Stuart Kirk reckons “summer holidays are the number one enemy of retirement”.

Posted on June 27, 2026 by henry tapper

Stuart Kirk says

In the FT

I give money to every beggar and homeless person I see. The reality is they will enjoy the booze and drugs my money can buy more than I will at my age.

Not that I gave a penny to a bloke on London’s Golden Jubilee Bridge last week. His sign could be read a hundred metres away. “Hungry — need food.” I could also see that he was a danger to the structural integrity of the pylons. A big lad — and badly advised in his choice of words, I feared.

Good luck to him, though. I feel less sympathy, however, with those who complain about “the cost of living crisis” when they clearly spend like mad. It’s the same with investing.

And, frankly, I’m one of the worst culprits. You shouldn’t feel sorry for my meagre pension pot after three decades of employment, as I have a bad habit of living beyond my means.

 

My lifestyle wasn’t excessive when I was a managing director of a global bank. But why did I buy a yacht post-divorce (and, worse, keep it when I lost my job)? What explains the holidays to Australia? The top-shelf tequila? The second wing-foiling board? If you think expenses don’t affect our long-run balance sheets, think again.

There is nothing you can do — apart from avoiding tax — that shifts your savings profile as much. Stock picking or asset allocation are irrelevant by comparison. Take that £30,000 boat of mine. In 2020 I had to earn £50,000 pre-tax in order to buy it.

That could have topped up my pension instead, growing at least 6 per cent per year since. A £71,000 white elephant, in other words. There are the costs in perpetuity too, such as eight grand annually in marina fees. These you have to capitalise and tax, as you do when valuing merger synergies, for example. Assuming a 15 times multiple (a 1/15 or 6.7 per cent return) and a personal tax rate of 40 per cent, Jammy Dodger was equivalent to £72,000 in savings.

Seen this way, summer holidays are the number one enemy of retirement. A ten grand all-inclusive with the family to Greece? More like £90,000 wiped off the family books.

Even a thousand pounds spent in Butlin’s each August is worth £15,000 to a saver paying no tax at all. Recommended Travel & leisure industry Holiday bookings surge in markets hit by Iran crisis

But this column has never been about saddling you with problems and guilt. So let me explain how you can use the above to your advantage. British parents could warn their kids that a fortnight’s worth of ice cream on the beach — at ten euros a day for them and that random new friend they can’t shake — is a €2,100 claim on the future value of their Junior Isa.

Your call, darlings.

Or how about the £500 a year your partner blows on streaming services to watch their favourite shows? Tell them it’s the same as giving up ownership of a £4,500 fund invested in US equities — which also has a long-run return equivalent to a multiple of about 15 times.

Cancel them and we’ll split the difference. And this approach can be used on any recurring expenses you’d like to cut back on — personal trainers, Soho House memberships, the lot. Trouble is, most humans aren’t in the habit of comparing immediate costs with capitalised values

Whoever thinks of the annual lunch with the girls — a hundred bucks a head — as a claim on $450 of lifetime wealth? It’s not hard, though. Even including tax in your decision-making process is a useful start.

I worked with a guy once who would always put down the phone after securing, say, a $10 discount off his water bill and say, “I just made twenty bucks!” By which he meant he would have had to earn twice that amount before tax to save the equivalent sum.

And then from there it’s easy to calculate the assets he added to his family’s pot. It’s just $10 times 15 (assuming a 6.7 per cent perpetuity return). So next time you’re pondering a subscription to an app or wine club, just take the annual cost and multiply it by the inverse of whatever investment return you’re used to and again by one minus your personal tax rate.

If you have your savings in a bank, for example, maybe you earn 4 per cent annually. And perhaps your tax rate is 30 per cent. Those sunglasses you buy at the airport each July for £200, therefore, will lower your wealth by 200 times 25 (1/0.04) times 0.7. Three and a half grand! A pair of sunnies! You’ve got half a dozen others sitting in a drawer beside your bed. Resist!

And for those who are more risk-loving, with most of your money in stocks, say, you’re still forgoing £2,100 of investment capital. I should acknowledge here that some readers will find this confusing. It seems backwards that capitalised values for a given expenditure are smaller for those earning a higher return on their money.

But it’s mathematically correct, because in the case of the Ray-Bans, we’re asking:

“How much capital would I need to produce £200 a year?”

If your money earns less, you need more of it. We are deriving present values, not future values. The latter is all about

“what would this expense become if I invested it?”

That’s very different from telling your wife:

“You’re consuming the equivalent of a small endowment.”

Indeed, that’s how universities, foundations and the like manage their capital. Not as something to be spent, but as an asset that generates a perpetual stream of income. We should all be thinking this way. If it weren’t so boring.

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Andy Haldane’s “Field of Dreams” speech in full;- it could change funded pensions.

Posted on June 27, 2026 by henry tapper

 

Andy Haldane – Global Annual Conference Speech, BCC , June 25, 2026

Imagine you owned a farm, the most fertile of any farm on the planet. Seeds, once planted, sprouted vigorously in the soil suggesting a bountiful harvest to come. Yet the bounty never came. Year after year, seedlings failed to grow due to a lack of water or were picked off by scavenging birds from afar.

Adjoining the fertile fields was a deep reservoir of water sufficient to irrigate the farm. But whereas once more than half of the water had flowed, today it had slowed to a trickle. Without an effective irrigation system, the harvest had collapsed and the farm had faced mounting debts and deficits.

You will probably recognise this farm. It isn’t Clarkson’s. It is ours – the UK economy. Its lack of growth success, despite our seed-corn of brilliant businesses, is the subject of my opening remarks. And reversing this tragedy – in other words, growing our economy by unleashing the potential of those businesses – is the subject of today’s conference.

You will hear a lot today, including from political leaders, about what has gone wrong in the past and what might be done differently in future to get growth going. But I want to leave this audience in absolutely no doubt about three basic – but fundamental – facts about the UK’s growth prospects:

First, the UK has huge natural advantages when it comes to its pipeline of innovative, high-growth businesses, many the envy of the world and most whose potential remains largely unfulfilled;

Second, the UK has an enviably position too when it comes to its deep reservoir of patient capital, primed for jet-propelling these businesses, though at present this is also largely untapped; and

Third, I want to suggest what more might be done to unlock the potential in both British business and in British capital – two of our greatest assets – by more radically replumbing the two together.

I am calling this speech Field of Dreams. But unleashing business and, with it, growth is far from a dream. For the UK, it could and should become a reality. This will require, however, a reconfiguration of our eco-system. If we re-build this, growth will come. Here’s how.

The UK’s Business Seed-Corn

The UK has long been lauded as an “innovation nation”. The home of the first Industrial Revolution and so many inventions and inventors – from Watt to Whittle, from Fleming to Turing, from Logie-Baird to Berners-Lee. Yet the question too often posed these days, with growth and productivity weak, is whether we have lost that innovative edge, that entrepreneurial spark.

My answer is a resounding no. The facts speak for themselves. We remain home to four of the world’s top 10 universities. In Global Innovation Indices, we consistently rank in the top five and in the top three for start-ups and unicorns. The best British businesses outperform, in productivity terms, their international counterparts. The UK’s innovation spark remains ablaze.

What matters for growth ultimately, though, is the commercialisation of this innovation, the journey from start-up to scale-up, translational as well as primary research. Historically, scale-up has always been the engine of growth, job and productivity creation.

The five largest companies in the world today were venture capital start-ups which did not even exist 50 years ago. Put differently, the UK’s 10 largest companies are over a hundred years older than the average age of the US’s 10 largest companies. This diagnostic does not reflect well on the UK’s business dynamism.

Yet the irony here is that the UK’s pipeline of fast-growing scale-ups – the pre-unicorns, if you like – could hardly be stronger. Continuing the equine metaphor, Saul Klein at Phoenix Capital has termed these early-stage, VC-backed companies the UK’s colts (with revenues between $25-100 million) and thoroughbreds (with revenues in excess of $100 million).

Klein has identified in excess of 1,500 of these colts and thoroughbreds across the UK. That would place the UK third in the global league table of high-growth businesses by absolute number. On a per capita basis, it would place the UK as one of, if not the, most innovative business eco-system on the planet – a genuinely “innovation nation”.

You might think this success was clustered geographically in the Golden Triangle. And you’d be wrong. Interestingly, the colts and thoroughbreds are spread across all four corners of the UK. There are more colts and thoroughbreds in Leeds than in Cambridge, in Manchester than in Oxford. By growing them, we would fire growth in every corner of the UK.

You might also expect these businesses to be concentrated in a small number of super-star sectors. And again you’d largely be wrong. These high-growth UK businesses span a wide range of sectors – from advanced materials to clean energy, from photonics to genomics, from neurotech to fintech.

Yet the fruits of that pipeline have plainly not shown up in UK growth – or at least not yet. Why? Because too many of these high-potential companies have failed to fulfil it due to a lack of access to scale-up finance or have been lost to overseas investors. We have become what Stephen Welton at the British Business Bank has called an “incubator economy”.

This is not a new problem. The UK’s scale-up problem, its “death valley” for businesses, has existed for over a century. But the costs of not irrigating death valley feel particularly acute today, with UK growth weak and with the pipeline of brilliant British businesses so plentiful as we sit on the cusp of an AI-powered fourth industrial revolution.

Will Hutton at The Purposeful Company has identified around 1,700 high-growth British scale-ups that have been sold to foreign investors in the past 15 years alone. He estimates the loss of value to the UK from that divestment to be around £1 trillion. This is not a loss, or opportunity cost, we can tolerate for the next 15 years.

And this problem is not confined to private start-ups and scale-ups. It is being felt too by established companies trading on public markets. The UK has lost over 100 listed companies with a market cap over £100 million since 2024. So far this year alone, there have been overseas bids for a further 20 large, listed UK companies, including 4 within the FTSE-100 – almost double last year’s level and the highest since the GFC.

The UK should of course remain open to FDI. But we simply cannot afford to allow the continuation of overseas stripping of our greatest growth asset – innovative businesses – on this scale. Doing so is tantamount to willingly sacrificing the growth and jobs of tomorrow. Competing in the world means winning your winners. At present, too many of the UK’s are being lost.

If the key barrier to germinating and growing this seed-corn of brilliant businesses is a shortage of patient, domestic capital, what can be done to lower this barrier?

The UK’s Financial Reservoir

Here’s the irony. The world is awash with cash. Private money is plentiful. The pool of global financial assets stands at around $500 trillion. As it roams around the planet seeking a high-return home, this wall of money is what is driving global stock markets to all-time highs.

Less well appreciated is the fact that the UK’s pool of patient capital is also deep, more than adequate to finance Business Britain. UK households hold gross financial assets of around £9 trillion, three times annual GDP. Of this, more than £2 trillion sits in bank accounts and around £6 trillion in pension fund and other investments, such as ISAs.

So how much of this vast pool of household capital is re-cycled to support British businesses, both the pipeline of fast-growing and innovative scale-ups and larger established public companies? The short answer is far too little, in my estimation probably less than 5%.

Let’s start with the good news. By European standards, the UK has a deep and liquid venture capital pool supporting scale-up, totalling in excess of £100 billion – larger than Germany and France combined. But that still makes it only a tenth the size of the US venture capital market. More importantly, it is only around 1-2% of UK household wealth.

So how could this pool be augmented? The second largest pool of household money sits in bank deposit accounts. But, by and large, that £2 trillion reservoir of household deposits are not being recycled into British businesses. Take this fact: since the GFC, there has not been a single penny of net new lending to UK SMEs by British banks.

Bank debt is not the right financing option for firms during scale-up. But for early and some later-stage businesses, it can be. And the loss is not just felt by business. Because the majority of household bank deposits yield negative inflation-adjusted returns, British savers are missing out too.

If we turn to household pensions, the picture is no better. In 2000, over half of UK pension assets went into UK equities. Today, it is less than 5%. In money terms, that is a divestment from UK companies of more than £2.5 trillion – roughly the market cap of every UK-headquartered listed company.

The reasons for this seismic portfolio shift by institutional investors are well-known: a flight to safety, in particular into increased holdings of Government bonds; and a flight to passivity through index-tracking of global market indices, where the weight of UK companies is modest.

We see these same patterns in households’ ISA investments. These total around £0.8 trillion – multiples of the UK venture capital market. But most ISA investments are either into cash (around a third) or global index trackers (a third or more), leaving a minority invested in UK companies.

Adding up across different sources, then, this leaves only around 5% of the total pool of household financial assets invested in British companies. The vast majority is financing overseas companies or domestic and foreign Governments. That was not the case in the UK’s relatively recent past.

And nor is it the case in other countries. Pension funds in Canada, Australia, Japan and across Europe invest between 20-40% of their assets in domestic companies. This is many multiples of their global market share – what is sometimes called a “home bias”.

The most striking thing about the UK’s large and mature pension system is that it is only system in the world without a home bias. It is the ultimate irony that Canadian, Dutch and Australian pension funds today invest more in brilliant Brish businesses than do UK pension funds.

Re-Plumbing for Growth

So we have an extraordinary situation here in the UK. A rich pipeline of businesses, new and established, ripe for growth. A huge pool of capital, failing to invest in these very companies despite the prospect of far larger returns to savers. Surely these twin assets could be fused together, the field of dreams irrigated, to everyone’s benefit?

Latterly, we have begun waking up to this potential. With limited fiscal space, we desperately need policy measures able to stimulate growth at low or no fiscal cost. This has spawned several initiatives recently aimed at replumbing the UK’s growth eco-system.

First, successive Governments have created new institutions to support investment in UK assets, real and financial. These include the British Business Bank (BBB) and National Wealth Fund (NWF). Their investment capacity now stands in excess of £100 billion. This is significant, if modest relative to the UK’s potential.

Second, a sequence of reforms to pension funds – including the Mansion House Accord and the Pensions Schemes Act 2026 – have encouraged pooling of funds, a greater focus on returns as well as cost and increased allocation into private assets. These are well-intentioned, if also likely to be modest in their quantitative impact.

Third, there have been a sequence of reforms to capital markets led by the Capital Markets Industry Taskforce, including an easing of listing requirements, improving the company research crucial for investment and streamlining corporate governance and remuneration rules. These too are directionally helpful, if not game-changing.

Fourth, efforts are being made to encourage retail investment into companies. Working in partnership with the financial sector, the Government recently launched “Savvy the Squirrel” onto an unsuspecting public. Think Sid but smaller (and furrier). I fear Savvy will find rekindling retail investment in companies a tough nut to crack.

While well-intentioned, these measures are unlikely to be dial-moving for capital allocation and hence growth. They lack pace and scale. So what else might be done? The unfettered free(ish) market is not working for UK companies. And Government mandating allocation into UK assets is, rightly for most people, a step too far in the other direction. Is there a happy medium?

I think there is. This involves shifting the balance of investment incentives towards UK companies, while leaving those choices in the hands of asset managers and pension fund trustees. And, as luck would have it, our taxation system provides just the vehicle for achieving that incentives shift.

The Government extends over £50 billion in pension tax relief, and more than £10 billion in ISA tax relief, each year. As a country we spend more on savings tax relief than on defence. Yet these benefits are conferred without any accompanying commitment to support UK growth. Most are implicitly supporting US companies and governments.

This means these tax reliefs deliver a very low return on investment for the UK government. Shifting them towards investment in UK companies would leave investment choices in owners’ hands, while boosting significantly the returns on these investments in terms of UK business growth, jobs and productivity.

This is hardly a radical departure from the past. Prior to 1997, the UK’s dividend tax credit regime favoured pension fund investment in UK companies. The predecessor to ISAs, Personal Equity Plans (PEPs), had an explicit bias towards investment in domestic companies. Calls for a “British ISA” are in a similar spirit.

This is not about overly constraining investment choices. It is about correcting the (absence of) “home bias” that, at present, distinguishes the UK pension system from all others around the world. And, as best we can tell, no-one more would be more supportive of such a shift than those whose money it is – households.

When asked, more than 70% of British investors say they would prefer a pensions system favouring UK companies. Indeed, many mistakenly believe more than 40% of their pension is already invested in UK companies. Given these preferences, there would be a strong case for the default under pensions auto-enrolment being allocation into UK assets.

If the Government wishes to act, at speed and scale, to take advantage of the UK’s brilliant seed-corn businesses, before they perish on the vine or are plucked off by overseas foreign raiders, then greater boldness of this type is what will be required.

Conclusion

Let me conclude. Business is the engine of growth. If the UK cannot win its winners, business-wise, its growth malaise of the past two decades will continue. No-one wants that. So my message to the leaders in the room, and beyond, is a very simple one.

We have in the UK not one but two gift horses, both true thoroughbreds: British business and British capital. Do not continue to look them in the mouth. Do not bet the farm, sell the farm or tax the farm. Irrigate the field of dreams and growth will come.

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Two podcasts about UK pensions – VFM from Kathryn Fleming Vs Newscast!

Posted on June 27, 2026 by henry tapper

Kathryn Fleming – DC consultant at Hymans Robertson

It was the end of a hot and steamy week and two hours before the Norway vs France game. I thought I’d listen to a couple of podcasts while sorting out the garden, ducks and birds.

The first I listened to was Kathryn Fleming with Darren and Nico

81 minutes later, I tuned into the BBC’s Webcast to find out what was going on. At the same time that  the VFM pension was launched, Newscast made its final story the speech by Andy Haldane at British Chambers of Broadcast where he advocated making tax relief dependent on our money being invested according the Mansion House Accord.

You can listen to it from minute 28 to the end. It’s six minutes of pure brilliance and the link is here.

If you want a fuller story, here’s what has been blasted from the Times and Guardian. Sorry but it is the pension story of the week because it involves our investment, our tax-relief and something that could be in the next budget.

When I woke this morning , it was Haldane and not Fleming’s words that were on my mind. In retrospect, this is unfair to Kathryn Fleming. Here is Darren’s explanation about what took up 81 minutes of my life

In this episode of V-FM Pensions hosts Darren and Nico chat to Hymans Robertson’s Head of DC Kathryn Fleming. Kathryn is a PPI Trustee and co-chair of the Pension Equity Group’s Data and Research Workstream.

We chat about the work of the Pensions Commission, including the recent PEG report arguing that a financial safety net needs to be introduced to support any future reforms. We talk adequacy, fairness and affordability, and discuss what more employers can do to support better retirement outcomes. We touch on early access to pension saving, CDC, and manage to get in a dig about DC chair’s statements.

We also find out how Kathryn got into pensions and, of course, ask what value for money means to her.

Having read this, I would say that what interested me was how someone as bright and fluent as Kathryn could make such boring nonsense interesting. Indeed congratulations to Darren and Nico too because I realise now that one reason that I listen to the Podcast is to find how a boring subject can be made interesting.

Sadly, on this occasion I found the podcast let me down. Kathryn is so good at explaining how the minutia of pensions work, what can be done for small pots, how those who aren’t saving can be encouraged to save – the list of subjects touched upon seemed endless , but so very sensible.

I suspect it is the job of a really good consultant to make us understand how sensible it would be if we did what consultants advise. Included on the topics on the list was CDC which Kathryn made so plausible that Nico could find no way to rant against it. This is how good consultants get the pension agenda tilted towards them.

I admire Kathryn Fleming for making the boring  job ever of  DC pension consultant, interesting for 81 minutes.

But in truth, I suspect that people will be more interesting to hear about Andy Haldane and if I can get hold of a podcast that delivers Andy’s speech, I’ll be at it. The thing about Haldane is that he admits to knowing nothing about the minutiae of pensions. Yet she makes such sense of the big things that pensions do that they rather dwarf our interest in the detail.

This was perhaps a bigger lesson for me than even the minutiae that Kathryn and the boys discussed. The big things that interest us in  pensions are what funded pensions do; they pay people pensions and they are the reservoirs that water the farms beside them.

We need a  former economist of the Bank of England to capture the imagination of the public!

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Mandation – you ain’t seen nothing yet! Andy Haldane- for Andy Burnham?

Posted on June 27, 2026 by henry tapper

You heard it first from Ros Altmann and Sharon Bowles in the House of Lords. Now it’s been passed to Andy Haldane who’s close to Andy Burnham as an “adviser”. What’s he planning for Britain via the HMRC and whoever is Chancellor? Read on…

The tax system should be used to incentivise investment in British companies and stop the “overseas stripping” of innovative businesses, an economic adviser to Andy Burnham has said.

Andy Haldane, president of the British Chambers of Commerce, told its annual conference in London that the billions of pounds of pension tax relief was a “ready made” and “largely fiscal-free way” of giving growth “a genuine giddy-up”.

Haldane, a former chief economist of the Bank of England who Burnham has been consulting as he prepares a policy programme for No 10, said it was a “third way” between “unfettered free markets” and the “mandation” of pension fund allocation into UK assets.

“This government, startlingly, extends over £50 billion in pension tax relief and more than £10 billion in tax relief for Isas,” Haldane said. “That means, as a country, we spend more in tax relief on savings than we do on defence. Yet these benefits are conferred without any accompanying commitment to support British businesses, or therefore UK growth. Most are implicitly supporting US corporations and indeed foreign governments.

“Shifting those incentives towards UK companies would deliver a far larger return while keeping decisions on those investments in the hands of managers.”

Westminster and the City have struggled in recent years to increase the capital available for scale-up companies and stem the flow of promising ventures being acquired and moving overseas. Haldane said existing initiatives from successive governments, particularly the British Business Bank and National Wealth Fund, were welcome but remained on a “modest scale”.

The “quantitative impact” of Mansion House reforms to boost pension fund investment in UK companies would also “still be modest in the near term”, he said.

“We simply cannot afford to allow the continuation of overseas stripping of our greatest growth asset — innovative businesses — on this scale, doing so is tantamount to willingly sacrificing growth and jobs.”

He said the government needed a “level of boldness” to “act at speed and scale” in order to take

“full advantage of the UK’s brilliant businesses before they perish on the vine or are plucked off by overseas foreign raiders. Fortunately, in the UK we have, hiding in plain sight, not one but two gift horses — British business and British capital. Let’s not, as leaders, continue to look [these] in the mouth.”

The Treasury has stopped short of forcing pension funds to invest more in UK companies after criticism that doing so would run counter to prioritising the best possible returns for savers.

Haldane said the debate should not be about “constraining choices” but rather mirroring a “home bias” seen in Europe, Canada, Australia and Japan.

“Their pension funds invest between 20 per cent and 40 per cent in their own companies — multiples of their global market share, the UK’s pension fund system, big and mature, is the only pension system in the world … that does not have such a home bias.”

Haldane said savers supported this shift, citing surveys that showed more than 70 per cent of British investors would prefer to invest their pensions in UK companies.

“It is a strong case, I would say, given those preferences of households, for the default option under pensions auto-enrolment being into UK companies.”

This is a strong argument from a man who has been chief economist of the Bank of England . It was ten years ago he made this famous statement

I would be surprised if he knew much more about the details of pensions today. He came to an talks at an event in the RSA (which he was running at the time) and told me that he still was “baffled”.

If he is involved in Burnham’s Government, I would expect him to be listened in because he understands money both from the Treasury’s point of view and that of ordinary people.

He likened the situation with our pensions as like having a farm situated beside a full reservoir but so arid the crops died because the farmer couldn’t have the water beside him. The analogy is to British businesses undercapitalised though sitting beside reservoirs of capital that we call pension funds.

Andy Burnham may take Andy Haldane’s advice. It is time we had a Chancellor who implemented a radical vision and Andy Haldane’s plan to implement growth through redirecting pension funds seems feasible to me. The next Chancellor will not be Andy Haldane but I’d be surprised if he/she will not be advised by him.

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Capital punishment, 24 years on

Posted on June 27, 2026 by henry tapper

In 2002 a falling market nearly sank UK life insurers. Today the same crash would barely move them.

Gordon Aitken
Jun 23, 2026
Note: These are Gordon Aitken’s  personal views and do not constitute investment advice. See full disclaimer below.

I spent a few days in London last week and could feel something I had not felt in a while. Call it a feel-good factor. Some of it was the weather, most of it was the football. England opened their World Cup with a 4-2 win over Croatia, Harry Kane with two and Jude Bellingham running the game, and Thomas Tuchel’s side now sit among the favourites. The mood in the City always lifts when England win, and it lifted last week.

I watch the England game as a Scot, and not one of those Scots who reflexively backs whoever they are playing. This is our first World Cup since 1998, which is reason enough to be cheerful, and the great thing about following Scotland is that we travel with almost no expectation. We go for the experience and the fun, “No Scotland, No Party”, and the Tartan Army has duly gone down a storm in Boston. Tomorrow we play Brazil in Miami, which will be more of the same: a great day out and, whatever the football does, no real disappointment. It still took me straight back to the summer of 2002.

Morning kick-offs and an app on the desk

That tournament was in Japan and South Korea, so the games were on in the morning our time. I was at Credit Suisse First Boston, on the corner of Cabot Square, and the firm gave us an app to watch the matches at our desks. There was a pub on that same corner, close enough that without the app the floor would have emptied by mid-morning. This was years before MiFID and the unbundling of research from trading, when entertaining clients was actively encouraged, most of it done in the evening. For the big one, the quarter-final against Brazil, we laid on a large client breakfast.

That match kicked off at 7.30am BST on Friday 21 June 2002 in Shizuoka. Michael Owen put England ahead, Rivaldo levelled before half-time, then Ronaldinho floated a free-kick over David Seaman for the winner. England could not break down ten men after Ronaldinho was sent off, and the run that had carried the mood all tournament was over by mid-morning. Brazil went on to win the tournament.

“RSA is to insurance what Brazil has been to world football”

Our morning meeting started at 7.10am, as it always did, twenty minutes before kick-off that day. The second floor at One Cabot Square was a single open-plan trading floor so vast it seemed bigger than a football pitch, and you presented from a podium to the whole room. I stood up to give a bearish note on Royal & Sun Alliance, and I opened with the line: RSA is to insurance what Brazil has been to world football. The weight sat on those two words, because the joke was that a revered name could be a has-been, and the sales desks got it instantly. They started banging on the underside of their desks, the drum-roll a trading floor reserves for a call it enjoys. Twenty minutes later England walked out against the actual Brazil and lost.

The formal rating was only a Hold, but in that era a Hold was effectively a sell. Our team carried no Sell ratings at all, and hardly anyone did, because almost everything was a Buy and going negative on a household name, even by implication, was a lonely place to be. Everyone who owned the shares was unhappy with you, and at a firm with a sales force the size of CSFB’s, a call like that genuinely moved the stock. It aged well, even so. RSA went on to slash its dividend, bring in Andy Haste as chief executive, and raise £960m through a deeply discounted 2003 rights issue, as it tried to rescue a business widely seen as being in crisis. Being bearish on a blue-chip is uncomfortable in the moment, and a good deal more comfortable eighteen months later.

While we watched the football, the balance sheets were burning

What I have never forgotten is the contrast underneath. That feel-good factor in 2002 was sitting directly on top of what I still regard, 33 years into my career, as the worst period this sector has been through, and the one that changed it for good. While the floor watched Ronaldinho, the people running with-profits balance sheets were having a very different morning.

The FTSE 100 had almost touched 7,000 at the end of 1999 and kept falling until it bottomed at 3,287 in March 2003, a drop of more than half. With-profits funds, the savings policies that smooth stock market returns into annual bonuses, had ridden the long bull market with very high equity weightings, in many cases 60% to 70% of the fund, and Prudential’s main with-profits fund was 72% in equities at the end of 1999 (see table below).

Source: Prudential

On the way up that was the engine of the proposition. On the way down it was a trap, and the trap is worth taking slowly, because it is the heart of the story.

The rule that did the damage was the resilience test. It required an insurer to stay solvent not just today, but after a further sharp fall in equities, typically another 25% on top of whatever had already happened, and to set aside an extra reserve sized against that hypothetical further drop. Now watch what a falling market did. Two things hit at once. The equities the fund already held were worth less, so its cushion shrank. At the same time, the test kept asking what would happen if those equities fell another 25% from here, and the more equities you held, the bigger that hypothetical loss was, so the bigger the reserve you had to find. The cushion was shrinking exactly as the reserve it had to cover was growing.

That left one escape route. A falling market hands you no new money, and the only lever you control is the size of that hypothetical further loss, which you shrink by holding fewer equities. So insurers sold equities and bought bonds, which the test treated as safe. Picture a fund that owes policyholders £100 and holds £130 of shares. The test asks whether it would still cover the £100 after a 25% fall: the £130 becomes about £98, which fails, so the fund sells shares and buys bonds until a 25% equity crash can no longer push it under. The falling market was forcing insurers to sell into the falling market.

Now make it systemic. Every insurer faced the same test at the same time, so they all sold equities together, and that wave of selling pushed the market down further, which shrank everyone’s assets again and made the test demand even more, which forced the next round of selling. Their own selling was feeding the very fall that was putting the next one in trouble. They had the weight to move the whole market, too: according to the ONS in 2000 insurers owned around 21% of UK quoted equities, against just 1.2% by 2024, so when they all sold at once the index had no choice but to feel it. This was real pressure inside the with-profits funds, not a paper one. The inherited estate, the surplus pot a with-profits fund builds up over generations and shares between policyholders and shareholders, was being eaten into, free asset ratios were collapsing, and Equitable Life had already closed to new business in December 2000. The weakest names were in serious trouble.

The note I wrote that July

This is where it helped to be an actuary. The headline gauge of strength in those days was the free asset ratio, which applied only to with-profits funds and measured the spare assets the fund held over and above its liabilities, expressed as a percentage. As the market fell those ratios collapsed, from around 9% to 12% at the end of 2001 to 5% to 7% by the middle of 2002. The trouble with the ratio was that it squeezed business mix, bonus policy, investment strategy and the valuation basis into a single number, which is why I spent much of that period warning investors not to read one company’s against another’s.

The credit rating agencies mattered even more, because they acted as pseudo-regulators, setting solvency requirements pitched well above the regulatory minimum, yet they were painfully slow to move their ratings as the market dropped. So I built our own tool, the CSFB capital adequacy model, that could read off an insurer’s implied financial strength at any level of the FTSE 100, mapping a capital adequacy ratio onto the familiar rating bands, AAA above 175% down to BBB at 100%, and updating the moment the index moved rather than months later.

The capital adequacy model did not come out of nowhere. Our team was built around proprietary models, the best known being the Value Tracker, a framework that let investors value insurers on a consistent basis and compare them like for like rather than taking each company’s own numbers on trust. It was the sort of tool clients genuinely relied on, and it was a big part of what carried the team towards the number one spot in the Institutional Investor rankings that year. The capital adequacy model was cut from the same cloth, a proprietary lens trained on the one question the market kept asking and the rating agencies were too slow to answer.

The chart it produced told a clear story.

RSA sat at the bottom of the pack, and on my numbers was close to dropping below 100%, beneath even the BBB floor, which is to say below investment grade on implied strength. That, more than the line about Brazil, was what sat behind the call.

The note made a subtler point too, and it is the one I am most pleased with looking back. The statutory minimum capital an insurer had to hold, the EU requirement that was in force in the UK that summer, was about 4% of reserves on business where the insurer carried the investment risk, with-profits included, and 1% on unit-linked, where the policyholder carries it. For the with-profits business that margin could largely be met from within the fund, because the inherited estate was sitting right there. So even though the with-profits funds were under genuine strain, I argued that the headline panic overstated the threat to formal statutory solvency for most names, and that the binding pressure for shareholders sat outside the with-profits fund, in unit-linked, international and general insurance, where the trapped policyholder estate was no help and which the free asset ratio, being a with-profits measure, did not even capture. The note even said, in as many words, that we expected insurers to lower their equity weightings gradually. That is exactly what they did, and it is the single biggest reason the sector is so safe today.

The regulator that kept moving the goalposts

What eventually broke the spiral was the regulator, the FSA as it then was, quietly changing the rules to keep companies alive. It began on 28 June 2002, a week after that England v Brazil quarter-final and with the tournament still on, when the FSA softened the resilience test so that a market already deep in the red did not mechanically demand a full further 25% fall from the floor. The easing carried on through to the market low in March 2003. It was regulatory forbearance in real time, and it bought the time markets needed to turn. The bigger reform followed: the realistic balance sheet, brought in from the end of 2004, forced large insurers to value their with-profits funds at market prices and to model a proper range of outcomes rather than a single rosy one. That reset is the direct ancestor of Solvency II, the capital rulebook the sector runs on today.

The same mood, a very different sector

So what does all this say about the feel-good factor I felt in London last week? I am not saying good moods are dangerous. The point is that when everything feels easy, an analyst earns the fee by looking underneath at what nobody is being forced to check.

So I applied that test to today’s sector, and almost nothing about it resembles 2002. Back then the danger was on every screen, with the FTSE falling in real time and solvency draining away with it. Look underneath the sector now and you find the opposite, because the thing that nearly killed it has gone. I set this out at length last year in Haunted by the Dot-Com Crash, Built for Today, and the short version is that the modern UK life insurer barely resembles the one that nearly broke in 2002.

The names on that 2002 chart are, in the main, still here, just under different owners. CGNU became Aviva, which later swallowed Friends Provident as well, the Prudential arm became M&G, and Legal & General is still Legal & General. RSA’s life funds, the very business I was bearish on that morning, were closed and then sold to Resolution in 2004, the vehicle that became Pearl, then Phoenix, and today carries the Standard Life name. So the big names you know now, Aviva, Legal & General, M&G and Standard Life, all trace back to that chart, and every one of them now runs a de-risked, bond-driven balance sheet a world away from the equity-backed funds of that summer.

Equities now carry a punitive 39% capital charge under Solvency II, so insurers hold almost none of them directly, and their books are matched, long-dated bonds set against long-dated promises so that the two move together. Regulation and matching are really the same thing here, because the whole regime is built around matching assets to liabilities, which is exactly what makes holding equities, which match nothing, uneconomic.

Source: L&G Annual Report 2025

The numbers above show how complete the change is. A 25% fall in equity markets would move Legal & General’s solvency by only 5 percentage points. Its coverage stood at around 210% at the end of 2025, and the company now aims to run between 160% and 190%, and I would find even the 160% floor of that range perfectly comfortable. The sector’s real low point was 2003, not the 2008-09 financial crisis, and it has since taken Brexit, the pandemic, the 2022 gilt and LDI episode and the market turmoil of this year’s US-Iran conflict, without any of them threatening solvency.

The irony is that the old model was simple enough that an outsider like me could estimate a company’s capital at different market levels on the back of an afternoon’s work. Today’s Solvency II model is stochastic, 100,000 scenarios run across the whole business with every risk interacting, and no outsider can reproduce it, so any attempt would be spurious. The modern machine is vastly more accurate and far safer, but the price of that safety is visibility, because it is a black box. That opacity is a large part of why companies now run solvency above 200%, well beyond what is genuinely needed, where in 2002 the cover was far thinner. The safer the engine became, the less anyone outside can see into it, so investors demand a bigger cushion.

The surprise, for most people, is that a stock market crash, the very thing that defined 2002, would now barely register on a modern insurer’s balance sheet. Equity risk has gone from the force that nearly sank the sector to something close to an irrelevance, and that is not luck. It is the direct result of a capital regime built around matching, and it has left these balance sheets about as solid as anything in financial services.

Enjoy the football, and the balance sheets too

The draw has set up one last echo, putting Brazil in front of both home nations this summer: Scotland meet them first, tomorrow in Miami, and on the projected route England could meet them again in the quarter-final, the same giant waiting in the same round 24 years after Shizuoka.

Enjoy the football, because England playing well is good for the national mood and good for the City, and moments like this are rare enough. Hold both thoughts at once, though. The summer that felt best in my career was also the summer this sector nearly drowned, and it taught me to look underneath whenever the mood turns giddy. I have looked, and this time the news is good. The danger that was on every screen in 2002 has gone, and a falling market, the one thing that used to terrify anyone running an insurance balance sheet, would now barely move the dial. So enjoy the football, and for once you can enjoy the calm under the surface too.

Gordon Aitken runs Aitken Advisory, providing strategic advice on life insurers and pension funds. I work with investors, insurers and advisers on transactions, capital strategy and market positioning. As I did throughout my sell-side career, I meet fund managers and investors for one-to-one briefings on the sector. If you would like to arrange a briefing or discuss a potential engagement, click the button below to email me.

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Two Plowmen at First Actuarial

Posted on June 26, 2026 by henry tapper

It was good to spend some time with old friends and new ones. The conference looked full to me and Sam Mullock said that if it hadn’t been down to wet dome heatwave First Actuarial would have had no space to fit us all in!

We being a bunch of people many of whom have known each other a long time and a few of which who’d come to find out the views of Stagecoach’s Group Pension COT, Jon Hamilton. I spent a lot of my time talking with John and Bryn Davies. It spent the right way to spend a time when it was better inside!

Here is a wonderful post from my old friend from Ipswich , Zoe Plowman (no we’re not related ). That was a second time in a week we’d met.  Zoe is a pension accountant, she can count the years since we last saw each other once!

It may be a little hearted for an actuarial event, but I found a couple of plowmen had a very good time!

And thanks to Zoe Plowman for saying it rather better than the Pension Plowman can

Thanks First Actuarial, the best employers I’ve ever had – except for now – thanks for allowing me back for a cracking day!

 

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“Pensions” v “Wealth” – which are you aiming for?

Posted on June 26, 2026 by henry tapper

Because I am involved in setting up a CDC , I guess I am a “collectivist”. Like the majority of working people, I would like a pension paid to me from a date decided by me. I will take interest in what I can take as tax-free cash. I will want protection for my spouse if I die before her (I hope she wants the same for me).

But I know many people who regard much more control and  engagement in their later life financial management as important. I used to sell flexibility over a regular income and was excited when twelve years ago, I was told I had freedom instead of a pension.

I spent the first 10 years as a self-employed financial adviser and at that time I was a child of Thatcher (1983-1985)

We still have the breath of Margaret Thatcher lightening the fires of individualism. Individual preference points not to pensions but wealth.

As I have grown closer to retirement, I have found that pensions have become for me, more important than the flexibility of “freedom”.

Whereas wealth is a personal thing, a pension is something most people receive alongside others. The most obvious example is the state pension but many in public service get a workplace pension paid from taxes and many older people have rights to defined benefit plans from private companies.

For me the future of pensions is in collectivism. The future is in non-guaranteed pensions that invest with an infinite time horizon and a belief that for every one of us who die another will be born. I’m talking “CDC”, but workplace pensions will from next year be paying by default a retirement income. If experience at retirement is like experience of people in “accumulation”, these defaults will become a kind of “flex and fix” pension.

I expect to see a bifurcation between pensions and wealth management with Defined Contribution workplace schemes that aren’t collective increasingly moving towards wealth management for workers who do not want the default. It will be interesting to see how many choose not to go the pension route.

Although the Pensions Schemes Act requires DC schemes to deliver a guided retirement income through to death, there appear to be opportunities to tailor what savers get as wealth.

What does wealth mean?

Wealth to some might be a pot of £10,000; while to others wealth might be something achieved when net worth is one million pounds.

Collective DC pensions and default guided retirement will offer little choice.

By contrast, there are infinite varieties of wealth management to meet the needs of those for whom a £10k pot is a windfall to millionaires for whom the state pension is an irrelevance.

Many wealthy people will have sufficient to consider all pensions unnecessary. Many have swapped their DB pension rights for a pot of money in a self-invested personal pension.

Once we have arrived at a point where a high proportion of workplace pensions are collective, then I suspect the bifurcation will be such that DC retirement saving will cease to be confused with pensions and will be referred to as “retirement wealth” – or some derivative.

I don’t dismiss the DC saving scheme.  But choice will become simpler – especially when pots are displayed by the pension dashboard as income.  Will you take a flexible “wealth pot ” or a simple “pension”.

One of the features of wealth management is choice. People will be able to choose the funds and individual stocks that form their retirement wealth.

There will also be a bifurcation in investment. The collective fund will be institutional, the individual wealth fund will offer retail funds with choice and capacity to change

The collective funds will focus on the tenets of the Mansion House accord and ESG. While wealth management will focus on metrics for an individual’s view of “value for money”.

Finally, there will be bifurcation between financial planning based on wealth and pension planning based on an individual and the individual’s loved one’s retirement income.

There is likely to be a need for advice in the wealth market but very little need for it where pension is the aim. While wealth points to diversity and choice, pensions deliver quite the opposite.

In truth, when I was an adviser, I found I had very little to say to those who wanted to talk with me about pensions as retirement income. I understand why the modern IFA and wealth manager will want to focus on the “wealthy”. I expect most of the people who read this article are wealthy but I leave you with this thought.

Most people will never have the privilege of a financial adviser. The future of pensions is for the many workers with need of more pension than the state offers. Those who financial advisers serve are to most people “wealthy”!

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Naomi Rovnick talks a lot about private credit (as do the Australians)

Posted on June 26, 2026 by henry tapper

Naomi Rovnick has been sharing the news to those who will listen for at least a year. I too am concerned about the way that the pension credit situation is being reported in the UK. I do not have her depth of understanding.

You can read the supporting news item and insights here

www.asic.gov.au/about-asic/news-centre/news-items/asic-puts-private-credit-on-notice-ahead-of-30-june-valuations-and-reporting/

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Retirement Pooling for the Cohort That Cannot Wait

Posted on June 26, 2026 by henry tapper

A targeted guarantee of decumulation pooling for older defined contribution savers who have run out of time

CHRISTOS A. CHRISTOU

PMI Qualified Professional Trustee, Member of Academy of Experts, Freeman of City of London

June 2026

Submitted to the Pensions Commission call for views

Retirement Pooling for the Cohort That Cannot Wait

Executive summary

The UK pensions debate is rightly focused on improving future outcomes, through higher contributions, consolidation, value for money reform, private markets and better retirement pathways. Almost all of it takes years to make a difference. This note is about a group that does not have years to wait. They are the savers in their late fifties and early sixties with modest defined contribution pots, little or no defined benefit pension behind them, and too few working years left to save their way out. For them the question is no longer how to build a better pension. It is how to convert a modest pot into the highest sustainable income it can yield.

The proposal outlined herein is deliberately narrow. The Commission should consider guaranteeing this cohort access to longevity pooling at retirement, a guarantee owed to the member rather than to any particular institution. Large schemes would be required to offer or arrange it. Members of schemes too small to pool would reach it through a backstop vehicle chosen by open tender, with mastertrusts, insurers and a public consolidator all free to compete. Pooling does not make a small pot adequate. A modest pot remains a modest pot. It improves the conversion of that pot into a wage for life, which for a cohort that has run out of other options is not a small thing.

This is not a solution in search of a problem. The Pensions Commission’s interim report of May 2026 has itself identified both halves of the case, that the way savers use their pots at retirement is failing, and that decumulation needs strong, well-designed defaults (Pensions Commission interim report, May 2026). This note offers one such default, designed for the people who have the least time to wait.

  1. The cohort, and why this is triage

Most of the pensions debate is about the future. Dashboards, value for money, private markets, megafunds and contribution rates all matter, and all are about making the system work better for people who still have working years ahead of them. This note is about a group for whom those remedies will be arriving too late. They are the savers in their late fifties and early sixties whose defined contribution pots are already too small to fund an adequate retirement, who have too few years left to save their way out, and for whom no amount of better fund design will change the arithmetic in a material way. For them the question is no longer how to build a better pension. It is how to make the most of what little they have, and how to keep them out of poverty in old age.

The scale is not marginal. Around 1.7 million people aged 55 to 64 are reliant on defined contribution savings with little or no defined benefit pension to cushion them. Across the market as a whole, close to 960,000 pension pots are accessed for the first time each year, and around £71 billion is withdrawn. Of those, only about 9 in 100 secure any protection against outliving their money, and roughly 7 in 10 take the decision with no regulated advice at all. The most common withdrawal rate, for every pot up to a quarter of a million pounds, is 8 percent a year or more, a rate that can empty a £100,000 pot in as little as 12 years. The smallest pots are simply cashed. Can a market that produces these outcomes be said to be delivering retirement income to this cohort? What is not in question is that they are left to manage, alone and unadvised, the single hardest financial problem most of them will ever face, how to turn a finite pot into an income that lasts an unknown length of life.

The scale, in official figures

Around 1.7 million people aged 55 to 64 are DC-reliant with little or no DB backstop (IFS).

Close to 960,000 pots are accessed for the first time each year, and about £71 billion withdrawn (FCA).

About 7 in 10 take the decision with no advice, and only about 9 in 100 secure any longevity protection.

The most common drawdown rate, for pots up to £249,000, is 8 percent or more a year.

The cohort holds DC assets of the order of £150 billion to £200 billion, a soft estimate that rests on an assumed average pot.

The Commission has now recognised the undersaving problem across all cohorts in its own evidence. Its interim report of May 2026 puts the number of people undersaving for retirement at around 15 million, rising towards 19 million without action (Pensions Commission interim report, May 2026). Within that wider population, this note isolates the group for whom time itself has run out. The same report found that around 3 in 10 private pension pots are accessed at the earliest possible opportunity, that half of all pots are taken out in full, and that nearly half of those full withdrawals are spent on one-off costs such as a car, a holiday or home improvements rather than turned into income (Pensions Commission interim report, May 2026). It also identified early and often unplanned exits from work in the fifties and early sixties as a major risk to retirement adequacy (Pensions Commission interim report, May 2026). The Commission has already recognised the cohort that is the focus of this paper within the wider group of undersaving workers.

  1. The mechanism already exists. It is just not aimed at the cohort that needs it most.

The remedy for this problem is well understood, and the government is already building most of the parts. A collective approach to drawing down savings, in which retirees pool their pots and share longevity risk between them, can lift the sustainable income from a given pot well above what an individual drawing down alone can safely take, because no one has to self-insure against living to 100. This is the logic of collective defined contribution applied to the decumulation phase. The Department for Work and Pensions has consulted on exactly such Retirement CDC schemes. The Pension Schemes Act has created a duty on schemes to offer a default decumulation solution. Small-pots consolidation will, in time, gather scattered fragments into single pots. A value-for-money and consolidation regime is pushing sub-scale schemes to merge. And the Pension Protection Fund has shown, in the defined benefit world, that a public body can act as a consolidator for those a commercial market will not serve.

The gain from pooling is real, and bounded. Because no member in a pool has to hold back against the chance of living to extreme age, the sustainable income from a given pot can be materially higher than a cautious individual would dare to draw alone, and steadier than leaving the member to manage the risk unaided. Published modelling of collective decumulation points to a meaningful uplift over individual drawdown, though the exact figure depends on assumptions the Commission’s actuaries would need to test. What pooling cannot do is make a modest pot adequate. It can only improve the conversion of a finite pot into income, which for this cohort is the one lever still available.

Every piece needed for a policy intervention that can help mitigate inadequate savings of this cohort in decumulation is therefore either in place or in flight. What is missing is not a mechanism. It is the decision to point that mechanism, now and deliberately, at the cohort that has run out of time. The current debate treats Retirement CDC as a product that may mature over this parliament, offered at leisure to schemes that choose to build it. That timetable is fine for a 40-year-old. It fails a 60-year-old completely. The gap this note addresses is one of urgency and of guarantee. Nothing in the current programme ensures that a person retiring in the next few years with a modest pot can actually reach a pooled income, rather than being left to cash out or to draw down alone.

The Commission has gone further than identifying the undersaving issue and the cohort nearing retirement. Among the headline conclusions of its interim report is that decumulation needs strong, well-designed defaults (Pensions Commission interim report, May 2026). The legal duty already exists. The Pension Schemes Act requires every scheme offering defined contribution benefits to provide a default decumulation solution, and the Commission’s call is that those defaults be well-designed. That is the need this note answers. What follows is one concrete design for what that default should be for the people who cannot wait. It matters too that the most obvious alternative, higher contributions, is closed to them. The government has confirmed that automatic enrolment contributions will not rise this Parliament (DWP, May 2026), and higher future contributions could not help a person with only a few working years left in any case. For this cohort the one remaining lever is to convert the pot they already have more efficiently into income.

  1. The proposal. Guarantee the member, not the plumbing

The proposal is a single guarantee, that every member of this cohort has access to longevity pooling at retirement, delivered through whichever route fits the scheme they are already in. It has three parts, and the design principle throughout is that no one is forced to surrender assets that their existing scheme can serve well, while pooling is made available to everyone regardless of where they happen to have saved. Pooling here means longevity pooling in the broad sense. Retirement CDC is its leading form, but an insurer-led pooled income product or a consolidator pool would meet the same need, and this note is deliberately neutral between them.

First, mandate the obligation, not the provider. Workplace schemes above a threshold size should be required to offer a pooled, longevity-sharing retirement income option as one of their decumulation defaults, either by building it themselves or by arranging access to a pool run by someone else. The member keeps their pot where it is. The assets do not leave the incumbent. Competition is preserved. The duty falls on the scheme, but so does the income from serving it, which turns the industry from a blocker into a builder, and it gives concrete content to the decumulation default the law already requires.

Second, provide a backstop for those whose own scheme cannot pool. A longevity pool needs scale to be fair and stable, so a small scheme physically cannot run one well. Members of sub-scale schemes should therefore be routed to a vehicle that does have the numbers, whether a designated consolidator, a public option, or simply a larger scheme willing to take them. This is not the mass migration of a whole cohort and its assets. It is a safety net for the minority whose scheme has no realistic path to offering pooling itself.

Third, let the existing feeders do their work. Small-pots consolidation, already legislated, is what assembles a person’s scattered fragments into a pot large enough to be worth pooling. It is the supply line into the poolable range, not a separate problem to be solved here.

The thread joining the three is the guarantee. In a large scheme the member gets pooling in place. In a sub-scale scheme they get it through the backstop. Either way, a member of this cohort is no longer left alone with the very problem that pooling was invented to solve, which is how to convert a pot into a wage that lasts for life.

The same architecture in one view.

Member situation Route to pooling What it protects
A member in a large scheme that can pool Offered a pooled income option inside their own scheme Access with no assets leaving the provider
A member whose scheme has a partner route Scheme arranges access to an authorised external pool Access through a market solution
A member in a small or sub-scale scheme with no route Routed to the competitively tendered backstop vehicle Access despite the scheme lacking scale
A member who prefers flexibility or advice-led drawdown Not pooled Existing pension freedoms retained

 

  1. Who delivers the backstop. An existing player, willing and able

There is a temptation to specify the operator of the backstop pooling vehicle, and to argue about whether a mastertrust, the Pension Protection Fund or an insurer should run it. That argument should be refused. The vehicle, wherever the backstop is needed, should be chosen by open competitive tender, and the tender should be open to all of them. To mastertrusts with the scale to pool. To the Pension Protection Fund, if it wishes to compete and utilise its expertise and skillset. And to insurers and annuity providers, whose longevity and in-payment expertise is precisely the capability this task requires. There is no reason of principle to exclude any of them, and several reasons of practice to include them all.

Deng Xiaoping, defending a pragmatic turn in policy, is said to have remarked that it does not matter whether the cat is black or white, so long as it catches the mouse. The same applies here. When the task is to deliver a wage in retirement that keeps a person out of poverty, it does not matter whether the cat is a mastertrust, a public consolidator or an insurer. It matters only that the job is done, and done well, for a cohort that has no time to wait while the industry settles questions of territory. Opening the field also defuses the strongest objection to the whole idea, that it would force assets out of the schemes that hold them and into the hands of a single favoured competitor. It would not. The incumbent that can serve its members keeps them. The operator of the backstop vehicle that serves the rest is chosen on merit and through competition.

  1. The single-employer schemes, and the timing trap

A particular case sharpens the point. There are single-employer defined contribution trusts below the size at which a scheme can sensibly run its own pool, and they are already the subject of a separate consolidation effort intended to merge them into larger arrangements over the coming years. For the younger members of these schemes, that accumulation-phase consolidation is the answer, and this proposal needs no separate provision for them. They will inherit whatever pooling their new and larger home is obliged to offer.

But consolidation is slow, and some of it does not begin until the end of the decade. A 58-year-old today in a £40 million single-employer trust may well retire before the machinery that would have moved them somewhere with scale ever reaches their scheme. For that person the in-scheme mandate is meaningless, because their scheme will never be large enough, and the accumulation consolidation arrives too late to help. They are the clearest possible case for the backstop. This proposal is therefore complementary to the value-for-money and consolidation regime, not a rival to it. That regime is trying to fix these schemes for the long run. This note is about the people who will retire before the fix lands.

  1. What is not claimed, and what the Commission would need to test

This note does not claim to have engineered a complete solution. It does not have the granular data needed to stress-test every dimension of this policy proposal, and several questions can only be resolved by the Commission, the regulators and the actuaries who hold the relevant data.

Pooled income is not guaranteed income. A collective arrangement shares investment and longevity experience, which means the income can be adjusted down as well as up, and that must be explained honestly to members, above all to those who can least absorb a cut. The defences are a conservative target, capital buffers of the kind used in collective schemes abroad, and the fact that this income sits on top of the guaranteed floor of the State Pension, which dampens the volatility of the whole. A voluntary pool also faces selection, because those who expect to live long are readier to join than those who do not, which raises the cost of the promise. That is a reason to design entry carefully, through sensible defaults and the option to take the tax-free portion as cash before pooling, not a reason to abandon the idea. There is a genuine tension with the pension freedoms, since pooling mutualises capital that the member can no longer withdraw, which argues for pooling only the income-securing portion of a pot and leaving the rest flexible. And a pool needs a minimum number of lives to be fair, which is the very reason the architecture is tiered, and that threshold is a question for the actuaries rather than for this note.

None of these issues is fatal to pooling as a default option for this cohort. Each is a design question, and naming them is the point. What this note asks is not that the Commission adopt a finished blueprint, but that it put a named population of around 1.7 million people on its agenda, accept that the existing programme will not reach them in time, and commission the work to determine how a guarantee of decumulation pooling could be delivered for them before they retire into avoidable poverty.

 

  1. Recommendation

That the Pensions Commission consider, as a matter of urgency and as targeted mitigation for the cohort approaching retirement with inadequate defined contribution savings, a guarantee of access to longevity-pooled retirement income. Delivered by requiring workplace schemes above a threshold size to offer such an option, directly or by arrangement, and by providing a backstop pooling vehicle for the members of schemes that cannot pool at scale themselves. It is further proposed that the operator of such a backstop vehicle should be selected transparently and competitively from mastertrusts, the Pension Protection Fund and insurers alike. The aim is narrow but the moral case is not. It is to ensure that each member of a cohort of around 1.7 million people aged 55 to 64, who has run out of time, is still able to convert a modest pot into a wage for life, rather than being left to manage poverty alone.

Sources

Population aged 55 to 64, ONS mid-2024.

DC-reliant cohort, Institute for Fiscal Studies, 2024.

Retirement income flows, value withdrawn, advice and withdrawal rates, FCA

Retirement Income Market Data 2024 to 2025.

Total UK DC assets, Investment Association, 2024.

Retirement CDC and the decumulation default duty, DWP and the Pension Schemes Act.

Undersaving population, decumulation behaviour, the finding that decumulation needs well-designed defaults, and labour-market exit in the fifties and early sixties, Pensions Commission interim report, May 2026.

Automatic enrolment contribution policy, DWP, May 2026.

Asset figures for the cohort are an order-of-magnitude estimate dependent on an assumed average pot, and are presented as a range, not a point estimate

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Why do employers and employees not pay more for pensions?

Posted on June 26, 2026 by henry tapper

 

I’m amazed that the news that we aren’t paying enough into our “pension” is a surprise. This report may have been a “labour of love” but it doesn’t “amaze”. The title of Pension UK’s report is

Closing the gaps: Can flexible contributions make retirement savings more affordable?

I know that the amount that companies with defined benefit pension schemes have put away well over twice the auto-enrolment minimum, most for many decades.I know the transfers members of DC plans have been substantial and have been most popular, right to the end of 2022.

It doesn’t seem to be surprising that with the amount of money that goes in, the amount coming out of a new workplace pension funded typically at 8% of a reduced band of earnings is not going to give as good a pension as one with twice the amount going in.

It is obvious that defined benefit schemes were offered by only a small proportion of the employers in this country .With the introduction of Auto Enrolment came a much more onerous obligation of employers who till then had made no contributions at all. This started low and increased over the period to 2018 to enable companies to adjust to the increased obligations of funding pensions.

Nicky Day promotes work by Jackie Wells sponsored by a number of workplace pension providers. It provides us with 8 slides that conclude that we aren’t saving enough and could do better. This is an extract which suggests that this report will be widely distributed. I suspect that is targeting the Pension Commission and that it is not so original as Pensions UK are making out.

The main things you need to know

The current system works

It is understood by savers and employers, but the minimum automatic enrolment contribution level is not enough to deliver an adequate retirement for many savers.

12% contributions are more achievable than perhaps was thought

Savers questioned were open to a 1% increase in their contribution, especially if it coincided with pay rises or was gradually introduced. Employers understand that contributions may need to rise, but ask that any increases should be phased in.

Simplicity is strongly preferred

Savers questioned tended to favour clear default contribution rates and were wary of flexibility, which they fear could undermine saving. Employers are concerned that more flexibility would add administrative burden and a greater risk of incorrect contributions.

Whatever is chosen would have impacts on the UK economy

Higher contribution rates could mean more long-term economic growth via investment as well as better adequacy, but would reduce short-term GDP and household spending.

The reality is that for the majority of people in workplace pensions, what they find  when they get to a point when they lose the capacity to work and earn as they used to do is that they have savings from their workplace pensions to fall back on.

But do they do not get a works pension as people who were lucky enough to be in a DB plan used to.

Actually, increasing the compulsory contributions into these savings plans  from 8% to 12% will help but not to get a pension. It will be seen by many as an increased tax by employers and employees. For this to happen, there will need to be clear advantage to doing so. It was and is clear to those in DB schemes that there is a wage in retirement resulting from their saving.

This is not the case from workplace savings schemes and until they win back the affection of those paying into them (workers and employers), there will be push back no matter what this report says , no matter what the Pension Commission reports.

The Government’s response has so far been to avoid demanding increased contributions, even though Government said it would by this time back in 2017. The pensions industry has lost the argument for more money to be paid to it and I would suggest it needs to do better our savings than it is doing now.

Why do employers and employees not pay more for pensions?

The answer is that the pensions industry has failed to convince Governments to enforce higher contributions and they’ve failed to encourage the vase majority of employers to pay more money in either through increased employer’s or employee’s spare cash.

This report it is someone else’s fault. But it is not. It is the fault of not providing popular product. Since 2012- when RDR ended the incentive of advisers to sell product that paid commission, those outside AE have stopped paying. The self-employed have stopped paying into “pensions” because they see better ways to go about providing for retirement.

When I was young, a pension was something that people aspired to having. A job was a good job if it came with a pension and we all knew what a pension was, it was a wage in retirement. People were and are amazed by workplace pensions that pay them month after month sometimes for 30 years or more.

We have lost that connect and though a much higher proportion of us are now saving into plans, we no longer feel that way about our pot. Most of us are terrified by a pot that they don’t know what to do with.

This Government has started out its work by requiring pensions to be available in return for the savings being done. Those pensions may be DB, DC or CDC but they will all in future have a regular income as the default outcome. A regular income (albeit a level one for DC – increasing for other pensions (most of all the state pension)  will be displayed on dashboards.

This will mean that people who thought they were doing alright will discover that they may not be and may voluntarily increase their contributions, they may put pressure on their employer to do the same and either way they will demand better from their providers.

Providers of workplace pensions are not yet “amazing” us enough to make us save some more.

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