Archive for September 2009

David Davison

Watching you, watching me

A non-executive directorship used to be the icing on the cake to many a long and distinguished political, financial or commercial career.

Leaving the white heat of competition behind them, these positions afforded leading figures the chance to put their experience and knowledge to use, earn a handsome fee for doing so and seemingly carried few personal liabilities or responsibilities – certainly none that were taken too seriously.

In the wake of numerous corporate mismanagement scandals that has all changed and the role of a non-executive director is not the hands-off, care free money maker it was once taken for. But what has all this got to do with pensions?

Well, Read more »

David Davison

Attended an excellent half day seminar run by Redington an innovative and dynamic new force in investment consulting who had assembled 100 of the UK’s leading pension scheme trustees to discuss the future of trustee communication.

The interactive format allowed trustees to give their opinions on key issues, consider the impact of social media on trustee communication and participate in shaping its future. There was also a presentation of Mallow Street a new social media site specifically dedicated to pension trustees, allowing them to easily share information and experience. This should hopefully be with us in a few months time.

As a convert to social media this looks like a really innovative development and it’ll be interesting to see how it evolves and drags the often notoriously conservative pension trustee in to the 21st century.

David Davison

Get me DCI Gene Hunt

An e-mail flew in to my in box this week which transported me instantly back to the 1980’s and those heady days of big hair, unfeasibly large shoulder pads and shiny suited insurance salesmen with mobile phones and bloated salaries.

The e-mail contained details of a tender for North Lanarkshire Council requesting bidders for the provision of independent financial advice for their employees. No problem so far, an enlightened local authority looking after the needs of its staff in a caring, sharing type way.

The time machine only started working as I read on and the document suggested, and I quote, that “the provision of independent financial advice is to be at no cost or liability to North Lanarkshire Council and there should be no charge to individual employees in respect of the advice service, although it is expected that the organisation will receive commission on product sales where employees chose to take up the options offered.”

Charge up the Quattro and get me another bottle of Perrier.

Alarm bells, or was it police sirens, went off in my head. Without wishing to be too hard on the Council’s well meaning intentions this whole proposal raises some pretty fundamental issues.

Firstly, that 20 years on, there seems an implicit suggestion that financial advisers continue to be remunerated with commissions that dramatically exceed the cost of the advice given and that anyone who wants it should be able to obtain financial advice for free! This is quite clearly no longer the case and with full commission disclosure, the compulsory option to pay by fees, and the imminent implementation of the FSA’s Retail Distribution Review it’s impossible to buck the system.

Secondly, the tender also asks that the adviser “run seminars and financial clinics at the request of North Lanarkshire Council, [and] provide free promotional literature in the form of leaflets, posters etc. for distribution to employees”.

The implication that the actual advice delivered will be of such low value relative to the “product sales” that there will be sufficient cross subsidy to allow costs for an all employee communications and seminar programme at the request of the council, raises other issues – such as just how much remuneration does the poor individual taking up the options offered need to generate to cover all of this and how competitive is what is being offered with what would be available in the open market?

Fundamentally a commission payment is an agreement between the client receiving the advice and the adviser providing it, not some short cut to employee benefits on the cheap, or a cross subsidy for an employer’s communication obligations. Commission, where paid, is of a much lower order than historically has been the case and tends to be spread over a much greater term of the contract with commission clawback a very real possibility where any agreed product is not maintained. It also has to be remembered that much of the best financial advice involves taking actions that do not result in any product sale.

Can the Council really justify this approach as being in the best interests of their staff?

This whole issue highlights some thorny issues about the difficulties of accessing quality advice in the modern workplace, but as a starting point a structured Financial Awareness and Education programme for employees, funded by the employer, would be much more 2009 and less 1989.

With the great strides made to professionalise the financial advice market and improve the quality of advice this really is, unlike ‘Ashes to Ashes’, a very unwelcome return to the 1980’s.

Neil Copeland

Paving the road to hell

Baldrick has clearly taken up employment with the NAPF. They have come up with a plan (see – Pension schemes to face ‘quality mark’ test) which is as cunning as a fox who’s just been appointed Professor of Cunning at Oxford University but has moved on and is now working for the U.N. at the High Commission of International Cunning Planning. As good old Balders himself might have said.

And the cunning plan is? A quality mark plus for pensions!!

So the message to is:-

  • Employer paying 10% – Good!
  • Employer paying 6% – Okay!
  • Employer paying less than 6% – not worth bothering with!

It’s a good job they’re bringing in auto enrolment for personal accounts!!

And the really cunning bit is that they are suggesting that schemes can self-certify their compliance. I think mortgage brokers had an equally cunning plan once.

The industry has to recognise that it has a problem with trust. As reported in the press, pension schemes have suffered problem after problem, whether DB or DC. Maxwell, Equitable Life, closing final salary schemes, plummeting DC asset values.  The article notes that 3.7m employees are in DC Schemes against 2.7m in DB Schemes. But this pales into insignificance against the number who are making no pension provision at all (See Daily Express – UK Facing Pension Crisis).

Sticking a tick box derived quality mark on a relatively small number of self congratulatory schemes is not the way to rebuild trust. We need to design solutions that encourage people to make some level of pension provision and that also encourage employers to help them. We also need to ensure the state system does not disincentivise modest provision. Any provision should be better than none.

We also need genuine simplification – can someone ensure that, next time round, HMRC has access to a proper dictionary?

In the current climate many employers are struggling. My concern is that the NAPF quality mark, however well intentioned, will result in both members and employers concluding that, if they can’t meet the 4% and 6% contribution levels required, then they might as well not bother. It does rather reinforce the view that the NAPF is dominated by larger employers and consultancies and is out of touch with the smaller and medium sized enterprises struggling to keep their heads above water.

The Government’s proposals for personal accounts are flawed but are at least a start and remove many of the barriers to entry that currently exist.

Finally, if the NAPF is going to have policy developed by a fictional comic character it’s a pity it opted for Baldrick rather than Homer Simpson. Homer’s policy might not have extended much beyond free access to donuts, beer and chilli, but at least the resultant damage would be easily contained.

Brian Spence

Had dinner in Glasgow yesterday evening with restructuring specialists Zolfo Cooper (formerly Kroll) who are now nearly a year after their management buy-out.

We had worked previously with their Glasgow partners Fraser Gray and Liz Mackay on covenant reviews but when we engaged them recently in an exercise to review an employer’s covenant and to examine circumstances around a pre-pack (where our associated company Dalriada Trustees is a trustee) we were directed to their specialist London based pensions team.  This team includes staff who previously worked for the Pensions Regulator and the knowledge of the team and in particular the partner responsible Gary Squires is impressive.

Brian Spence

Interesting article in the Scotsman by Erikka Askeland today that has quoted me a number of times.  Readers of our blog will be familiar with some of the concerns expressed.

You can read the article on the following link

The PPF is a great organisation and its introduction was a major achievement of the current government.  But for a minority of SMEs the levy will sink them if they dont find a more realistic way of spreading the load.

David Davison

We do lots of work with clients on managing their PPF levy looking to ensure they are aware of the issues and have taken steps to minimise the levy payable. Clearly a major component of the levy calculation is the Dun & Bradstreet failure score rating and we’re forever banging on about making sure that all the information held by D&B is up to date and accurate, otherwise it could be costing a business a lot of money unnecessarily.
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Brian Spence

Attended a very convivial cocktail party organised by the nice folks at McGrigors Pension Trustees Limited in Glasgow.

The only (semi) professional content of the evening was a fiendishly difficult pensions quiz. The sharpest legal and actuarial brains in Scotland set to work but who should win the bottle of Champagne (well actually a very modestly priced sparkling Italian wine more in keeping with these straitened times) other than our very own business development director David Davison who got 11 questions right out of 15!

Neil Copeland

Have I got no news for you

It only seems like days since we mused on the last round of “massive deficits improving and getting worse at the same time” set of headlines (that’s because it was!!), when along comes another one.

The article reports changes in the latest monthly instalment of the Pension Protection Fund’s (PPF) 7800 Index, a monthly tracker of the total assets and liabilities of schemes which are potentially eligible for PPF compensation. This is dutifully reported each month in the industry press along with bland comments about gilt equity ratios and risk.

Er, what’s the point? Monthly movements in the funding position of schemes that have a minimum 50 or 60 years plus to run are completely irrelevant to long term pension funding.

And I’m also struggling with the concept that the fact that 85% of final salary pension schemes in the UK have a deficit is news – 85% of final salary pension schemes having a surplus, now that would be something worth reporting.

Here at Spence & Partners we’ve been fighting pensions ignorance since our formation in 2000, and, I have to say, it’s taking longer than we thought.

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