpose of the  VFM framework and what Nico and Darren want.

So let me clear about how I think Value for Money is measured by ordinary people

People assess VFM by comparing what they’re buying with what they could have bought

No mumbo-jumbo

Throughout the now 14 episodes of this podcast, the idea that people weigh up VFM by considering what they have or are about to purchase against what is available has hardly been mentioned. But if you tell someone how much something costs, they’ll consider that expensive or cheap relative to a benchmark (what they think reasonable). If you tell someone you think something is good value, they’ll ask you what is the price and measure relative to what they think reasonable.

There is no talk of “thresholds” or benchmarks in this episode at all. There is no measure which anyone (including the DWP) could use to determine a red, orange or green rating which employers could relate to. Instead, it seems whoever is left to mark the homework (presumably providers, IGCs , trustees) would in this version of the VFM framework, be free to use whatever combination of data they wished to.

VFM is about objective fact not subjective opinion

When measuring outcomes of payroll saving into a workplace pension, people want factual information not the opinion of experts. They have been given expert opinion on VFM for decades and they have ignored it.

The Pension Regulator’s value for members framework and the IGC’s value for money statements. The DWP took the VFM framework took over because neither system was working.

Darren and Nico’s podcast seeks a continuation of the past , calling for a fundamental reassessment of pensions through a return of the Pension Commission.

Instead of recognising the serious intent of the consultation, it looks to include decumulation in VFM assessments, it wants to mandate employers to use VFM assessments , it wants retail pensions to be in workplace pensions  and  it seeks to kick the simple measures outlined by the DWP into the long-grass.

Rubbishing the consultation’s intent in order to pursue an alternative agenda.

The DWP decided to start with the accumulation phase of workplace pensions and exclude retail Sipps and decumulation in order to focus on immediate priorities, weeding out bad schemes , consolidating to good schemes and creating a standard way of looking at VFM which everyone could understand.

In doing so – they landed on a key insight – that for savers it is the value of “their” money that matters, for employers it is the value of “their” employees savings that matters.

mumbo jumbo

In this podcast, Nico and Darren claim that retail products dismiss the measurement of personal outcomes. They want to measure “gross performance” as if DC savers were in DB schemes. This alternative agenda is akin to that of the Pharisees and Sadducees , the keepers of arcane wisdom. DB is not DC and it deserves a different means of measurement of  risks individual savers are taking. VFM cannot be measured by the mumbo-jumbo of DB analytics

The VFM framework does not measure the quality of governance

Nico and Darren believe that the key to good performance is good governance which is one of the reasons that institutional approaches (workplace pensions) will always provide better value for our money. Try telling that to savers who have suffered the appalling performance of NOW pensions over more than 10 years.

The “institutional approach” is a euphemism for “top down” measurement which focuses not on the member experience or the member outcome but on governance .  Historically measured by TPR’s 31 characteristics of a good DC scheme, the assumption is that where good governance is evident, good outcomes will follow.

Attributing VFM to the way that a scheme is governed suits Trustees, IGCs and regulators but it is meaningless to employers and savers who are interested in their and their employees money. That is why the DWP consultation devotes three line to governance which is dismissed as a means to measure value.

The VFM framework  mentions “outcomes” 67 times, entirely in relation to what savers get. Chapter four of the consultation does indeed explore up to 3200 measures for “net performance” but in truth, the only measure people are interested in is how their money has done relative to the average saver. The only thing that an employer is interested in is how the staff’s money has done relative to others. Nobody but those in the temple are interested in “pick and mix” assessments of performance tables delivered from on-high.

The DWP understand this. This is why I have repeatedly said that the consultation is 95% right. The 5% that is wrong is in residual thinking based on outdated “top-down” metrics , a left-over of DB reporting and the actuarial hegemony of performance measurement.

VFM is not about what the pension industry gets paid but about what gets paid to savers

This consultation is not about how the pension industry gets paid but about how and what savers get paid. But that is not Nico’s and Darren’s agenda. At one point, when discussing what asset managers actually get paid by workplace pension providers, Darren says he feels sorry for fund managers who get such a small slice of the AMC.

Fund managers are not charitable institutions, if it costs them 2bps and they are paid 3ps, they are working to 50% margins. The purpose of the VFM framework is not to benchmark the fees paid by providers for asset management (Chris Sier and ClearGlass do this brilliantly) it is to measure whether savers get value for their money.

Value for money is not too hard for ordinary people to understand

Saying – once more – that VFM is too hard for ordinary people (like the 1.2m employers with workplace pensions who aren’t expert) to work out, means that extraordinary people, like trustees, IGCs and their advisers are allowed to make up the measures and everyone else has to fall in line with their views – which are invariably that VFM is being achieved or will be by the time the saver gets to take his/her money.

Nico and Darren’s VFM framework has no future. It is a continuation of the failure of the past ten years. It is transparently self-serving and while it will play well to those who provide governance and consultancy to large occupational schemes- it does not wash with me. Nor I suspect will it wash with the DWP, FCA or TPR.

You can listen to this thirteenth “special” podcast here

 

 

 

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Public sector pensions – unaffordable and unsuitable for low-earners?

Posted on April 8, 2023 by henry tapper

I can only read the headline – I have no subscription. As Stephanie Hawthorne’s tweet gives me no clue as to further insights, I’ll assume this is another dig at the “pensions apartheid” between those who get a decent pension because they are in a public sector scheme and those that don’t.

And I expect it will remind us that the lucky public sector worker is going on strike while the unlucky private sector worker is made to make their best way to work, scrabble for a new passport and wait in A&E for an NHS paralyzed by strikes.

Which plays pretty well to the Telegraph readership who will either be outraged or comforted but not particularly engaged.

As this IFS chart shows, public sector pensions are the Government’s biggest liability. Yesterday’s blog on the SCAPE rate, explained that the Government are aware that unless GDP picks up, the cost of meeting these liabilities will need to be met by higher employer contributions. These higher contributions will be covered by more money to public sector employers from the taxman but at the expense of money for services like more police, libraries, hospitals and so on.

And while pensions may be bleeding the public sector dry, the public sector employers are not going to be up in arms on behalf of consumers, they are all too happy to see their pensions prioritized.

There is no obvious answer to this problem other than to recognize it and ensure that it is taken into account in wage settlements.  Unfortunately, the idea of “total reward” where the cost of pay today and pay tomorrow is added together, seems to have played little part in pay discussions over the past twelve months.

The sneaking feeling is that nobody in the pay negotiation process, really wants to consider what the pension inequality between private and public sector reward means.

Which is why some commentators have called for a system where pension accrual can be sacrificed for greater take home. There is merit in this, if only to show what total reward is.

But more insidiously, such a system of pension sacrifice could  lead to low-earners working out that their public sector pension and their state pension could make them overweight income in retirement and underweight income while at work.

The design of our great public sector pensions may have created a strange distortion which means that the highest earners cannot stay in their scheme for tax reasons while lowest earners cannot afford to stay in their schemes for cashflow reasons.

Just how little thought has been given to “affordability” is evident from the net-pay scandal. The bulk of low earners auto-enrolled into workplace pensions are accruing in public sector pensions. Those auto-enrolled in at the AE earnings threshold but earning below the lower income tax threshold are over-paying contributions by 25% (and will be throughout this new tax-year).

In short, a public sector pension system designed to meet the needs of everyone, is only really working for middle earners. The cost to low-earners of participating is too high (witness the numbers of nurses opting out of the NHS pension scheme).

Ironically, the design of defined benefit pensions that prevailed in yesteryear, excluded those on low earnings, people who regularly changed jobs and often younger workers.

We may find that the cost of being apart of ever more expensive public sector pensions – creates such pressure on low-earner’s take homes that we go full circle.

In 2016, an NHS Trust called Oxleas did try to introduce a low cost DC workplace pension as an alternative to the NHS pension.

At the time it was seen as a means to reduce Oxleas’ pension bill, but as these strikes persist , the problems of affordability within the public sector pension sector will persist.

While The Telegraph may be railing against the cost of public sector pensions to the tax-payer, a more interesting conversation could be had about the affordability and suitability of these schemes to many who are in them.

Oxleas may have been wrong in how they implemented their pension strategy, but they were asking questions about affordability which are being asked again today

 

 

 

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