Too broken? Pensions ain’t working

The UK pensions and savings system is more broken than ever – and it’s not getting better

With our recent political landscape resembling a Tarantino-produced version of musical chairs it’s all too clear that some of our pressing problems just can’t be addressed within the mayfly-like duration of a political term of office. Climate change for example – too big, too long term – but something that will bite us all if we don’t fix it. It can seem so big that we feel helpless to do anything about it – but ultimately the only way to fix it is for us all, as individuals, to take control, to do our bit.

It’s the same story with how we finance how we live our lives, throughout our lives. This used to be called “retirement” – but that’s a quaint old notion from a time when we all worked into our sixties, and then lived just a little longer, going on a few cruises, playing golf and cuddling our grandchildren.

Life’s not like that anymore – we’re living much, much longer; many of us aren’t intending to, or can’t afford to, stop working; we certainly don’t work for one employer our entire life; for the vast majority of us post baby-boomers there is simply no big pot of money to live off, no extended cruises to look forward to.

Try googling “retirement” and look at the images. We’re living in a fantasy world where “retirement” means a life on yachts and sun-kissed beaches. For the vast majority of us the reality of how we’ll be living in our 60s, 70s, 80s, 90s, is very, very, different.

 In your dreams

In your dreams

The pension and savings system in the UK, and in the rest of the developed world, was designed for a very different time. Our public sector pensions are increasingly unaffordable – fixing the deficits is a gigantic task, and if they can’t be fixed the next step is cutting the payouts, breaking the promises to teachers, nurses, firemen. The funding problems hit occupational pension schemes just as much – employees of BHS and Tata Steel are waiting to find out what’s going to happen to their pension pots, some of the Post Office workers already know they’re being pushed into schemes that will pay out less.

It’s not working. It’s too big a problem for a (at best) 5 year term government to fix, and at the current rate the lifespan of a pensions minister is measured in months not years. In the end, like climate change, it will actually come down to each of us to take back control of our money, of how we finance how we live.

I’m not a pensions expert at all (apparently much like the new not-minister for pensions). But even I can see that the current system is just not working. And despite the presence of some brilliant people in government there just isn’t the time, nor the will, nor the urgency to fix it. It is too broken.

We don’t need to fix the old system – we need to make a new one to replace it.

We’re not listening, and we’re not saving. (And we don’t care) 

Most of us don’t save enough. Not nearly enough. There is a massive shortfall between what we need for “retirement” and what we have. This is the same the world over.

Most of us don’t care enough. Our parent’s generation did very well – generous state pensions, even more generous employer pensions. We’re surrounded by people who are right now, under our noses, enjoying a comfortable retirement.

Given that, it’s all too easy to believe that it will all be OK, that somehow it will work out. Much of our attitude to long term finance has been shaped by abrogating responsibility for it to someone else: the state, your employer, the housing market.

I think my generation kind of know that the state isn’t coming to our rescue, that the bits and pieces of occupational pensions we may have picked up as we bounced from job to job don’t add up to a gilded retirement. We’re already gearing up for a lifetime of working.

What "work to live" really means

What “work to live” really means

But we’re not quite ready to take control of long term finances for ourselves yet. We don’t trust people in “finance” (with good reason), and it’s ferociously difficult.

Auto-enrolment into pensions is a once in a lifetime opportunity

In an attempt to get more of us on the bottom rung of the savings ladder, the government is midway through “auto enrolment” – switching the default practice for employers to putting employees into a pension, rather than making it optional. It’s swapping one form of inertia for another.

It’s working – kind of. Relatively few employees are opting out, and thus far 6million or so have started some form of pension that they wouldn’t otherwise have done. All being well by the time we’re through the whole 6 year programme (2018) maybe 10m people will have started saving for their future.

That’s the good news.

Wouldn’t it be brilliant if many of these newly saving millions got the habit? If they became sufficiently confident and able to take control of their long term savings? Imagine – an entire generation of empowered savers in charge of their own destiny, not reliant on an ever dwindling, unaffordable handout?

Lambs to the slaughter? 

Auto-enrolment is a well intentioned policy that’s in danger of failing an entire generation of new savers.

Ostensibly all is rosy. Employers are “complying”, and we’re now into the long tail of 1.8m or so very small employers that comprise the backbone of the UK’s working population.

But the pathology of a deeper, future crisis is all too clear to see. Far from being gently and happily nudged into a happy land of happy saving the millions currently being auto-enrolled are being sold a pup. The amounts they are saving aren’t enough for a nest egg, and won’t be, and the market they are being put into is riven with all the worst ills of the financial world. We’re storing up a lot of disappointment and anger.

This is in many ways an experiment in financial services for the mass market. Not brokered through fee-taking agents but a self serve, DIY market where the buyers (in this case hundreds of thousands of small business owners) are expected to make big, long term financial decisions without help. And without protection.

They are exposed to a workplace pension market that is not OK:

  • complicated language designed to mislead
  • unfair and hidden charges – some providers even have the chutzpah to market themselves as “free”
  • middlemen fishing fees out of your money without asking (undeclared charges)

These are – sadly – all run of the mill nasties that are just part of the financial landscape, and for many of us merely confirm that we’re right to be cynical.

some promises are hard to keep

some promises are hard to keep

But workplace pensions for the mass market have some specific ills in the form of risky providers that leave thousands of employers and millions of workers at risk of ending up in a bad place.

Taking out the trash won’t be enough for the mass – the system’s a casino where the house always wins

Notwithstanding a number of bad providers hawking their wares, there are systemic issues here that mean the interests of the market and the interests of the providers are not, and never will be, aligned.

The best, most visible, example of this is the annual management charge (AMC) applied annually to the savings you’ve ‘amassed’. It looks like a tiny percentage – 0.5%, or 0.75% – and of little consequence compared to the “free to set up” or “£300 set up fee” you might be looking at.

But it’s not innocuous. It’s an annual fee taken from your entire savings ‘pot’ every year. Win or lose. Every year you’ll pay more money. Every single year. But the service you receive is the same. Heads they win, tails you lose.

This is not the fault of the pension providers, it’s just how the system works. In fact the size of the annual management charge is one of key aspects that makes a pension qualify legally for auto-enrolment. The charge applied-as-a-percentage annually is deeply embedded in the system – and means that no matter how well meaning the interests of the provider and your interests are not aligned.

Even more aggravating, there are a ton of other charges applied to your money that you can’t even see – that the industry doesn’t want you to know about. In aggregate these can halve, or in some cases completely wipe out, whatever savings you thought you had.

heads we win

heads we win

I can’t think of another market, anywhere, where you pay more over time just because. I can’t think of another market, anywhere, where it’s OK to take your money without asking. Pensions are a casino where the house always, always wins.

The system of incentives in managing pensions just does not work in a mass market context. The people managing the money get paid anyway. What we need is a system where the outcome, better savings, is incentivised through the whole chain. Such a system would be much, much healthier for all.

What’s needed is a reset. Trying to fix the existing mess is a Sisyphean task. We’re much better off designing a new system of long term saving from scratch – where the needs of the savers and the incentives in the system are aligned.

We now have the technology to enable such a system – lean, transparent, fair – that works for the mass. That gives power to ordinary people, that helps a generation to get the savings habit. All we need is the will to make it.







Unsafe pensions – much more is needed to protect a new generation of savers

Auto-enrolment is on track to disappoint a generation of new savers

We don’t save enough. Generous pensions are a thing of the past, or the preserve of the lucky few. Some of the pension promises made in that past can’t be delivered. Many of us, maybe most of us, face an uncertain financial future.

Automatic enrolment into workplace pensions is a really smart idea. It gets millions of us on to the bottom rung of the savings ladder with the hope that we’ll learn to climb the ladder.

There are some challenges – the amounts we save through it don’t amount to much yet, and even when the minimum contribution levels go up (2019) it still won’t be enough for most of us.

But it’s a start – and the big prize here is that it will trigger a shift in behaviour for millions of us, helping us seize control of our own financial destiny rather than crossing our fingers and hoping our numbers come up in the mega-prize draw.

But unless something changes fast that’s not going to happen. It’s not working.

Workie just wants you to tick a box

Workie just wants you to tick a box

It’s all about outcomes, not box ticking

Read the reports and you’d be forgiven for thinking all is well. Millions of employers are setting up pensions for their staff, and thus far most of those staff have not opted out of the pension.

Thus far most of the employers who have set up pensions have been the bigger ones, with more employees and more experience of employee benefits. Now – and through until 2018 – it’s the turn of the much smaller employers. Most of them employ around 2 to 5 people. In total there are something like 1.8 million employing somewhere between 6 and 8 million of us.

Asking these small employers to choose, set up and maintain a pension for their staff is in many ways a mass market experiment for finance. Most of them have never bought a workplace pension before.

Pensions are complicated – I’m not a pensions expert at all, but I spend a lot of time with pensions people, and they find them bafflingly complex. Hardly any small business owner has the expertise or the access to expertise required to decode that complexity.

Choosing the right pension for their staff is a big deal, and a big responsibility. Getting it right is one of the most important things an employer could do for their staff. Get it right and they have a chance of ending up with a decent pension to save into, to get into the savings habit.

Get it wrong – put them into a pension scheme that’s no good – just to tick a box would short change a generation.

But that’s exactly what’s happening. Rather than focus on outcomes, on getting it right, we’re focused on inputs, on box ticking the “declaration of compliance” (which is how the Pension Regulator keeps score of the numbers of employers who have ‘complied’).

But filling in a declaration of compliance is not the same as choosing and setting up the right pension for your staff. And whisper it quietly – it may well be that many of these declarations of compliance are just and only that: declarations. Boxes ticked. But no pension set up, no staff saving. With a large number of small employers inclined to self serve, and to self certificate, there are persistent signs that they are getting it wrong.

Complying – i.e. ticking the box – but getting it wrong.

It’s much, much too easy to get it wrong

Choosing a workplace pension is not easy. There are a lot of different providers, some good, some indifferent, some poor. There’s a heap of incomprehensible jargon and nonsense. The language of pensions is like the rest of finance – not the same language normal people speak. Working out the differences between them, and what they are going to cost you and your staff is pretty much impossible. Do it to a deadline, and with a business to run, and the chances of screwing it up are high.

This guy wants to sell you a pension

This guy wants to sell you a pension

Workplace pensions suffer from many of the same ills that afflict the rest of finance…..

  • jargon designed to confuse not clarify
  • charging structures that are impossible to decode and penalise people with less money
  • a host of middlemen taking your money without asking in management and administration fees. For some of the pensions this can end up wiping out the entire pot of money.

….and some very specific ills of their own – in that there are too many risky and unsound providers in the market.

  • providers who are not by any stretch financially sound, with no financial protection for the savers in those schemes
  • providers who are run incompetently, or in some cases, with criminal intent
  • providers who are not straight about what it will cost, or what they do with your money

Nobody really knows how many providers are out there offering workplace pensions. Every day a new one turns up, sometimes it’s only a website and not even registered as a proper pension scheme. Most people reckon there are around 70, or at least 70 “fronts” – many of them have the same ultimate parent or are just “marketing” firms flogging a particular scheme. Some of them are bundled packages pushing a payroll or admin system with a pension attached somewhere down the line.

There’s not enough to protect unwitting employers choosing poor providers

Of the 70 providers there are a handful of really, solid, really good ones. There are a handful of really risky ones. And there are a swathe who are not going to make it – where, despite best intentions, the savings of the staff auto-enrolled into those schemes are at risk.

For a Government flagship savings policy to get to this point, the point of mass market adoption, with this level of risk beggars belief.

When we started looking at this market we assumed – naively as it turned out – that there was no way the Government and the regulators would be rolling out workplace pensions without some basic consumer protections in place.

We were wrong. There really isn’t enough protection. And what little is being done is too little too late. This policy has been in train since 2012, yet only now, late in 2016 is a tightening up of standards in the provider market mooted in a proposed pensions bill. If that does get enacted it will be too late for the many hundreds of thousands of employers, and millions of their employees, who had to choose a pension scheme without the benefit of the proposed protections.

Spelling out the risks around poor providers

A lot of the risks surround poorly run master trust pension providers. There’s nothing intrinsically wrong with the master trust system – in fact done well it can be a really economic and smart way for multiple employers to benefit from the same pension.

The problem is it’s too easy to set them up, and so there are too many out there that aren’t safe.

The biggest issue is financial strength. The economics of workplace pensions are brutal – low volumes combined with low contribution levels deliver wafer thin revenues in charges, not enough to cover administration and service costs. The cost of winding up a master trust seems to be somewhere around £600,000 to £800,000 and – irrespective of where the money is invested – there’s a danger that employees savings are used to meet the costs of wind up.

So if a master trust can’t meet the costs of winding themselves up there’s a risk to savings. We’re not at all confident that many of the 70 have anything like the necessary financial strength to survive an orderly wind up.

The next issue is fit and proper people. Well run pension schemes should be without conflicts of interest. There should be sufficient checks and balances, and oversight, to make sure that the interests of the savers are being looked after. The investment managers, the trustees, the pensions administrators should be unconflicted.

In far too many of the master trusts we see a crossover in all these areas. In some cases the same people are the administrators, the trustees and the managers. In some cases those people have no discernible expertise or experience in pensions. The more we looked the more conflicts we found. We resolved only to feature those providers where we were 100% sure that there was no risk.

Lastly we looked hard at where the money went and transparency of charges. In the world of mass market pensions there are four big investment propositions that end up actually investing the money. (I think it’s quite easy to end up believing that the pension provider you’ve chosen actually invests the money themselves – whereas in fact they are just at the head of a long chain of middlemen that more often than not ends up in the same place). For a master trust not to choose Aberdeen Asset Management, Blackrock, Legal and General or State Street raises the possibility of an investment practice which is non-standard, so worthy of a closer look. Some of those non-standard investment practices lead to properties in Cape Verde, or half built developments in the Caribbean, or even empty retail outlets near Reading.

Rock solid investment strategy

Rock solid investment strategy

It’s almost impossible to work out where your money is going when you look at a website or the blurb from a pension provider. Many of them don’t really talk about where the money goes, or who is investing it, at all.

None of them tell you about every single one of the charges, all the admin fees, the management charges that get netted off your pension down the line. Some of them still have the barefaced cheek to market themselves as “free”.

Pension providers are not charities. None of them are free. If you can’t see who is paying you should be very, very wary.

An absence of responsibility – Master Trust Assurance isn’t enough

We shouldn’t be here. Employers should not be unwittingly exposed to a market with this much risk. The regulators know many of the problems but don’t have enough power to stop dodgy providers peddling their wares.

Much too late in the day a pensions bill is mooted to tighten up master trust regulations.

In the meantime “Master Trust Assurance” (MAF) is being used as a proxy for “OK master trust”. The Pensions Regulator lists providers who are both open to all and either meet the criteria in “master trust assurance” (as well as non-trust based insurance based providers who are open to all and regulated by FCA).

“Master Trust Assurance” is a good start but it’s not sufficient. It’s a checklist of 31 good governance practices, and it is apparently costly to achieve, which means that only the master trust providers who have the resources available can attain it. So far around 10 have got it.

But good governance doesn’t mean good provider.

Achieving “MAF” doesn’t mean there’s sufficient financial depth. How many of the providers who have achieved MAF have sufficient financial strength?

Achieving “MAF” doesn’t mean there are fit and proper people who are unconflicted. In fact the framework recognises that “provider representation on the trustee board may result in non-trivial conflicts of interest”, yet only asks that such conflicts of interest are “identified, recorded and managed”. How many of the providers who have achieved MAF have people who wold pass a fit and proper test?

Achieving “MAF” doesn’t mean there are clear and transparent charging structures, and investment practices that are not risky. How many of the providers who have achieved MAF are clear about where the money goes and who is taking a fee?

All “MAF” means is that there’s a process and discipline around governance. The Mafia has very strong governance but that doesn’t make them angels.

The Pensions Regulator lists MAF providers in the full knowledge that there is a pension bill in the works that will insist on tighter criteria for master trusts. How many of the providers on the list would meet the new criteria? Not all.

Under the list the Regulator puts in a special caveat, of the “plausible deniability” kind, absolving it of responsibility should you choose a provider on the basis of their list.

It is – only – a list. It’s not an endorsement. It’s not a guide to what’s good. It’s just a list.

“The regulator takes no responsibility for checking that schemes’ claims are accurate.

The regulator cannot recommend, nor does it endorse, any particular pension scheme or any organisation. Inclusion of a scheme or mention of any organisation here does not guarantee their suitability.”

You’re on your own.

Employers need help now.

This is just not good enough. Employers are choosing pension providers for their staff now. They need help now. In the absence of strong enough, or quick enough, action from regulators or politicians we see ourselves as having an imperative to act.

Auto-enrolment has got to the mass market stage. Small employers, and their staff, can’t and won’t pay for expensive advisers to help them. Most, many of them, are going to self-serve. They deserve better protection and better signposting.

We’ll do what we can to act as a filter on behalf of the market. We’re not experts but we have the ability to ask questions on behalf of all employers. We have the ability to apply a higher set of standards, to demand a higher level of confidence, so that we only put pension providers in front of our clients that we’re confident are OK.

We’ve found 9 that we can stand by. Out of around 70.

There are probably more than 9 that are OK – and inevitably operating a “guilty until proven innocent” filter means that we omit some decent providers.

But for the moment there is just too much risk in this market. If the price of protecting employers, and their staff, from harm is that we omit a couple of good ones then so be it.

The big prize here has always been the opportunity to engage a whole new generation into savings – by giving them an experience so good they get the bug. After all, the aim of auto enrolment isn’t box ticking compliance. It’s to trigger a mass shift in behaviour. We owe the mass of employers, and employees a much, much better deal than they’re getting right now.











Workplace pensions – take care, take care, take care

A hard rain’s gonna fall?

Pensions: given just how much money is tied up in them, and how much they could impact the way we all live (whether we’re paying for them or living off them), it’s remarkable just how little airtime they get.

Which is a shame – because right now, in workplace pensions, millions of employees of small businesses are at risk of being put (unwittingly) into crappy or risky pension schemes. And they may not know they are crappy for a few years. It’s not a good situation – but it is avoidable if there’s some intervention right now.

Ignoring the workplace pension might lead to a fine. Choosing a rubbish one could cause real harm to your staff.

Ignoring the workplace pension might lead to a fine. Choosing a rubbish one could cause real, lasting harm to employees.

Crooked highways

I don’t know much about pensions. When I was much younger I worked for a company that provided one. I didn’t pay any attention to it – it was for older, much more sensible people than me. Over time – as I switched jobs and employers – I continued to pay no attention to whatever pension arrangements I could or should have been making.

My kind of complacency turns out not to be atypical. It seems around 30m Brits have inadequate provision for their old age. And of course we’re all living much longer, and having fewer kids, which means that there’s not really enough money, either in the public or private sector, to be able to sustain the kind of comfy retirement that previous generations have and continue to enjoy.

To address some of this problem successive UK Governments came up with the wheeze of “automatically enrolling” employees into pensions schemes, reckoning that the kind of complacency I suffer from would be much less harmful if the default position was being put into a pension, no matter what size of company you worked for.

It’s a good idea – and has been rolling out amongst bigger companies since mid 2012. So far around 5m employees have been put into workplace pension schemes.

2016 sees a change where much smaller companies are now going through the programme. Between now and mid 2018 around 1.8m employers will set up pension schemes for their staff – most of them only employ a handful of people. In total around another 5 or 6m people will end up in a pension scheme for the first time.

Trouble ahead – obligated buyers, complicated products, marketing gobbledigook, poor providers

Most of these small employers haven’t bought a pension before. The rules around automatic enrolment are really quite complicated – and there are fines for employers who “don’t comply” – so it’s quite scary for a small employer. They have to do it.

Buying a pension is not like buying a train ticket, or a flight, or a book, or a tin of beans. It’s complex – it’s really hard to understand the jargon, it’s even harder to know whether it’s a good one or not. The small employers can’t afford super duper financial advisers, and super duper financial advisers don’t (by and large) find it possible (economically or in terms of time) to help large numbers of small businesses.

So most, pretty much all, of these 1.8m small employers are in the depths of the deepest black forest about how to choose a pension scheme – and that matters a lot because they are choosing it for their staff.

A disorderly, unruly market poses risks for the savings of many individuals – who won’t have chosen the schemes they wind up in.

Copyright Dilbert

A rat with a dartboard and a website wants to sell you a pension.

What makes the situation much, much worse is that there are a plethora of not very good pension schemes being marketed to these uninformed, but obligated, small employers. The weakness in the buyer side of the market (pointed out by the OFT in 2013) is about to get a whole lot worse. The chances of a well intentioned employer being taken in by a dodgy or unsustainable workplace pension provider are very high.

Screenshot 2016-02-21 16.47.36

OFT report into DC workplace pensions (2013)

Most commentators reckon there is room in the workplace pension market for no more than 10 providers, probably fewer. The brutal economics of workplace pensions means it’s a scale game – the business models just can’t survive without high volumes. There are many, many more than 10 players in the market – nobody knows for sure how many, but it’s probably closer to 70 in terms of what’s being marketed, and 35 or so once you’ve peeled the labels off to see what’s underneath.

Of this lot – there are about 6 big ones and the rest are much, much smaller. We reckon at least 3 out of 4 employers are picking the big ones – but it looks like a proportion are ending up in the long tail of small, worryingly small, providers.

It’s just too easy to set up a master trust pension scheme

When the automatic enrolment policy was being set up all the politicos, all the wise heads, reckoned that the big danger would be that no pension provider would want to serve the mass market (too hard, too costly). So they did two things:

  • they set up NEST with a hefty government loan, with a universal service obligation to accept any employer
  • they tasked the Pension Regulator with a focus on making the policy work – education and encouragement around why workplace pensions are a good thing, and monitoring and policing whether employers comply (fines etc.)

What they didn’t do was give the regulator enough power over the quality of pension schemes. And that’s the root of the problem we’re running into – the mass market is faced with a supply side which seems to have far too many poor providers in it. There is a very high chance that employers will end up unwittingly putting their staff into bad schemes.

There are two problems – and they can’t be fixed quickly.

  • it’s too easy to set up a master trust pension scheme. There are no real hurdles so any man and his dog can do it.
  • the Pensions Regulator doesn’t have enough power over how they are marketed or sold.

The Financial Conduct Authority oversees contract based pensions – brands you’d recognise such as Scottish Widows, Aviva, Standard Life – and has loads of power and rules about protecting individuals, what can and can’t be said. They do a good job of protecting the consumer.

The Pensions Regulator oversees the Master Trusts – most of which are very new, brands you wouldn’t recognise. These providers don’t operate under the same rules – there’s no requirement for capital adequacy and if they blow up or go bust the money of the savers (that’s you and me) is unprotected and at risk. There’s little or no scrutiny over how they are sold – and as a result many of them are marketed in a way which would make Donald Trump blush.

Even he is embarrassed at some of the claims made by master trusts

Even he is embarrassed at some of the claims made by master trusts

For the most part these master trusts are bolted on to “quick’n’easy, sign up in minutes” front end websites for (ahem) peace of mind. Many claim to be big and secure when they are in fact tiny. Many say they are “free” (pensions really, really are not “free” – if you can’t see who is paying it’s probably you). Some come with “special introductory offers”, others with M&S or Asda vouchers. It’s marketing pixie dust – and it’s a problem.

Pensions are not like baked beans. They can’t be treated like retail products with buy-one-get-one-free tactics. Especially if they are not any good.

If you want an example of how uncomfortable retail tactics feel in the marketing of complex financial products have a look at Rocket Mortgages….

Get a mortgage on your phone - what could possibly go wrong?

Get a mortgage on your phone – what could possibly go wrong?

How does anyone know if a workplace pension is any good?

When we started Husky we prided ourselves on being pension provider agnostic – we’d feature any provider on our platform as long as we knew enough about them to put them there. We designed a tool that compared the features of each scheme – in much the same way that other comparison sites or star rating agencies might work.

It soon became clear that simply comparing features in this market was not appropriate – what small employers needed, and still need today, is much stronger and clearer signposting to what is “good”. It’s not enough to point employers to governance reports and investment factsheets, in the hope that they will infer what’s good and what isn’t.

Small employers aren’t financial experts – they are normal human beings. They need much more help to know what’s a decent provider and what isn’t. We couldn’t be agnostic – there’s too much risk of harm.

We quickly worked out that we needed only to showcase those providers that we were 100% confident were good. That meant erring on the side of caution and operating a guilty-until-proven-innocent approach to which providers we put on Husky.

We’re not pension experts – so we asked a group of smart, independent, well qualified people to form an independent panel, to determine whether a provider was good or not. The first step was a report that set out what “good” meant.

The three tests of “good”

The three areas that needed to satisfy our panel in order for a provider to be deemed “good” were:

  • viable business model
  • run with probity
  • transparency of fees and where the money goes

Most failed to convince on the first point – very few could convincingly demonstrate any kind of scale (how many assets they had under management) nor how they would achieve it. Only the big ones could easily tick this box.

A handful failed to convince on the probity point – although supposedly independent trustees should make sure that there are checks and balances in how the pension money is handled and invested, in some cases there were and are too many unanswered questions around the same handful of individuals owning and controlling everything. In the absence of a good explanation of why the normal checks and balances aren’t being observed, it is hard to deem the scheme as good with any confidence.

A similar number had opacity around how and where the money went. There were a number of inexplicably complicated and multi-part investment approaches, some eyebrow raising connections to things like property speculation, and fee structures that were not easy to unearth and which fished money out of pension pots without making it clear in the headline charges.

Out of the 70 or so our panel could find, they ended up with 9 they were confident were “good”, and a further 8 that had enough financial depth to survive being small. The rest were either too small, or too dependent on a specific funding source (remember how fragile Kids Company turned out to be?), or too fishy, or too opaque for comfort.

If our group of experts had so much difficulty decoding the quality of the pension providers, a non-expert small employer barely stands a chance.

Inevitably – by operating a guilty-until-proven-innocent approach we filter out some decent schemes. That’s a shame but in my view a small price to pay when the alternative poses just too much risk for too many people.

Better signposting – right here, right now

I’ve been around the block a bit, and have been able to work in, and see up close, a few markets that don’t really function properly, where dodgy stuff happens. This is the first time I’ve come close to pensions and it’s in a different league – the lack of transparency, the pixie dust, the complexity mean the odds are stacked against the buyer.

What’s especially concerning about the workplace pension “not very good pensions” issue is that everyone in pension world knows it’s not right. Politicians are making noises, regulators are talking about it, journalists write about it, industry meetings are full of chatter about who is going bust, or who is a bit dodgy.

But nobody’s doing anything about it – and that means innocent people are at risk of losing their savings, and a well meant savings policy could get derailed.

What’s needed – urgently – is for regulators (both of them) and politicos and industry honchos to get some clear, unambiguous signposting out there now, to steer employers to the good pensions. And to do it now – today.

Because if employers care at all about the welfare of their staff – and most of them do, even the smallest – then they need to take great care in finding and choosing the right pension for them. And we need to take great care in helping them.



Live long and prosper

Unless the financial services sharks get you first

Unless the financial services sharks get you first

Mr Spock’s farewell is looking increasingly more like a forlorn hope. We’re all living longer but scarcely any of us have got anything like the kind of money we need to look after ourselves (let alone prosper) in our 60s, 70s, 80s and 90s.

Aside the lucky 2% who have enough put by the vast majority of working adults in the UK (and in pretty much every other country) are looking at an old age where ends won’t meet. 32.9m people haven’t got enough put aside. I’m one of them.

This week Keppel&Co received its first “auto enrolment” letter from the pensions regulator. We’re not alone – over the next few months 1.3m other small businesses will receive the same letter.

ACT NOW - what a "nudge" feels like

ACT NOW – what a “nudge” feels like

(They need to work on their communications – this is essentially a “comply or die” notice not “we’re kick starting a revolution, come join us” nudge)

Between now and 2018 every small business in the UK will have to set up a workplace pension scheme for their employees. Most – 85% or so – currently have no kind of pension scheme at all.

“Auto enrolment” is what’s known as a “nudge”, though it might feel a lot more like a shunt. Millions of us, most of us, don’t have the savings habit sufficiently strongly. Many of us don’t have it at all. By making a workplace pension the default position for anyone in employment the Government is trying to alter behaviour on a mass scale. Steve Hilton talks about this nudge as being a “more human” way to behave. But some cynical attitudes and a systemic inability on the part of many players in financial services to be transparent and straight mean there’s a real danger that millions of people end up on the end of a very raw deal.

If we ignore it maybe it will go away?

some accountants are really hoping the legislation will be reversed....

some accountants are really hoping the legislation will be reversed….

I’ve been having a good look at how the financial services industry is gearing up to deal with this tsunami (1.3m businesses with several million employees all setting up schemes for the first time ever – at the rate of 50,000 or more a month) and there’s a lot to be alarmed about.

  • accountants are going to shoulder the burden of much of this big change and most simply aren’t ready. The big volumes of small businesses start “staging” in January 2016.
  • there’s an attitude emerging from within the the supply side which looks at least irresponsible and more worryingly immoral – namely that this is an opportunity to extract more money from clients by bamboozling them with how complex it is and foisting loads of complicated fee structures on them (in other words more bad behaviour from finance world – I was at an “auto enrolment” event the other day where the speaker – apparently an expert but someone I definitely wouldn’t buy a used car from – talked gleefully and without irony of “layering on fees”)
  • worst by far (aside from the unscrupulous attempt to cash in by pretending it’s all a compliance headache and hassle) is that employers, and employees, are for the most part not being offered a choice of pension scheme. The expert/used car man I saw simply doesn’t see it as a problem that hidden amongst the small print of what he’s peddling is an automatic leg into some dodgy (or potentially dodgy) pension scheme.

This is the next financial mis-selling scandal right here. Choice matters when it comes to how we’re going to live. Choice really matters. It’s not OK at all to withhold it or not offer it.

The Office of Fair Trading rightly have a dim view of the imbalance between the supply side and the buyer side when it comes to workplace pensions. There’s a lot of smoke and mirrors. A lot of scruple free people. And not enough transparency and choice.

In how many other areas of your life would you, could you accept not having any kind of choice? In where you lived? What car you drove? Or what food you ate? What bank you used?

You wouldn’t

Yet the people on the supply side of auto enrolment – whether they are middleware providers, end-to-end solutions, pension providers, payroll providers – think that it’s such a hassle, or such an opportunity to “layer on some fees”, that it doesn’t matter if the likes of you or me simply don’t get a choice over what pension scheme we put in place.

Any accountant with an ounce of professionalism will see the risk. Any business that cares a jot about its staff will know it’s wrong. Anyone who has workplace pensions as a ministerial responsibility will see it needs stamping out before it becomes a major problem.

There’s not a lot of time to put it right but there’s enough. This a fundamental shift in the way employers relate to employees, and in the way people behave towards saving for their old age.

This is a systemic change and it requires systemic leadership. We can’t afford to leave finance world to see it as yet another way to turn a quick buck. People’s livelihoods are at stake.

Finance needs cleaning up, needs purging of all the people who like to “layer on”, and we need to shout loud and long at the cowboys who are up to their old tricks.

The supply side of the financial services industry wields too much power. It’s time for us little people to take some back. After all, as Spock would say, the needs of the many outweigh the needs of the few.


Just put your lips together and blow

Ever seen an orange postman?

You might have done if you live in a city, where TNT – latterly “Whistl” – has been rolling out its “final mile” delivery service to rival Royal Mail’s “final mile” delivery service.

turns out unicycles were not the answer

turns out unicycles were not the answer

This week, whilst most of us were wondering just how staggeringly inaccurate online opinion polls* can be, “Whistl” withdrew the service, threatening 2,000 job losses (and shockingly not paying half of its workers on zero hours whilst it thought about it).

“Whistl” (back to brand school whoever is responsible for that) couldn’t make the case for continued investment in the business, citing “market dynamics” and “regulatory complexity”.

Which is another way of saying “this is really hard and doesn’t work”. But maybe they shouldn’t have been trying in the first place.

Postal delivery requires systemic leadership not squabbling competition

Businesses and organisations that have an impact on the way we live – utilities, banks, food companies, transport, infrastructure – would do much better to start thinking systemically rather than competitively.

The Whistl saga demonstrates why. From any angle – economic, resource utilisation, environmental – competition for who is marching up your garden path delivering your Amazon parcel doesn’t make sense.

Royal Mail have been complaining about competition in the postal market for ages – not always in a very lovable way, sometimes sounding a bit sour grapes – but in many ways they have a point.

The economics of postal delivery are brutal. Flat pricing whether delivering to Canning Town or the Cairngorms, but costs of delivery that vary wildly with population density and distance between dwellings.

And there’s a big change in the stuff that’s being delivered:

  • fewer letters, fewer bits of mail – lots of it is being digitalised, even your bank statement
  • fewer CDs, fewer books – nice light things that were easy to carry and were good business for Royal Mail, increasingly becoming digital with streaming and e-books
  • more clothes, shoes, electrical items, gardening equipment – we love shopping online, but increasingly what we’re buying is big and heavy and needs a van to deliver it.

The future for posties looks like fewer light letters, more heavy parcels. (Grimly it looks like 88% of the letters will be “direct mail” or bills).

the postbag of the future - fewer things, but heavier

the postbag of the future – fewer things, but heavier. Poor Pat.

The result is a tough enough business to run even if you’re a monopoly. Allowing the orange unicyclists to cherry pick the densely populated urban areas without having to deal with the people in the sticks was not just unfair, it was silly.

Time for some systemic leadership

Royal Mail used to be a public service – it was not very efficient and lost lots of money. Now it’s a public business with a social purpose – subject to competition upstream (collecting from businesses) and a lot sharper commercially than before.

It’s a leaner, meaner Royal Mail that’s just getting used to competing (having not had to compete for several centuries). And like anyone learning a new trick it’s got a little bit over focused on competition – arguing basically that the universal service (same price everywhere, six days a week) would be threatened if the Royal Mail business became economically unsustainable (because the unicyclists were doing all the easy deliveries).

Which is true. But there’s a much better, more obvious case that Royal Mail should be making. One not about their competitive position but about their unique role in the system.

“It’s the environment, stupid”

As we get more used to shopping online, and less likely to take a trip down the High St, the volume of stuff delivered to our doors is just going to continue rising. Without some kind of systemic intervention the future of home delivery will be ever more vans driving down your street to deliver a single item to your door. Van sales are shooting up in the UK – 239,000 in 2012 to 334,000 this year and 344,000 next. More stuff, more vans. They’ll be queuing up down your street.

Which is an alarming waste of resources and a waste of energy in a world that is fundamentally resource constrained. What’s needed is a systemic intervention where all the stuff gets aggregated and delivered in one go, once a day.

But such a system would cost billions to build and require the kind of infrastructure that could reach every household in Britain every day. Royal Mail already has it.

The demise of Whistl presents an opportunity to show the kind of leadership that the great brands are made of – leadership that recognises the unique systemic role the business plays that nobody else can. Only Royal Mail has the ability to solve home delivery in a way which works economically and environmentally for everyone, including their competitors.

Nobody else can come close.

The businesses that are shaping the future are beginning to recognise that competition is a bit last century. What matters in a resource constrained world is how the whole system works.

It requires a new kind of leadership. Leadership that’s more concerned with outcomes than beating the competition. Systemic leadership.

* it wasn’t us – it was “lazy Labour” voters, apparently

In sickness and in health

Human beings are pretty good at falling in love. So why is it that politicians and business folk are so bafflingly bad at choosing the right partners?

Red or white?

in 1951 the two main political parties in the UK polled 48% and 49% of the vote. It was a straight them or us choice. And since then we got pretty used to this winner takes all/first past the post system. Easy choices, one winner, one loser.

But nowadays it’s all changed. The two main parties gravitated to the “we’re for everyone” centre, leaving room for lots of exciting minor parties to stake out clear positions to the left and right (and sometimes both at the same time). In 2015 25% of the vote will be for one of these so called minor parties, and whoever ends up with the most votes will have to go into partnership with one or other of them.

And that’s where the trouble starts.

Because it seems that political parties are almost as rubbish as business at choosing the right partner. Favouring short term expediency over long term vision.

Come 8th May (or more likely 15th if there’s a lot of “horse trading”) we’ll end up with a coalition (or equivalent) of people who really, really didn’t want to be in power together. Almost any constellation is possible, meaning we’re all in for a pick’n’mix set of policies for the next 5 years (because one of the first things the current mob did was to pass an act ensuring that whatever inadequate government we get we’ll be stuck with it for 5 years – unless there’s some kind of revolution……)

don't have nightmares

don’t have nightmares

You’ve got the brains, I’ve got the looks, let’s make lots of money

Put anyone under pressure to pick a partner and they’ll probably make a bum choice. Ask them to do it when they’re sleep deprived and over caffeinated and they’ll a worse choice.

Put a small growing business under pressure to pick a partner and they’ll make an equally bum choice. I see so many businesses suffering from having made expedient choices of partner – board member, distribution partner, supplier, investor – at a time when they really needed to make a quick decision, only to suffer the consequences later.

Working out how to collaborate well is the most crucial skill a business needs to learn nowadays. Getting together with people who believe the same thing, and who just happen to have a skill or capability or set of resources you don’t, is a wonderful piece of alchemy. Collections of like minded business people, especially if focused on a big higher purpose like tackling inequality or eradicating pollution, can achieve extraordinary, magical, positive impact (in a way that non-business entities like governments simply cannot).

Poor choices

But time and again otherwise brilliant business folk make rubbish decisions when it comes to choosing partners. Terrible choices are made over board positions, key partners, and – a new one for me – initial investors.


choose wisely

choose wisely

I once dug into the tools that headhunters were using to find board candidates, and, sure enough, found that the whole process lacked any kind of “brand fit”. It began and ended with “competence”. There wasn’t any screening of candidate based on compatibility of belief or vision – which was a bit gob-smacking. But explains a lot.

And then there are terrible partnering decisions around things like distribution. A very cool automotive start-up (sadly no longer with us) had a brand that was – potentially – one of the most cutting edge in any industry. Highly advanced engineering and propulsion, with cutesy design, made for the kind of early adopters who (round about the same time) were shelling out for the first iPhone.

What it didn’t have, in a story wearily familiar to anyone who works with these automotive start-ups, was any idea at all about distribution, relying instead on a “if we build it they will come” approach that just won’t work anywhere, and especially not if you’re in the back of beyond.

When this hole became clear they panicked and teamed up with a low rent cash and carry outfit to sell their high tech cars, “because they had shops and we don’t”. Unsurprisingly it was a disaster.

The newest (to me) yet the most worrying example of bad partnering is inappropriate investment partnerships. This one really worries me because I think it may be the hardest to fix.

This year I’ve seen 3 very exciting businesses close up that are failing to meet their full potential because there’s a mismatch between business vision and initial investor. In one case the initial investor is not happy to let the business seek new, diverse investors at a time when it is just about to scale. In another the initial investor was super generous, bestowing family money to a very ambitious project that needed not just money but strategic nous and industry connections. Because the initial investor had been so generous there was no need for the founder to go out and seek the “right” investor with the experience and ability to partner her through the most critical stage of the business’ early development. In the last case the initial investors turned out to believe in the (extraordinary) vision a bit more than the founder did, and when it came to the crunch they wanted the business to succeed a lot more than he did.

In each case the losers are us. In each case there was a business that was designed to achieve something transformational for the common good – helping us to live and work in new resource efficient ways; to move in a way that does not consume natural resources; to redesign finance to make it work for everyone not just the few. Yet in each case the business and the investors had got together without having done enough to check that they really, really were a great fit.

Because the businesses all needed money so very badly they were prepared to do or say whatever was necessary to get it.

This isn’t just “what it takes to be a start-up”, this is somehow part of the system. I’d never seen it first hand before – but the investment advisers are actively encouraging these (needy) start-ups to twist their story to be more attractive to the target investor.

Which is the worst kind of way to find the right partner – if you’re under pressure you make bad decisions; if you try and attract investor partners by telling them a spin version of who you are it will end up badly.

It’s the business equivalent of lying about your age. It’s wrong. But it seems to be common practice. This isn’t a problem that resides with investors – it emanates from the people running the start-ups egged on by advisers who should know better.

They lose their identity in pursuit of money.

Here’s an idea. Maybe we should fix it. Wouldn’t it be great to hardwire in a little bit of brand into the due diligence process before making any kind of partnering decision? In business or in politics? Could be helpful come 8th May……

Suffocating, solving the wrong problem


I was in Mumbai at the back end of last year. At least I thought I was. As I looked out of my isolated-from-reality-and-sound proofed hotel room I realised I couldn’t hear the city. And I couldn’t see it.

The smog was dense and wound its way to the back of my throat despite the many layers of hotel between me and it.

Where's Mumbai gone?

Where’s Mumbai gone?

“This is nothing, you should go to Delhi, that’s proper smog” someone said to me; the first time I’ve ever come across competitive pollution. But Mumbai was smoggy enough for me.

Out on the street it was easy to see why. Every form of overloaded motor vehicle – buses, lorries, precariously balanced scooters, cars – was arranged in a belching, largely static, avalanche of steel.

Fixing the environmental impact of moving around is an urgent, urgent task. We don’t have time to sit back and think about it, we have to get on with it now. The fall in oil price gives us the economic breathing space to invest in cleaner modes of transport. Now is the time to act.

But how?

The wrong question

Most mainstream car manufacturers are focused on bringing some form of cleaner propulsion to the market – batteries, fuel cells, hybrids – all different ways of powering vehicles. Some are making significant progress – notably Toyota. There are several rinky dinky start ups experimenting with new materials to make cars more sustainable or batteries more affordable.

But it’s not enough. And worse than that they’re probably concentrating on solving the wrong question. No matter how visionary (and there’s bags of vision) they’re all working on making cars better. And I’m not sure that’s right.

India’s pollution is deadly – the tiny particulates (PM2.5) that abound in the atmosphere penetrate the deepest parts of the lungs. In Delhi the levels are 15 times higher than WHO safe limits. It’s now reckoned that Delhi is 45% more polluted than Beijing. Yikes.

Tiny and deadly

Tiny and deadly

The solution to this problem is a much bigger issue than “making a better car”. It requires a much more collaborative and systemic approach looking at the entire transport infrastructure – most especially focusing on where the bulk of the journeys are made: commercial vehicles, trains, buses, taxis, bikes. And why they are made. And when. And how.

Any business serious about tackling environmental issues has to work across a much broader canvas than simply “cars” – it’s just not enough. We need to be looking at every kind of journey and rewiring how ‘movement’ works.

Which is why the most exciting innovations in this field come from left field. The genius of business models like Uber or Google’s driverless cars is that they utilise resources better. A car is only useful when it’s moving. 95% of the time privately owned vehicles are sitting around doing nothing. And if they are moving they generally have only one person in them. Which is a shocking waste of resources. Google’s trials show that if the cars are moving all the time, are utilised all the time, by synching their movement with journey needs using their fancy pants predictive technology, then the total car fleet only needs to be 15% of the size it is today.

Google's cutesy car - it knows where the parking spaces are

Google’s cutesy car – it knows where you want to go before you do

Now that’s a big difference.

Swapping the propulsion system of the existing vehicle fleet away from fossil fuel to something else is going to take a long, long time (so far only 0.2% of the world’s cars are battery electric) and – even if successful – will perpetuate the basic problem: privately held cars just aren’t an efficient use of the world’s precious resources.

It’s solving the wrong problem. And worse consuming a huge amount of creativity and energy in solving the wrong problem.

But marry say Uber and driverless technology and fuel cell propulsion and you’ve got a paradigm shift in the way people move. Apply it to commercial vehicles and you’ve got a big shift in how stuff moves around. We need to think beyond cars, beyond people, beyond personal transport and focus on movement, all movement.

If I’m David, you must be Goliath

For many years I have been convinced that for business to be truly effective in tackling big societal issues like environment, or inequality, it has to be properly, truly collaborative, and to loose itself from the old school doctrines of competition and market share.

But sadly – even as we face these enormous issues – most business, and most business people, are locked into competition mode even by default. Tackling an issue like pollution from transport requires a whole set of actors to come together and work together – and to do so with agility, far sightedness and generosity.

Unfortunately there’s precious little collaboration to be seen today – but plenty of “my solution’s better than yours”. Check out the pro-battery anti-fuel cell arguments that rage – stoked up by the likes of Tesla.

This kind of technology one upmanship now manifests itself most acutely in the new game of “giving away patents” or “publishing our designs so that everyone can copy us”. Superficially altruistic but actually hugely arrogant. What’s noticeable is that nobody cares. Nobody has rushed to copy Tesla’s technology – in fact many folks I have spoken to are, well, a bit sniffy about it. Last month even the mighty Toyota made 98% of its patents available (what on earth is the 2%?).

There is an intellectual competition here that is very unhealthy. And the truth is that nobody, not even Elon, has a monopoly on the “right answer”. But there seems to be a race to prove that “I’m right and you’re not” – where everyone in the race casts themselves as David versus Goliath.

And if you cast yourself as David, everyone else looks like Goliath.

Which is mighty unhelpful – because we need all the Davids, and all the Goliaths, to work together on this one.