simon Chrystal

Simon Chrystal  is a phenomenon. He sends luck to the editors   of this podcast as he finishes explaining how WPS Advisory has give up on giving paid advice to 600,000 employees whose employers wanted him delivering messages to the staff they had given pensions to.

The reason for the pivot were unclear but they came amidst the torrent of information and opinion that came at us in 76 minutes. Two facts stuck h me

If they had the advice paid for them by the boss, one in five employees turned up to hear the advice, if they had to pay for the advice themselves, one in fifty paid for and listened to the advice.

I hope I’m not cynical in saying that 98% of people do not value financial advice on what to do before retiring enough to pay for it.

There is a long history during this century of IFAs being employed to deliver bulk advice to meet the needs of Employee Benefit Consultants to get ideas pas the Pension Regulator and the FCA. Typically these have involved “de-risking” pension schemes (aka transferring risk from the scheme and its sponsor) to the member/employee.

It has not turned out well for many IFAs. LEBC spring to mind and WPS advisory are doing well to get out before they follow the same dark path to ruin. Ruin may now come not from problems with the regulator but with the bank manager. When de-risking was needed to balance the book on DB plans deemed to be in deficit, getting an employer to stump up to protect the employer , the trustees and the EBC from the regulators  was fine. Simon quotes sums of £250,000 paid per project to the advisor as gold dust to the IFA.

But there is no longer the work – we have to suppose. This is not surprising as 75% of DC schemes are deemed to be in surplus and with different employees. The problem is no longer the risk and Simon’s firm no longer has the stream of work they were enjoying when Simon did his last podcast two years ago.

Instead, Simon has discovered that the clients that he has , have a quarter of a million pounds each and have them under the advice of WPS. The new model to which he will pivot is to make money on this money by finding a home for it , where it can pay his firm the income it needs to replace the lost income from giving the working person retirement advice.

This failure of the system is a regulatory failing (in Simon’s opinion) and he backs up everything he says with data that he has to hand. Infact this podcast is a 76 minute diatribe against the system that does not empower the working person to cease being the 2% who do and start being the 98% of people who don’t currently take advice on what to do from a proper financial advisor.

I know the provenance of WPS advisory and its funders and I must say I am surprised that this firm is lecturing us on value for money. I would beg to differ on the validity of  his  views on value for money for the working person when put in action.

It is a long and very tedious podcast where only Simon Chrystal gets a word in and where the listener is given no chance to hear alternative views from Darren and Nico.  I listened to the end and hope that we will return to paid advice as a topic for discussion. I am with the 98% who see no value in the money that is paid for it.

The boys are doing a podcast next week based on our questions. So far they haven’t got any questions and they’re saddened by this. I have a question for them which is apart from the obvious question why these podcasts aren’t edited down to an hour. My non-procedural question is this…

Should the members of DB pension schemes have a say in the spending of any surplus that pension scheme distributes?

I read this with a feeling I wanted to lie on the floor and breathe steadily till the palpitations went away.

gh

If I could see all the pots I ever had (11) on a single board, even it meant clicking through to see them as pots, I expect I’d do the kind of thing that Richard is doing

As I’m sure you know, a pension is a lifetime income that will in future keep pace with inflation. You may chose to opt out and generally 10% of savers opt out of anything that doesn’t do it for you. But that means the other 90% (including me) will be getting the default – as set out above – an income for life that keeps pace with inflation.

But to worry that some of your funds have gone down (and one up) is to give yourself needless sleepless nights. All your four pot managers are supposed to be doing the same thing which is to provide  you with that income and that some one did well and the rest badly is of virtually no import.

I have no interest in checking the relative performance of my pots despite one supposed to be out of oil (fossil fuel free) , one investing in technology and one being Nest’s default. I am waiting for the day when I can have a retirement income from them all which will keep pace with inflation.

If this is what “value for money” testing is about, then it’s just a practical version of the theoretical testing done by TPR and FCA who don’t measure your experience but something made up by them and the people who do performance measurement in actuarial bubbles.

I’m sorry but if what we are saving for is a pension, then what the heck is the up and down of my pot’s value over a week, a month or a year any importance? Why can’t I have a measure that talks about my pay in retirement and the chances of that pay keeping pace with inflation? Why can’t that be the measure of value for my money -it’s what it says on the packet – all these pots are “workplace pensions”!

On my way up to the north, I got a call from my Doctor – Dr Tommy  of the Neumann  Group. He said he was worried that my neurological condition drive me to depression and even suicide.

I told Dr Tommy that I was a cheerful chap but I could be driven to something like the state he described.

We laughed when I explained that I worked in pensions but only saw pots – he knew what I meant.

A Port Talbot insight

The Financial Regulators Complaints (FRC) Commissioner has upheld a complaint over the Financial Conduct Authority’s (FCA) handling of the British Steel Pension Scheme (BSPS) advice scandal, concluding that the regulator acted too slowly to prevent widespread unsuitable advice.

It is meagre comfort for the steelworkers involved who from 2017 could see exactly what the failings of the regulators were at the time.

In a final report, the commissioner, Abby Thomas, found that the FCA contributed to “serious consumer detriment” among steelworkers.

There has been no investigation of the failures of the Scheme itself to provide assistance to the steelworkers or indeed the failure of its regulator (the Pensions Regulator) to make it clear what was being lost by leaving the pension scheme

More than £17.6m has been paid in compensation to over 470 affected customers so far, many of whom suffered losses exceeding statutory limits.

But the payments have been based on a formula that works on current annuity rates. Those who got the bulk or these payments got them before the hike in gilt rates in 2022 which meant the formula work against the former pensioners.

The FCA previously described the case as “one of the worst” it had seen, highlighting the extent of consumer harm within the BSPS advice market.

I gave witness to the Work and Pensions Committee on this, Megan Butler followed me and steelworkers who had been ripped off. Megan Butler was in charge of the FCA’s operation but had no idea of what was going on and was berated by Frank Filed for being ill prepared both for her session and for what happened in Scunthorpe, Port Talbot and elsewhere.

However, the commissioner has argued that the FCA’s shortcomings were not isolated but reflected “a series of regulatory failings” across the entire lifecycle of the BSPS episode.

I would agree and this blog intends to stand as a reminder that it warned anyone who would here that disaster was coming when a strategy was adopted that kept the scheme out of the PPF. If the original proposal had been adopted and the £15bn scheme had been put into the PPF’s waiting room, something could have been done to protect steelworkers. Instead a silly scheme was devised by consultants, the lead of which was ex TPR. Here is not the place to rehears detail , but a book needs to be written.

Here is the conclusion of the Pension Age Article, thank you Callum Conway.

In particular, the report concluded that the regulator failed to act on known risks in the defined benefit (DB) transfer market, despite earlier evidence of poor advice standards and systemic weaknesses.

Key criticisms included its delays in banning contingent charging despite recognised conflicts of interest, inadequate oversight of adviser qualifications and professional indemnity insurance (PII), and a failure to gather real-time data on firms advising BSPS members during the “Time to Choose” window.

The commissioner therefore upheld the primary complaint that the FCA was “consistently behind the curve in anticipating, preventing and responding” to the crisis.

She also highlighted that although a redress scheme was introduced, many steelworkers had not been restored to the position they would have held had they remained in the scheme.

In response to the final report, the FCA rejected the central finding, arguing that its actions were “reasonable and proportionate” based on the information available at the time.

The FCA stated that it “does not agree” with the conclusion that it was behind the curve, pointing instead to its risk-based supervisory approach following the 2015 pension freedoms and subsequent enforcement activity.

It noted that more than £106m in redress had been secured for 1,870 former BSPS members and that enforcement action had been taken against over 20 individuals and firms.

The regulator also emphasised that DB transfers were already presumed unsuitable under its rules, placing responsibility on firms to act in customers’ best interests.

However, it acknowledged that data-sharing limitations constrained early visibility of the issue and added that improvements had since been made, including enhanced analytics and closer coordination with other regulators.

In an interim statement, the commissioner signalled that the FCA’s response raised “clear points of disagreement” and would be reviewed in more detail.

A further considered response is expected in due course.

A dark morning on the banks of Loch Rannoch

I came up on the train yesterday afternoon with a couple of South African bankers who’ve bought up a bed and breakfast in Pitlochry. I thought how sweet until they told me that rooms were between £170 and £180. Perthshire is clearly a lot more expensive than London! They tell me they get 85% of rooms booked over the summer.

But I’m not sure that this is summer or even spring. The snow is coming down and I don’t suppose that the things that are still free, the hills and mountains , feature much in the tourist brochures. Indeed, the tourists, according to my travelling companions are typically coming in the wake of Donald Trump, looking to invest large amounts of American money in golf courses and gated communities which allow them to enjoy exclusively the delights of this bonnie country.

For my family, the trip up to Kinloch Rannoch is an annual event which began in 1977 and continues in the same house on the banks of the Loch as ever it did. Back then the cost of living the Perthshire life was a fraction of what it is for today’s tourists but mountains like Ben Lawers and Schiehallion are immutable.

Quite what I’ll do these next seven years has not become clear. I have no car nor capacity to drive a car, having been prone to a kind of seizure akin to a stroke – something you can survive when walking , but not when driving on a public road.

I hope that I may get down to Perth and Fife to see the friends of this blog. I hope that I will be able to make it to Innerpeffray near Crieff, maybe to Mallaig by train from Rannoch or to the deep north by train from Blair Athholl.

While I have been writing these words the weather has changed and the view across the loch has changed

But best of all, is the quietness of this place as it is with the soft snow falling around me in late March.

This picture is what I can see when the sun arrives and whether it is bright or dull (as this blog started) , I breathe a different air! It is a different air up here from London and from the expenses of Pitlochry through which I passed as my gateway to beauty.

It is the air that clears to show me this astounding sight

Schielhallion 

I’m interested by the anonymous thoughts of LCP on the spread of interest in CDC.

UK CDC schemes better placed to succeed than earlier models: LCP

“UK CDC schemes better placed to succeed than earlier models”

It is a complicated thought.  LCP are saying that we are likely to do better implementing CDC over here then they did in the first shot at CDC in the Netherlands , because we have learned from them.

Transparent risk-sharing and a simpler benefit structure mean UK Collective Defined Contribution (CDC) schemes could be better placed to succeed than earlier international models, particularly those in the Netherlands.

I think the excursions of the DWP to Holland and elsewhere have convinced us that a simple way forward is easier to do and more likely to win support. They have also learned that trying to teach over 100,000 postmen about actuarial factors was never going to work, Postal workers, like most workers (even in the financial services industry ) are not going to engage with niceties of pricing, valuation and how we can run a scheme without a surplus or deficit belonging to a corporate sponsor.

LCP has highlighted several strengths in the UK approach in a new analysis, arguing that the Dutch system is often misunderstood. It says that it is sometimes seen as evidence that collective pensions “failed”, but the analysis suggests it offers useful lessons in how these schemes can evolve.

To put it simply, those saving for retirement need to be comfortable that they are being given value for money from the money they part with while they work. Right now even so called experts cannot explain the Dutch system and we need to move on from that

According to LCP, the key takeaway is that success depends on how investment risk is built into the design and explained to members.

LCP have made it clear that 70% of the improvement in pensions that comes out of managing pensions collectively comes from doing it from one pot collectively and not giving everyone their own pot to manage or to give back to fiduciaries to manage for them. As the numbers who want to DIY their pension is typically less than 10% of employees, it looks like “opt-out” of CDC to DIY DC (aka SIPP) will be around the levels who opt out of Auto Enroment.

The analysis points to the UK model’s clearer approach. Target pensions adjust as markets move, so funding changes are recognised early rather than building up over time. Members are also told upfront that benefits can go up or down, helping to set more realistic expectations.

The odd thing is that the last 15 years have been good years for investment despite such disasters as COVID , the Ukraine investment and now the war against Iran. But people are frightened about the impact of all the disasters and see little of the long-term market movements in their favour.

Frankly the less we think about being responsible for our pensions and the more it is explained that it is not for them to worry, the happier we will be. We all know that setbacks happen, we feel it in inflation, with interest rates and we get personal financial crisis’ that hurt us, we need out pensions to be boringly reliable, not guaranteed, CDC is unlikely when it does badly to decrease much more than the promised increases , when it does well, pay slightly more than inflation as an increase – going down and up in CDC terms is not the kind of disaster we’re getting on our DC pots right now!

Teaching people that nothing is immune from downturns , is not going to freak a nation out, what would freak us out is to tell people they’d get no help or that they’ll get guarantees – neither prospect is helpfuil.

This is right, the idea that we all can be winners was built into the thinking of DB, because sponsors were always there to help out, the idea of DC was that we all should look after ourselves or take personal advice. We have lived both dreams and seen both turn to nightmares.

LCP partner Launa Middleton says: “Collective pensions are often said to have ‘failed’ in the Netherlands. But the reality is more nuanced. The Dutch experience shows that the durability depends not on avoiding investment risk, but on how that risk is recognised and shared across generations. 

The bottom line is that if you don’t go for the growth and take the risk, you will not get there. There is an opt-out of risk, money can be managed through a bank account or national savings but that doesn’t work over time. People know damn well that they have to take risk and by all being in it together – they will get there. We do not need to personally expert, we cannot rely on the boss to bail us out.

“For the UK, the challenge is not to prove that collective pensions can generate higher returns, but to ensure that the risks taken are consistent with what members understand and trustees can manage over the long term.

This is spot on from LCP. Most people never expected to be made wealthy  either on their own or with an adviser. Nor did people expect bosses to guarantee them deferred pay. They wanted a wage in retirement based on what everyone else is getting “risk sharing”.

“Thequestionis not whether CDC involves risk, it always does, but whether that risk is recognised and governed before expectations move beyond what economics can sustain.” 

When we watch the news we are part of a larger group, . We share  good news and bad – we are after good management and fairness. That is what CDC should go for; it’s more in tune with our expectations than either DB or DC.