Hi, I'm Ros Altmann. My blog covers finance, pension, economics, investment and retirement issues. I'm an independent expert, advising Government, pension providers and finance companies and also helping consumers. I'm the UK Government's Older Workers Champion.

Great news: FCA will finally force firms to look after their pension customers

26 January 2015

  • At last the regulator has bowed to pressure for second line of defence – essential in the new era of freedom and choice
  • Providers must ask questions and give risk warnings before customers make irreversible pension decisions

Fantastic news for customers:  I am so delighted that the FCA will finally force firms to take more care of their customers, asking vital questions and warning them about the risks of irreversible pension choices.  At last, pension providers will have to do more to give their customers a fair chance of making the right decision, rather than relying on customers themselves to understand all the complexities of pension choices.  Of course, this should have happened long ago, but I welcome it now nevertheless.

More choice means more risks if people don’t understand pensions:  With the new freedoms starting in April 2015, people approaching pension age will have more choices available to them than ever before.  This adds to the risk that they may make poor decisions because most people simply don’t understand pensions.

It is now up to the pensions industry to rise to this new challenge:  Being careful about looking after customers should never have been an optional extra in the pensions landscape – but it has taken a long time to finally force regulatory action.  Is it absolutely vital to a successful future for providers and customers.

Mis-selling uncovered by FCA demands urgent action:  The FCA’s recent Retirement Income Market and Annuities reviews uncovered clear evidence of mis-selling of retirement income products.  Those findings clearly indicated the need for customer protection.  This is a huge market, with more than a thousand people reaching pension age every single day.  It is, therefore, good to see the decision to introduce more protection is being rushed through to start in April, even before consultation in order to prevent this from happening to more and more people.

Pension decisions can be irreversible:  Once a customer has made an irreversible pension decision, they cannot undo the damage later and the risk of consumer detriment is particularly high at retirement.  This could be buying the wrong type of annuity, such as failing to cover a spouse, or failing to obtain a rate that reflects their poor health.  Alternatively, customers may cash in their whole pension in April, without realising the tax implications.

Mis-buying vs. mis-selling:  Too many customers with serious illnesses have been buying annuities that assumed they were in excellent health.  Firms sold them such products without concerns because providers were not required to ask whether their customers were indeed well and just claimed it was the customer’s fault for ‘mis-buying’.  It is more than six years since the Regulator’s initial findings of such failures, but the FCA just relied on ‘disclosure’ with insurance or pension companies having an obligation to ‘clearly inform’ their customers about their options in multi-page ‘wake-up packs’ that many did not understand and included terms they had never encountered before.  ‘Disclosure’ has not worked – as confirmed by FCA investigations.  What is ‘clear information’ to a pension provider or a regulator is simply not understood by most customers.

Plain English: From April, providers will have to ask some basic questions and alert customers to the risks of any action they wish to take, including the tax implications. The Regulator rightly insists these questions and risk warnings will  need to be phrased in plain English, no complex jargon about ‘impaired life’, single life’, ‘joint life’ or ‘enhanced’ products, but clear questions and statements.

Pension Wise guidance isn’t enough:  Even though the Government will introduce the ‘Pension Wise’ guidance service in April, it is simply not safe to assume this will be sufficient.  Some may not take the Guidance, others may not understand it and a second line of defence to protect people is essential.

Restoring trust:  By asking appropriate questions and giving customers proper risk warnings, they should have a fairer chance of doing what is right for their own circumstances. With auto-enrolment proceeding apace, it is so important to ensure trust in pensions can be restored.  It is right that people are going to have the choice to make their pension savings work well for them, but the risks of poor decisions must not be ignored.  Introducing better protections is a sensible step forward for the future.

January 26, 2015   Leave a comment

Social care crisis – urgent action needed

20 January 2015

  • Action to address care crisis cannot wait any longer
  • Elderly people are suffering due to council and care company cost-cutting
  • All parts of the system are failing and Government has not yet offered solutions
  • Tax incentives to help families save for care costs are needed as £72,000 cap is too high for affordable insurance
  • Care ISAs, Family Care Plans and Workplace Savings free of Inheritance Tax
  • Use auto-enrolment and new free Guidance to kick-start care savings

There is no money set aside for care:  Even though demographic trends clearly signal a dramatic rise in the numbers of older people needing long-term care, there is almost no money set aside to pay for the care they will require.  Millions of baby boomers are currently reaching their 60s and will need care in the coming twenty years or so, yet the Government has not planned for this huge looming cost. Estimates suggest that around half the population over age 65 will need to spend at least £20,000 on later life care, and one in ten will spend over £100,000.

Long-term care funding is one of the least understood parts of the health and care system.  In fact, many people mistakenly believe that the Government will pay their care costs.  But social care is the responsibility of local authorities, not the free NHS.  The difference between social care and healthcare is not easy to define, but as an example, someone with cancer is likely to qualify for healthcare funding with care provided at taxpayers’ expense, while someone with dementia may not be considered to have a ‘health’ need and gets no help from public funds at all.

Cash-strapped councils and indebted care companies are desperate to cut costs but this cuts quality too.  Local authority budgets have been squeezed and councils have slashed their social care spending by 26% in the past four years.  This affects all aspects of the care system.  Whether it is funding for care homes, where local authorities are not paying the full costs of care and are forcing private payers to subsidise publicly funded residents, or homecare, where councils have cut the time for home visits to only 15 minutes in many cases, the system is not being funded properly.  Private care companies are often highly indebted, both care home operators and homecare providers, so there is constant cost-cutting pressure.  This affects the quality of care provided and also the conditions in which staff must operate.  Zero hours contracts and low pay are endemic, often with no pay for travel time or training, which leads to a transient workforce and lack of adequate care.

Healthcare and social care must be integrated.  Until the Government properly integrates social care with healthcare and insists on higher standards across the industry, the current crisis will only worsen.  This should be a major political issue, but it is not receiving sufficient attention.  The public is not being adequately informed of the problems and possible solutions, leaving families struggling to cope and elderly people at risk in a system that is failing on all fronts.

Families will need to prepare for some costs, but they need help.  In Scotland some social care is provided free by the government.  Elsewhere local authority care funding is subject to one of the strictest means-tests.  Most people will receive no help from the state until they have used up the bulk of their assets, causing significant distress to many families and leaving the majority of families to find huge sums at short notice.

Politicians have talked about this problem for years, but there is still no solution in sight.  Despite knowing that numbers needing care will rise inexorably, policymakers have not set aside public money, or encouraged private provision to pay for care.  The quality of care has suffered, many companies offering care are highly indebted and there is a crisis in the sector.

Products for care funding are inadequate.  There are some products already on the market to help people pay for care.  These include Immediate Needs Annuities, Equity Release and local authority deferred payment plans, but each has advantages and disadvantages and they only help at the point of need, rather than allowing people to make plans in advance.

The £72,000 cap is not a solution. The latest proposal designed to stop people losing their life savings or their home to pay for care is the £72,000 cap to be introduced from April 2016.  The state is supposed to step in once the cap is reached, to ensure nobody has to face catastrophic care costs, but most people will actually have to spend more like £140,000 on care before they receive any state help because the cap excludes.

  • £12,000 a year board and lodging costs for a care home
  • Any money spent on care before your council assesses your needs as severe
  • Money spent on a higher-fee care home or more homecare in excess of the local authority basic minimum
  • Any spending before April 2016
  • Even after state funding begins, the £12,000pa for board and lodging elements of care home accommodation will not be paid by the council.

Insurance up to the cap is not a viable solution.  Insurance companies have told the Government that they can’t develop an insurance solution to cover care costs up to the cap.  If insurance is not a realistic option, then other avenues must be urgently explored.  New products and approaches, together with new Government incentives, are urgently needed.

Encouraging saving for care and integrating health with social care could help.  In addition to a better integration of health and social care (the current distinction seems arbitrary and manifestly unfair) it is also important to help people prepare in advance for care spending if it is needed. I believe a savings solution will have to be part of the mix.

How could a savings solution work?

Extra tax breaks are needed to encourage long-term care saving.  This is justifiable because the cost to society of failing to ensure money is set aside for future social care needs will put intolerable burdens on the NHS, on younger generations and on older people.  Urgent action is needed to head off a disaster that is clearly on the horizon.

Tax free pension withdrawal if used for care:  The new pension freedoms could encourage people to set aside money for later life care.  Now that the annuity requirement has been removed, and there is no 55% death tax, pension funds could help cover care costs.  Many people reaching retirement have tens of thousands of pounds in their pension funds but if they use this to buy an annuity, they will have no money to pay for care.  Allowing people to withdraw money from their pension fund without paying income tax, if it is to pay for care, would encourage them to retain some funds in the tax free pension wrapper for longer, just in case it is needed.  If they don’t spend it on care, it will pass free of inheritance tax to the next generation as the 55% pensions death tax has been abolished.

Care ISAs – IHT free: The Government could introduce a separate annual allowance for ISAs that are specifically earmarked to pay for care.  Launching such ‘Care ISAs’ would itself help people realise the need to save for care.

Family Care Savings Plans – IHT free:  Another possibility is for families to save collectively for the care needs of their loved ones.  For example, parents, siblings or children might join together to build up a fund in case one of them needs care.  The probability is that one in four people will need care, but nobody knows in advance which one.  Tax breaks to incentivise this kind of saving, perhaps allowing them to be passed on free of inheritance tax, would help.  There is a role for insurance with such savings plans – which might also include some ‘catastrophe insurance’ to pay out if more than the expected number in any family or group actually need care.

Auto-enrolment to encouraged workplace care saving plans: Alongside auto-enrolment, it might also be helpful to ensure that employers are encouraged to offer the option for people to save in a workplace savings plan that is set aside specifically for care.  This could be part of a flexible benefits package, which receive an employer contribution.

Use Pensions Guidance to provide information and education:  It will be important to ensure that the Government’s ‘Pension wise’ guidance tells people about planning for care.

So, the message to the Government is that our care system is in crisis, there is no money set aside either publicly or privately to fund later life care adequately, and the time to address this crisis is now.  Social care in this country is failing, radical action is long overdue.

January 20, 2015   1 Comment

65+ Guaranteed Growth Bonds – Great news for pensioners from NS&I

15th January 2015


  • At last some good news for pensioners’ savings
  •  NS&I 65+ Guaranteed Growth Bonds on sale from today – guaranteed by the Government
  •  These are market-beating bonds with great interest rates and fully backed by the Treasury
  •  Don’t panic, but if you’re over 65 and have money sitting in a savings account, the sooner you apply, the sooner it can earn more for you

National Savings and Investments (NS&I) has this morning launched its long awaited new issue of National Savings bonds for people aged over 65.  The Chancellor announced these so-called ‘Pensioner Bonds’ in his Budget last March, especially to help the over 65s who have been hit by the dramatic drop in interest rates on their savings.

What are the bonds called?  They are called 65+ Guaranteed Growth Bonds

 What are the positive features of the bonds?  They are backed and guaranteed by the UK Treasury, so there’s hardly a risk of your bank or building society becoming bankrupt.  They offer interest rates that are very attractive in the current low-rate environment.

What kind of bonds are they?  There are two issues of these bonds, each paying market-beating interest rates.  The one-year bond will pay 2.8% interest and a three-year bond paying 4% per annum.  These rates are around twice as high as those offered by most bank or building society savings accounts.

How much can I apply for?  You can apply for a minimum of £500 and maximum of £10,000 in each of the bonds.  That means each person can apply for up to £20,000 of the bonds and a couple can invest up to £40,000.  The Treasury will allow NS&I to issue a maximum of £10billion of these bonds.  If every saver invested the maximum in each bond, then only 500,000 people will be able to invest, out of well over 10million over65s in the UK.

How can I apply?

Online: You can invest on line by visiting phone:You can apply by phone on a Freephone number 0500 500 000 or you can call +44 1253 832007 from outside the UK or on a mobile.  By post: You can download an application form or call 0500 500 000 for an application form to be sent to you, then send a cheque with the completed form to NS&I, Glasgow, G58 1SB.  You won’t be able to buy the bonds through the Post Office.

Will the income be tax-free? No the income from the bonds will be taxable, with basic rate tax of 20% deducted before the interest is paid to you.  If you are a higher rate taxpayer, you will need to declare the interest you receive on your tax return.  If you are a non-taxpayer you will need to claim back the tax that has been deducted.  There are no ISA or other accounts that pay more than the 4% annual interest on the three-year bonds.

Will the interest be paid monthly?  No, all the interest will be paid at the end of the term i.e. after 12 months or after three years.

Can they be cashed in early? If you want your money back before the end of the term, you will forfeit 90 days’ interest.  On £10,000 in the three year bonds, that amounts to a penalty of about £100.

Is it fair that they are only available for the over 65s?  The Government is only offering these bonds to older savers, partly because this group is most reliant on savings income, with many having built up savings to support themselves in retirement, are no longer working and have found their income decimated by low rates.  Younger savers may be able to take more investment risk, rather than relying on cash savings and, if they are still working, perhaps the Government believes they can make up for lower savings income more readily than those in later life.

So what should I do now?  If you are over 65 and have money in bank or building society accounts which you intend to keep there for at least the next one or three years, you should seriously consider applying for these new NS&I 65+ Guaranteed Growth Bonds.  Go to and read more about them and you can apply on line.  These market-beating interest rates will not last for ever, once the £10billion has been issued there will be no more – they offer really great deals for the over 65s.

Should I panic?  I wouldn’t expect these bonds to sell out too quickly because they do need you to be able to tie up £20,000 of cash savings for some time.  However the rates they offer are so attractive that if you’re over 65 and do have that kind of money sitting in a savings account, the sooner you apply, the sooner your money can start earning more for you.

January 15, 2015   7 Comments

Pension understanding shockingly low – especially for older women

14 January 2015

  • Survey reveals shocking lack of pensions knowledge especially among older women
  • High proportion of pension savers have low levels of financial capability
  • Freedom and choice won’t work if people don’t understand pensions
  • Crucial role for ‘Pension wise’ guidance – supplemented by financial advice – to help at all ages

Millions of older people – especially women – at risk of poor pensions: The shocking results of a new research report published today show that millions of people are at significant risk of not making good use of their pension savings. Despite possibly decades of pension saving, a high proportion of pension savers have astonishingly low levels of pensions knowledge. The problem is particularly severe for older women, most of whom seem pretty much in the dark about even the most basic terms that are important when considering pension options.


How well do you understand the following financial term…:

Proportion of MEN who
understand quite well/very well

Proportion of WOMEN who
understand quite well /very well

Savings account









Tax Free Lump Sum






Income drawdown



Joint-life annuity



Enhanced annuity



Marginal Tax Rate




The pensions industry has benefitted from customers who do not understand pension terms: The Survey shows that it is pensions in particular that people are ignorant of – when it comes to savings accounts or mortgages over 80% of both men and women say they understand. The complexity of pensions and the failure of providers to educate or help customers understand the important elements of pensions has prevented customers from making informed decisions. Many have saved for years in a default fund without having to make any decisions for themselves and were then forced into buying an annuity which they did not understand. This suited the pension firms, but was not necessarily in customers’ best interests as such ‘one-size-fits-all’ approaches do not fit everyone.

Half of men, only a third of women understand the term ‘Annuity’: Only just over half of men say they understand the term ‘annuity’ quite well or very well, and only a third of women think they do.

Joint-life annuity not understood by under a third of men, under a fifth of women: Even more worrying, the level of knowledge of the different types of annuity that can be so important for people to understand, is even lower. Less than a third of men and less than a fifth of women feel they know what a joint-life annuity is. This is deeply worrying because a joint-life income can be crucial for couples to ensure that the widow or widower is not left penniless.

Enhanced annuities not understood by under a fifth of men and less than a tenth of women: When it comes to enhanced annuities, only 18% of men and 9% of women knew what this meant. An enhanced annuity can be the most important aspect of annuity purchase, since buying a standard annuity assumes the purchaser is in excellent health, whereas those who are not perfectly healthy can get a much better pension if they buy an enhanced, rather than standard annuity, so that their health is properly reflected.

Don’t understand tax implications of taking money out: The Survey findings that very few people actually know what a marginal tax rate is, are also disconcerting. People may not realise they could lose 40% or 45% on their pension withdrawals, but once they have taken the money out it is too late to go back.

Role of the ‘Pension wise’ guidance is vitally important: People need to know more about pensions, to have someone help them understand the basic terms involved, so they can make informed decisions about what is best for themselves.

Ideally, they will need financial advice that is independent and given by an expert: For those who need individual hand-holding, advice is generally worth paying for to avoid making poor and irreversible decisions. People are usually unaware that they will pay commission to buy a product even if they get no advice, whereas they may be better off spending that money on advice instead.

Special help needed for women: It is important to bear in mind the exceptionally low level of financial capability of older women. Financial education, information and guidance for women must be of sufficient quality to ensure everyone has a fair chance to make good decisions.

 Pension freedoms can’t work properly if people don’t understand pensions: Improving financial education and awareness among pension savers is so important. Providing basic financial education and the ‘Pension wise’ service should be extended to all age groups as a requirement of pensions auto-enrolment. This is a tremendous opportunity to empower people to manage their retirement income, rather than just being at the mercy of pension companies, but the risks of poorly informed consumers not understanding how to make the best choices must not be ignored.

 The survey undertaken by YouGov. Total sample size was 5120 adults aged 50 to 70. The report is published by the International Longevity Centre UK.  The research was supported by a consortium of industry partners (EY, Just Retirement, Key Retirement, LV= and Partnership) and guided by Ros Altmann.  

January 14, 2015   Leave a comment

Nearly 5million over 50s intend to keep working past age 65 as later retirement becomes the norm

13 January 2015

Latest Survey for Older Workers Champion shows a retirement revolution is well underway

Nearly 5 million people intend to keep working beyond age 65 as later retirement becomes the norm

Only 17% favour traditional retirement pattern as majority want to ease into retirement via part-time work first

Employers need to increase emphasis on later life training and flexible working

Millions of older people do not know that over 65s don’t pay national insurance

Retirement is changing as nearly 5million people plan to work beyond age 65:  A nationwide Survey of over 50s has revealed some startling findings about attitudes to work and retirement.  It is clear that a major re-evaluation of retirement is underway.  When asked what their ideal working pattern would be between ages 60 and 65, only 15% of non-retired over 50s said they would want to stop working altogether.  When asked their ideal working pattern from ages 65 to 70, around half would like to still be working, although preferably on a part-time, rather than full-time, basis.  If the results are applied to the whole UK population, this suggests 4.8million people want to keep working and not be retired between ages 65 and 70.  Currently, there are around 1.2 million over 65s still in work.  Therefore, there is potential for a significant rise in later life work.

Traditional idea of retirement outdated as people want to work part-time before stopping altogether:  Around half of people have increased their planned retirement age in recent years, as later life working is becoming an ever more important issue.  Traditional ideas of a fixed, one-off, retirement date no longer seem to apply. Nearly two-thirds of over 50s do not believe that working full time and then stopping altogether is the best way to retire.  More than a third (36%) of those already retired would advise people to work part-time before retiring altogether.

Employer attitudes need to change, more later life training and flexible work:  To facilitate increased later life working for more of those who want it, employer attitudes and approaches to recruitment need to change, as well as more emphasis on later life training.  In this regard, it is encouraging that almost half (47%) of all over 50s still economically active would be interested in taking a training course to improve their skills.  If employers can help people combine training for new roles, or improving their skills, with flexible working as they get older, the Survey suggests there would be a major increase in wellbeing for our aging population, as well as better economic growth.

Nearly half of over-50s unaware that they won’t pay NI contributions if working past 65:  One fascinating finding is that nearly half of over 50s were unaware that they can work beyond age 65 without having to pay National Insurance.  This suggests scope for further education and information to help people understand the significant potential benefits of working longer if they wish to.

Support for idea of ‘gap-breaks’ in later life, then return to work refreshed:  One in four over 50s said they would be interested in taking a few months off and then returning to work, as an alternative to retirement.  Many people could benefit from a break, after years of full-time work, but after that break want to return to work again.

2.3million retirees miss work, wish they’d worked longer and miss the social interaction:  More than one in five retirees say they wish they had worked longer (equivalent to 2.3million people nationwide).  38% say they miss the social interaction of work, indeed far more than the 27% who say they miss the income.  Around one in five (18%) say they miss the feeling they are doing something useful.  Over a quarter (27%) of those now retired wish they had worked longer, including those who had to retire due to illness or disability.

One in ten felt they had to retire but didn’t want to:  Importantly, 11% of retirees say they did not really want to retire but felt they had to, or were expected to.  If people feel they have to retire even if they don’t want to, we are wasting resources for the economy as a whole and individuals affected will be poorer than they need to be for the rest of their life.  Conversely, enabling people who want to keep working in later life to do so, can mean higher lifetime income for millions of people, more output in the economy and higher spending power in the longer term, which will mean higher economic growth and better living standards for all of us.

Potential skills shortages if employers fail to act:  There is an opportunity to refine retirement so that it can fit better with people’s lives.  Employers will potentially face skills shortages in coming years, but allowing more flexibility for older workers, improving later life training and facilitating caring responsibilities if possible can all improve quality of life for older people while simultaneously benefitting business and the economy.



Results based on YouGov national Survey of over 2000 retired and non-retired over 50s conducted in December 2014.


January 13, 2015   Leave a comment

Guidance Guarantee to be called ‘Pension wise’

12 January 2015

  • At last the Guidance name is released – ‘Pension wise’ to point people in the right direction for their retirement journey
  • Will need extensive publicity campaign to establish as trusted brand – this is not Advice
  •  Could be great opportunity for IFAs, helping customers appreciate relative value of independent advice and explaining hidden commissions
  •  Still need second line of defence or pensions passport to better protect customers

 Guidance brand name unveiled – ‘Pension wise – your money your choice’: The long-awaited announcement of the Treasury’s new name for the Guaranteed Guidance service has been released. It will be called ‘Pension wise: Your Money, Your Choice’. The aim is to build it into a strong, distinctive, trusted national brand. Pensions are complex, so people need help to navigate the landscape and ‘Pension wise’ should provide a pathfinder and information to help people on their retirement journey. It is really important to invest in improving financial education for our aging population.

 Relying on providers to ‘signpost’ guidance is not enough – look how they failed with OMO: The FCA findings of providers failing to alert customers properly to their open market option to shop around for a better annuity, strongly suggests pension providers cannot be relied on to ensure people make the most of the Guidance. Even a standard piece of paper in wake-up packs is unlikely to be sufficient.

 Need extensive publicity campaign to ensure ‘Pension wise’ becomes strong recognised trusted brand: The new service must be widely marketed by Government with a broad publicity campaign to ensure people know what it is, and use it. Increasing financial awareness is long overdue and the pensions industry has taken advantage of poorly-informed customers for far too long.

 This could be the fore-runner of broader financial education for all ages via auto-enrolment: I hope this will be the fore-runner of a much broader push for financial education to be embedded into auto-enrolment. It should be a requirement of all auto-enrolment pension schemes that providers offer education to help people make sensible choices from an early stage. Leaving it only to later life is not enough.

 Still work in progress: This project is still a work-in-progress. The Pensions Advisory Service (TPAS) and Citizen’s Advice Bureau (CAB) are hurriedly trying to sort out further details and recruiting new staff. They will be running pilot schemes prior to April, to learn what works well with the public. In fact, people can register their interest and potentially take part in the pilots by visiting Today’s announcement still leaves unanswered questions. For example, we do not yet know:

  • the content covered by the Guidance
  • what those who give the guidance will be called (‘Guides’?)
  • what information will be needed before booking an appointment
  • what hours the service will operate
  • how many people are expected to take it up
  • what the written Guidance Session record will look like.

 Still no pensions passport! The FCA is still not forcing pension companies to issue standardised pension statements, so that customers will have the vital information about their pension that they’d need to get the most from their ‘Pension wise’ guidance session. Apparently, the pensions industry is working on this, but action is long overdue.

 ‘Pension wise’ can highlight the value of paid-for advice – route planners, timetables, maps or apps to reach your destination, but not a limousine service: The free guidance session will provide information and explanations of the complex array of choices open to people when reaching their pension age, but the free guidance can only take you so far. At the end of the session you will still be left to make your own decision and find the best solution for yourself. This could be likened to having route planners, bus timetables, train timetables, maps or apps to find your way. But if you want a chauffeur-driven limousine to take responsibility for getting you to the right place at the right time, you would need to pay for expert individual specialist financial advice. The Pension Wise service should tell people how to find paid-for advice.

 ‘Pension wise’ should explain the hidden commission costs and charges of buying without advice: The Pension wise Guidance needs to help people understand the relative costs of advice vs. buying direct. At the moment, most people do not realise that buying an annuity direct from their pension company still costs them money as the provider deducts commission (around 1.5% of their fund) when they sell you an annuity. On a £30,000 fund, your pension provider could take £500 without ensuring you are buying a suitable product, whereas with an adviser you will be paying for help to do the right thing. The whole issue of hidden commissions that customers pay, which can cost more than paying an upfront advice fee, needs to be explained.

 A great opportunity for financial advisers: The free guidance session should help people understand the complexity of pension decisions. In the past, the majority were just herded into their pension provider’s standard, irreversible, single life annuity. Their providers did not help them to make the right choices. Those who used a financial adviser had the best chance of buying the right product at the best rate. But too few knew how the annuity market worked. There will be even more options available to people in future and, therefore, expert professional independent advice could be even more valuable.

 ‘Pension wise’ is a good start – more work to do to protect customers properly: The announcement of the Guidance service name is an important step forward, but I believe more should be done to help people who may not actually receive the Guidance, or not understand it. I think a duty of care should be placed on providers to ensure they ask the right questions and explain issues simply and clearly for their customers. This second line of defence is vital to ensure people make the most of the new pension freedoms.

January 12, 2015   Leave a comment

Closing Tesco pension scheme won’t cure the deficit – but perhaps every little helps!

8th January 2015

  •  Tesco to close its Pension Scheme – won’t reduce deficit near term but every little helps!
  • Rising pension deficit and cost reduction pressures force closure of last FTSE100 final salary scheme
  • Artificially depressed bond yields contribute to pension losses for thousands of staff

Tesco has announced, as expected, a consultation to close its pension scheme – one of the last remaining open defined benefit schemes in the private sector.  Among a string of cost-cutting measures, the company is likely to move its staff onto less generous defined contribution pensions, but the firm says it does not expect this to damage its ability to attract workers as many do not value the long-term benefits of a guaranteed pension.

With the latest sharp fall in gilt yields, it is expected that Tesco’s pension deficit will have increased significantly, even beyond the £3.4bn pension fund shortfall it reported in August 2014.  At that time, the company said that the pension scheme’s £8bn of assets (up from around £6bn in 2012), had not increased by as much as the rise in its liabilities, which reached more than £11bn as bond yields plunged.

The scheme is one of the country’s largest, with 170,000 members, but as the company has had a rough year and its long-term security seems less assured, the pressure to stop accruing significant additional open-ended liabilities had become irresistible.

Tesco has hitherto been committed to providing excellent pensions for its staff and has tried hard to retain the generous defined benefit promise.  It has made strenuous efforts the keep the scheme open, while making some adjustments in recent years that would reduce its costs somewhat.  In 2012, it started its own in-house investment operation to cut the costs of managing its fund, increased scheme pension age for future service by two years and reduced the inflation linking from rpi to cpi, but it retained a cap of 5% even though the law only requires up to 2.5% inflation protection.  However, these changes are relatively minor compared to most other private sector schemes and, by also pledging property assets to the pension trustees, there has been a clear willingness to support the pension fund.

Unfortunately, Tesco’s troubled business performance and the general uncertainty around interest rates has increased the pressure on management to find ways to cut costs further and the closure of its pension scheme was widely anticipated.

Will closing the scheme solve Tesco’s pension deficit problem?  Certainly not in the short-term.  The rising deficit is due in large measure to the sharp fall in bond yields.  Scheme closure only applies to future benefits, not to pensions already accrued.  Continued falls in bond yields will lead to further deficit increases even if the scheme closes.  In addition, with a large deficit, trustees may demand much higher contributions more quickly, because the flow of member contributions may reduce.  They will also be concerned, in light of the weaker financial performance of Tesco this year, that the sponsor covenant is weakened.  The pension deficit would also have hindered the company’s ability to pay shareholders large dividends  as company resources have to be shared with the pension scheme, so the dividend pass is consistent with the pension deficit and avoids potential conflict with the Pensions Regulator and trustees.

With long bond yields sinking to unprecedented lows, pension deficits have risen across the the UK, as the liabilities increase by more than assets when rates decline. Buying gilts or bonds is not a solution either.  Many schemes have switched assets into bonds and received additional employer contributions, but their deficits have keep rising,  The lower bond yields fall, the worse the deficits become and closing the scheme will not prevent further deterioration.

The following chart indicates just how far away from historic norms the yields levels on long gilts have moved.  This has been aggravated by Bank of England buying and further pension fund purchases of gilts, in an effort to reduce the risk of further deficit increases.

Chart of 40 year UK Gilt price – 4¼ %Treasury 2055: 2005-2014


Long gilt yields are in uncharted territory.  Ironically, the aim of official gilt purchases has been to revive the economy.  The effectiveness of this policy may be questioned firstly because the UK is generally much more sensitive to short rates than long rates and secondly, if the fall in long yields forces major firms like Tesco to divert resources away from their businesses and into their pension schemes in the near term, the pension impacts weaken the economy.

The closure of the Tesco scheme will be another pension casualty of policies aimed at stimulating the economy.  In the short-term it won’t solve the firm’s pension deficit, but it may alleviate some of the pressure – every little helps!  Of course, in the long-run, pensioners will be poorer as a result.

Scheme closure may have been inevitable as 21st century private companies cannot safely be relied upon to underwrite liabilities for fifty years or more, but I do believe that the effects of low bond yields on pensions have been significantly underestimated so far.  By the time they are properly recognised, it will be too late for many.

January 6, 2015   5 Comments

Cashing-in annuities

5 January 2015

  • Steve Webb calls for annuities to be cashed-in to extend pension freedom
  • Many would love the chance to take the money instead of a tiny income
  •  But how would this work – what penalties and charges would there be for surrender?

 Pensions Minister, Steve Webb, has called for an extension of the radical overhaul of pensions to include existing pensioners who may have bought annuities but are not happy with their deal. In principle, I think this would be extremely popular and is a chance to ensure that those who have missed out on the forthcoming pensions flexibility have some chance to be included in future.

 But didn’t the Government remove mandatory annuitisation years ago In theory, yes, but only for those with very large pension funds. In practice, most had to annuitise. Until the recent Budget, anyone who wanted to take money out of their pension fund, and who didn’t have a huge fund, was effectively forced to buy an annuity.

Many would like the chance to undo their annuity: Over the past few years, annuity rates have fallen significantly, so that the amount of lifetime pension income customers received has been much lower. Some people have been happy to buy an annuity and, if they had help to choose the right type of product and get a good rate, they may well be satisfied. However there are many, many people who would love the chance to revisit their purchase.

Annuities are usually irreversible: I have heard from so many who say, if the pension freedoms had been in place earlier, they would never have bought an annuity but they had no choice at the time. They never wanted an annuity, often they are receiving very little income, have no inflation protection and would much rather undo the deal. Normally, this is not possible. Once bought, most annuity deals are irreversible, with six million people locked into annuities that they were often forced to buy because the pension rules did not give them any practical alternative, or because the annuity sales process did not ensure they received sufficient help when dealing with this decision.

 So what Steve Webb is proposing is a radical departure from the status quo.

Who is this aimed at? This idea is particularly aimed at existing pensioners, those who have already bought annuities but wish they hadn’t. Hundreds of thousands of people each year have been buying these products, with a value of over £10billion per year, so this is a huge market that affects millions. It is less likely to be relevant to future pensioners, since the new freedoms mean annuities and pension products are likely to change. However, it is a way of dealing with past problems that could be popular with many retirees.

How will it work? That is the key question of course. The Minister seems to be suggesting that there may be a market in trading people’s annuities. So someone could approach a range of different companies who would be willing to buy ‘second-hand’ annuities and make you an offer. You might go along to a firm and say I have an annuity contract with Insurer XYZ that will pay me £1000 a year for the rest of my life. I am age 70 now, how much will you give me to buy this income stream from me? People could approach a range of different companies and see who makes them the best offer. They would then choose the firm to deal with, receive a cash lump sum (which presumably would be taxed as income in the year they receive the money) and the company they sell to will receive their £1000 a year income until they die. Obviously, the company offering to buy back an annuity will want to know the customer’s state of health, age, or other relevant circumstances in order to assess the value of the income stream. The mechanics are also likely to be complicated, because the insurer who sold the annuity would need to be told to pay the income to a different place and all parties would need to keep track of the original purchasers and be notified when they die.

Will this just be one person at a time or could it be for groups? There is the possibility that groups of people might want to buy back their annuities, or a market could develop where annuities from people in different age or health groups are joined together into a package of annuity income products and sold on to other investors.

Are there any precedents? There are examples of trading contracts that may be considered similar. For example traded life insurance policies and endowment policies. These contracts are written on individual lives, but were then bought and sold by other firms, with the original purchaser receiving a cash sum in exchange for their rights under the original contract. Unfortunately, the markets in these products did not work out well for many of the parties involved. The surrender penalties were often significant.

What will it cost? This is the big question! Again, nobody knows as this has never been done before. However it is certain that there will be charges for cashing the annuity in and some form of surrender penalty. How much the customer will lose is not clear.

Could this be done in other ways? An easier way for this to be done would be for the original company that sold someone their annuity to buy it back from them. This would not involve third parties, but of course the customer is then reliant on only one company to offer them a fair price, without the competition of a market-place. I could imagine this might work in cases where customers feel they were mis-sold an annuity in the first place and the insurer thinks they have a case for a claim. Rather than protracted wrangling, they might offer to buy the annuity back – this could even depend on whether Regulators threaten action on the basis of the FCA Thematic Review.

So is it a good idea? I think this is definitely something worth exploring, but I cannot see it happening immediately. However, it is likely to be a popular idea with many of the five million people who have bought annuities in the past, especially those who feel left out of the new pension freedoms and would prefer to have the benefit of their pension fund rather than a non-inflation-linked and possibly rather small annuity income for life.

January 5, 2015   3 Comments

FCA just doesn’t ‘get it’ – pension customers need immediate protection from mis-selling

11 December 2014

  • FCA still fails to ensure customers are properly protected despite finding frequent mis-selling
  • Regulator proposes more consultation and investigation instead of immediate action to protect customers
  • Annuities irreversible, people still effectively forced to buy, but the most vulnerable being let down
  • As annuities are insurance against running out of money if you live a very long time in retirement, those in poor health must be protected from wasting their pension funds

The FCA has just published findings and recommendations from its long-awaited study of the Retirement Income Market and Annuities.  The findings confirm that customers are still too often being short-changed, yet the recommendations fail to ensure proper protection is put in place straight away.

Having found, in February 2014, that 60% of annuity customers were just buying the product offered by their existing pension company even though 80% of them could get a better rate by switching to another provider, the FCA launched a full-scale study into how retirement income products are sold.  We have waited months for its findings, but the reports out today are deeply disappointing.

Evidence of mis-selling is uncovered but action is not stopping it happening: It is truly shocking that the FCA’s review uncovers what seems clear evidence of frequent mis-selling, yet is not proposing immediate action to stop it happening any more.  For example, even if people were being sent information that disclosed to them that they could shop around for better rates, or explained how annuities worked (and not all of the companies were even clearly doing this) the customers were not being told this information over the phone.  In some cases, call centres were being incentivised to sell their internal annuities with staff earnings linked to the number of annuity customers who did not move away, even though they could be the wrong products at poor rates.  Call centres were not explaining properly about how to benefit from better rates if you had health issues or how much annuity rates can vary if you shop around.  This is surely mis-selling, yet there seem to be no proposals for compensation.

Those in poorest health losing out most and still won’t be properly protected:  The FCA highlights once again, that those with health issues are most at risk of losing out from poor annuity sales practices.  This is a finding it reported back in 2008 ( when it said that pension firms were not telling customers about the advantages of ‘exercising the Open Market Option and in particular not telling people about shopping around if they had health problems’ when they could achieve much higher income from an impaired life or enhanced rate annuity.  Here we are, more than six years later, and similar failings have been uncovered yet again.  But still the FCA is not ensuring that customers in poor health will be properly protected from now on.  Despite the fact that the FCA believes more than half of customers could qualify for better annuity rates as a result of their health (and advisers report that around 60% of their customers are eligible for enhanced rates), the rules regarding selling standard annuities are not being immediately changed.

What has it decided to do now?  Instead of forcing firms to change their sales processes immediately, it has asked them to look back at a sample of their sales since 2008 to check if people with health issues might have been sold the wrong type of annuity.  The FCA says it ‘will be asking some firms to do further work to determine if the findings of this thematic review in relation to the sale of enhanced annuities are indicative of a more widespread problem.’  Based on the figures of low shopping around and low proportion of enhanced annuity purchases, it is blindingly obvious that there is a widespread problem.  Action is required immediately to stop these inappropriate sales happening in future, not just looking at the past.  Indeed, we do not know how long this inquiry by insurers will take, nor how the firms will assess their customers’ health.

Widows still at risk of being left penniless:  Another particular problem that leaves pensioners vulnerable to unsuitable annuity purchases revolve around those who have a partner and those with smallest funds.  Annuity companies are not clearly telling people about the risks of buying a single life annuity.  This means many widows are left penniless when their husband passes away.  The company will send information about ‘joint life’ and ‘single life’ annuities but most people do not understand what these terms mean.  However, the FCA is relying on ‘disclosure’ and paperwork to inform people rather than directly explaining in clear English what the implications of single life annuities are.

What should be done? – Stop this happening to anyone else straight away, second line of defence:   The FCA should impose a duty of care on all companies selling annuities to ensure that customers have a fair chance of doing what is right for their own circumstances.  That means proper risk warnings about the products they may buy and asking basic questions that would reduce the risk of those with shortened life expectancy buying an annuity that assumes they are in excellent health.  For example, before selling an annuity that assumes someone is in excellent health, they should be told this and also asked whether their health is actually good.  For example, the company should explicitly state ‘ this annuity assumes you are in excellent health’.  If you have had any particular health problems it may not be suitable for you.’  The firm should then also ask ‘are you in good health, or have you had cancer, heart problems, high blood pressure, diabetes, been a heavy smoker or had other serious health issues that might impact you in future?’  To protect partners, firms should be forced to say to someone buying a single life product, for example, ‘this annuity assumes you do not want to ensure your partner will carry on receiving income from your pension fund if you die before they do’ and ask the customer to confirm ‘I confirm that I do not want my pension fund to keep on paying a pension to my partner if I die first’.  This would be a proper protection measure.  Why is the FCA being so slow in ensuring proper protection and a second line of defence to protect customers?

Why is it so vital that annuity sales processes are changed immediately?  Annuities are a unique financial product, because once bought they can never be changed.  A standard annuity is for life, if you buy the wrong type of annuity at a poor rate you can’t do anything about it unless you can prove it was mis-sold.  Therefore, it is absolutely crucial that people are protected against unsuitable purchases.  Annuities are also complex – there are many different types and if someone buys the wrong kind, they usually cannot change it.

Didn’t the Budget pension changes mean that people no longer have to buy annuities?:  In theory, yes, the new pension freedoms mean people don’t have to buy an annuity any more, but in practice the pension companies are not allowing their customers to use the new freedoms.  In the past, anyone wanting to take money from their pension fund had to ‘secure an income’ which meant buying an annuity or income drawdown product with the rest of their fund within six months.  Those rules have been relaxed, so people will no longer have to do this, but pension firms have refused to embrace the new freedoms.  Therefore, most people reaching pension age are still being forced to buy an annuity or income drawdown product if they want to take any money out of their fund.  Thus, ensuring annuity sales work properly for customers remains imperative, but the FCA is not showing the required sense of urgency.  It is deeply disappointing that customers can still be left to their own devices, in a market where their pension company effectively forces them to buy a product that may be unsuitable for them and which most people do not understand.

Just ensuring ‘disclosure’ of ‘information’ is not enough to protect customers who don’t understand annuities:  The FCA is still relying on the insurance or pension companies to ‘clearly inform’ their customers about retirement, about their options for taking income from their fund and about getting quotes from other providers.  This does not work.  What is ‘clear information’ to a pension provider or a regulator is simply not understood by most customers who have never heard of annuities and never had to buy one before and may only ever have one chance to buy.  The FCA’s conclusion that it is really important consumers are ‘given sufficient information with which to make an informed decision’ is simply not enough to protect customers.  The terms and jargon used in annuities are baffling to most normal people.  The Regulator and the industry understand these terms, but customers usually don’t.  Therefore, just leaving it to firms to ‘inform’ customers and ‘disclose’ relevant information is not sufficient – a second line of defence is required.

Annuities are an insurance not an investment:  Annuities are basically an insurance product that protects you against running out of money if you live a very long time in retirement.  They are not an investment product.  With interest rates at such low levels, they are much poorer value than ever before and if you are not going to live a very long time, then buying this insurance may not be the best way to spend your pension fund.  In addition, standard annuities offer no inflation protection and, unless you buy the right type of annuity, they will not provide a pension for your partner if you die before they do.  It does not seem as if the FCA has really recognised the urgent need to stop the failings of annuity sales.  Just suggesting that annuities may be ‘good value’ relative to income drawdown ignores the impact of low interest rates, inflation and unsuitable product sales to give a false sense of reassurance to customers who may end up poorly served by a market that has failed its customers for far too long.

December 11, 2014   2 Comments

A day at the JobCentre – what I learned about over-50s employment

Out of work over-50s suffer from poor tech skills, loss of confidence and ageism

Some JobCentres offer specific over50s training for IT, CVs and interviews

Volunteering is a great way into work – half of over-50s volunteers find employment

Having spent a day at the Streatham JobCentre, I thought you might be interested in some of my observations.

What’s it like?:  The Streatham JobCentre is managed by a passionate woman called Denise who is clearly on top of her staff and encourages them to do their best for those who come through the JobCentre doors.  There is plenty going on.  Apart from the Advisers for JobSeekers Allowance (JSA) and Employment Support Allowance (ESA – which used to be called Incapacity Benefit) there are computers available for applicants to use, training sessions (some specifically for over-50s) and different seminars on various floors.  I was told that over 90% of JSA claimants find work within 12 months, but older applicants are less likely to find work than the young.

Current situation:  The local economy has been picking up in recent months, with far more jobs available.  Initiatives to encourage more work experience and apprenticeships for the young have had a real impact, but those who have been unemployed for longest are in the older age categories.  Some applicants have problems of drug and alcohol addiction (in fact the JobCentre staff had to help out someone who was drunk when I was there) as well as homelessness.  Specific staff are dedicated to dealing with these issues which are so challenging when seeking employment.

Training provided by JobCentres:  The JobCentre runs a range of different training courses and I sat in on one for the over-50s.  Not all JobCentres have prioritised older jobseekers in this way, as they have discretion on how they spend their budgets.  Older people tend to have specific needs, including requiring help with CV writing, interview techniques and new skills relevant to a modern workplace, including competency based application assessments or psychometric testing which older people are not familiar with.  The course I attended offered practical tips to a group of 12 older jobseekers on how to network, how to build a personal ‘brand’, how to think about persuading an employer they will fit into the workforce, as well as being given a ‘skills healthcheck’ form, to help identify the particular skills they are good at.

Particular problems for over-50s:  I was told that the biggest barriers for older workers are lack of up-to-date skills, lack of confidence and the ageist attitudes of employers who automatically assume older jobseekers will be less valuable to them than younger applicants.  Improving technology and social media skills of over-50s is vital as so much recruitment is on-line.  Many of those I met explained how being turned down for countless jobs leads to a loss of confidence, then to depression, which further reduces employment chances and they end up on ESA.

Promoting over-50s’ skills:  All the advisers and training staff that I met commented on specific attributes they believe over 50s bring to an employer.  These include loyalty, life experience, reliability, patience, organisational skills, time management and the ability to engage well with other people, including customers or even mentoring younger staff.  It is important to change the way employers think about over 50s, appreciating that experience DOES matter.

Volunteering can be a good way into work – 50% of volunteers find a job:

Encouraging older jobseekers to take up volunteering has achieved good results.  I met a firm which places volunteers locally, in roles including working in hospitals, food preparation or teaching.  There are websites such as ‘Do It’ – or Community Service Volunteers, who run a specific programme for over 50s volunteers or for volunteers with professional skills at .  Volunteers are effectively benefitting from work experience and can get references that ultimately lead to paid work.  In fact, I was told that half of the unemployed who do volunteer work end up with a job, therefore a greater emphasis on encouraging volunteering could be beneficial.

New Enterprise Allowance:  Many over-50s would like to work for themselves, especially if they find themselves discriminated against in the application process.  The Government’s new Enterprise Allowance scheme, offering loans to set up a new enterprise, has the potential to help many over-50s find their own niche.  Self-employment can suit older people well, allowing them to combine caring with working from home or at flexible hours perhaps.

Tailored help for over 50s:  Over 50s may need special help to adapt to the modern working world.  They may feel they don’t ‘belong’, or have outdated skills and need to learn new techniques.  There is a skill gap in jobsearch for older applicants, who need to learn about online applications, social media, electronic CVs and even Video CVs.  Further funding for training over-50s would be helpful.

Could Government subsidies for taking on younger workers be extended to older apprentices?:  Employers taking on younger workers aged 16-24 are paid £2275 if the young person stays employed with them for over 6 months.  There are no such subsidies for older workers, which means employers are biased against taking on the over 50s.  Having had tremendous success in reducing youth unemployment, I hope we may see subsidised training, work placements or apprenticeships to help reduce long-term unemployment and re-skill older workers.  From an employer perspective, training or recruiting an older person can improve their workforce stability, since older people are much less likely to move jobs than the young.

Zero hours contracts can be a barrier to employment:  Many of the job vacancies that exist are in the care or hospitality industries, but they are often zero hours contracts.  I think there needs to be careful consideration of the appropriateness of using zero hours contracts, especially in an industry like carework, in which staff continuity and reliability are so important.  With an aging population, it is inevitable that demand for care services will rise sharply in coming years and I think the industry needs to evaluate its approach to staff reward and retention.

Conclusion:  Streatham JobCentre is making progress in specifically helping older jobseekers, but the particular initiatives they have introduced need to be rolled out more broadly across the country. Volunteering can also help increase employment prospects.  If we are to tackle the issue of recruiting older workers, more interventions will be required to ensure the barriers they face – lack of skills, loss of confidence and ageist attitudes, are overcome.

Case study – Martin:

I met Martin who left his previous job 6 years ago to train as an electrician.  He did three years’ training, but then found he could not be a self-employed electrician without further qualifications, costing about £1000.  He did not have the money for this and was very distressed to realise he could not do the job he wanted.  He explained how he then decided he just wanted to work, and did not mind what work he did.  He sent his CV to 20-30 employers a day for over 6 months and found no work.  He tried Universal JobMatch but his CV did not pass the computer process-driven assessments used by many firms nowadays.  CVs need to be tailored to keywords that computers search for to select candidates for interview.  Eventually, he was offered a job as a careworker but that offer was withdrawn because the company could not contact his references in time – his previous firm may have changed hands or the person who knew him had moved on.

It was heart-rending to hear him describe how he would look out of the window each morning and see people going to work and felt inadequate. He said ‘when you’re not working it takes away from your humanity’.  He ended up on ESA with depression but has now recovered and just found work.  He was really excited to be starting a job at last.  I suggested to the JSA advisers that when someone first signs on after redundancy that they should be asked if they can provide references immediately which can be placed on their file, so that they are readily accessible if an employer needs references quickly.


Case study – Kafa:

Kafa lost her husband a few years ago and had been looking after her 17 year old daughter, but now wanted to find work.  She was on JSA for a time but couldn’t find any work, then her Work Adviser suggested self-employment.  She received a £2500 loan and help with a business plan from the New Enterprise Allowance, bought some stock and set up a business selling hair pieces and jewellery at markets.  She is really happy to be working and proudly showed me some of the items she sells.

December 7, 2014   2 Comments