An Idiot’s Guide to Post April 2015 Pensions

ComplicatedOh, pensions, pensions, why art thou so flippin complex?  Well, good news, all.  From April 2015 they won’t be.

Pensions are changing and here’s eleven simple things you need to know about them.

  1. A pension is a good way to save money for later in your life. FACT.
  2. When you pay money into a pension, your employer also pays some in AND you get tax relief from the Government, which is good.  So the minute you pay £1 into a pension it becomes more than a pound.  This is very good.
  3. If you are employed your employer will have to provide a pension for you to join (some smaller employers don’t have to but most do – the detail isn’t for this blog).  You can therefore join a pension by talking to your HR department or boss.  Easy?  Yes.
  4. If you are employed and you don’t want to join a pension.  You can opt out by telling your HR department or boss.  Easy? Again, yes.
  5. If you’re not employed you can do whatever you want.  Happy days.
  6. The money you pay into a pension is held in an investment until you need or want it.  You can choose what this investment is, or f you prefer, your pension company can choose where your money is put.  When this investment grows it is not taxed, as pensions attract tax relief.  Again, great news and pretty straight forward.
  7. You will need to pay a fee to the pensions company.  This is normal as they are providing a service, like a bank.  You should find out how much this fee is before you start your pension.  If you think it is too much then then you can shop around for a better rate or mention your concerns to your employer if it is a company scheme.  It’s just like buying milk.  You need to know how much it costs and then decide whether to buy it from the first place you find some or shop around.
  8. When you reach age 55 (or age 57 if we fast forward to 2028, which means if you’re around age 43 or below now you’ll probably need to wait until you’re 57) you can start to withdraw money from the pension pot.  Simple? Yes.
  9. When you reach age 55 (or 57, see point 8), you can cash in as much or as little of your pension as you want.  A quarter of what you take out will be tax free – which is fantastic!  You will need to pay tax on the rest at your marginal tax rate at the time you take the money. So just like normal salary.
  10. You could, if you wanted to, swap your entire pension fund for a regular income until your death.  This is basically insurance against you spending all of your pension before you die – most people don’t know when they will die – and is called an annuity.  Heard of those?  They come in lots of different flavours, like ice cream, so if you’re interested in one of those you’d better shop around and learn a bit about them (again, not for this blog).
  11. When you do die – and we all do die – any money left over in your pension passes to your dependent.  Unless, you have bought one of those annuity things, in which case what happens will depend on what flavour ice cream you bought so you’d better understand it when you choose which one you want!

And that’s it really.

So, next time you think about putting some money away for a rainy day.  Think about when that rainy day may be and, if it’s likely to be after you’re 55 years old (or 57 if you’re 43 or younger) why not think about saving into a pension as that way you can take advantage of all that yummy tax relief and help from your employer.  Happy saving.

This blog is for general guidance only and does not constitute independent financial advice!

Long live the King!

photo

Exciting news, we’re going to have another King George, the 7th in fact.  I have to admit I was slightly disappointed that they didn’t call him Arthur, Arthur Lancelot to be precise, but then King George is a good solid “King” name so on balance I’m happy and naming our King after Graham Chapman was always going to be a long shot if I’m honest.

As expected the press has gone into a heightened frenzy of activity, commenting and speculating over what little Prince George’s life will have in store for him. Most of what I have read involves lovely, super stuff including not having to worry about money, a house (or two) over one’s head, or being able to pay off his student loan or save for a pension, not that he would even need it.  Sounds like he has the advantage on a lot of things, or does he?

Well not when it comes to one’s retirement age it appears.

According to the DWP State Pension Age Calculator (which is very good – and worth a try to work out your own state pension age if you haven’t already https://www.gov.uk/calculate-state-pension) Prince George of Cambridge’s state pension age is expected, under current legislation, to be on 22 July 2081, his 68th birthday.

The issue however is that, like many of us, he won’t be retiring then, or even ever.  According to my actuarial calculations (details below including my HUGE actuarial caveat for those who are interested*), he probably won’t even START WORK as King until he’s at least 64, and there will be absolutely no retirement at 68 or even 78 for King George VII.  The reality is that he will probably have at least another 30 years ahead of him at 68 in quite a demanding main role and will almost certainly have to work for most of his life.  So with this he is like a lot of us.  We’re all equal, and by having to work hard in return for his lifestyle, however different it may be to ours, he can expect no more than any other baby born this week, no matter how privileged.

*Here’s the maths and I have to be very, very careful what I say here.  Other life expectancy calculations for Royals are available (see here for a particularly interesting take on matters  http://www.theatlanticwire.com/global/2013/07/date-when-according-math-royal-baby-will-be-king-or-queen/67447/ ) and I can absolutely guarantee that none of the assumptions below are likely to be borne out in practise. Anyway, here goes…

1. The average 31 year old (William) can be expected to live to around 83 – based on a normal actuarial mortality table for an average person.

2. Now, I don’t know much about William but I can see that he is:

a. not very average 

b. from a family that appear to have a strong genetic tendency to live longer than average (Queen Mum, Queen etc)

c. is living in what I would describe as a “nice area” – one of the proxies actuaries use to assess longevity; and

 d. looks like a pretty active and healthy chap who knows a bit about what is good for him, and appears to exercise some moderation with regards to the stuff that’s not so good (beer, fags, trips to Las Vegas etc etc). 

3. So given all of the above I would expect him to live longer than average and so have given him a very (un)scientific weighting of around +12 years which gives an estimated life expectancy of 95 years. 

4. Based on the above, and that William is currently aged 31, George VII could be expected to ascend to the throne in around 64 years time.

 

Important actuarial comment:  I actually consider this to be quite prudent and it is very likely that William will live much longer than this but it’s a reasonable starting point for the purpose of this article (primarily about Prince George’s state pension age, and I do genuinely wish William a much longer life expectancy than 95 and hope that it is he who sends me a telegram in 2076 to wish me Happy Birthday, not his son (gosh it’s tough being an actuary but someone has to do it).

Great ad, but why is it beige????

Karren

Great ad, but why beige?

The thing is with pension adverts is that they’re a bit like buses.  We have none for ages and then two come along at once.  Two lovely adverts from the DWP setting out why we should save for retirement, featuring business figureheads including the amazing Karren Brady and adorning our buses and tube network.

Having seen pictures of these ingenious feats of marketing on the internet I was genuinely excited to see one for real and set out today on a mission to spy my first “real” one and get a little picture next to it for my website (pensions is my job remember before you comment).

So off I went, in search of this glorious item of PR which promised to change our future for ever.  This glorious, lush image which would capture us all and encourage us to put our hard earned cash into a pension.  Just like the CK One advert, but even better.

At Victoria tube station I saw it.  “You pay in, your boss pays in” screamed out to me as I got off the tube.  Except that it didn’t scream at me.  I almost missed it.  I only actually noticed it at all because the carriage I was in opened directly opposite it and I knew what it was.  I would bet my next month’s pinot grig budget that everyone else getting off the tube with me totally missed it.

The problem, you see, is that it’s beige.  It may even be brown.   And it’s not that sexy.  Which is an issue.

As a nation we have had a bit of an issue with pensions and I’m sorry, DWP, but I don’t think your very well intentioned advert is helping.  You see pensions involves giving things up now, to gain later.  It’s a bit like going on a diet, drinking less and exercising more to make things better later.

When you sacrifice something now for later it can feel a bit beige (believe me, I know) but the focus should be on results.  It should be on the wins, the benefits, the fun and the colour.  In pension terms this is about having a great time later in life, going on holiday, taking the grandkids out for the day and, even, keeping the heating on.

So saving for a pension is not beige. It’s sunny, yellow, blue and golden like the other pictures I saw at Victoria station, like of Puglia in Italy.  Having a pension is glamorous and having a pension is sexy.

So, DWP, next time can we have some proper glamour please.  We like Karren alot, but NO BEIGE.

 

It’s for Charity

We’ve been doing an awful lot of work for charity at Mazars recently.   Not fund raising, I should add, but proper “value add” advice for lots of charities who participate in The Pensions Trust Growth Plan and need a bit of guidance and support in finding their way around their new deficit contribution requirements and change to Series 4.  Working with charities is probably some of the most rewarding work I have done in pensions and I am fortunate that, due to Mazars deep seated history and connection with the third sector our team has many opportunities to work on these projects.

Our next charity roundtable is 11th April and I’m very much looking forward to sharing thoughts about pensions with our guests over lunch.  I am also delighted that James Webster from The Pensions Trust will be joining us to field questions and join the debate.   If you are a charity, based in London, and would like to meet with other organisations with pension issues then please do drop me an email and we will sign you up Margaret.devalois@mazars.co.uk

Staying on the subject of charity, I had a great surprise on Thursday afternoon when the cab that stopped for me was driven by the fabulous star of BBC2’s “Toughest place to be a Taxi Driver” Mason McQueen.  If anyone didn’t see the programme, Mason went out to India for 2 weeks last September to experience what life driving a cab, and living a cabbies life, in Mumbai was like i.e. hot and noisy!

Since his trip he has been raising money for his friends out in India to buy “cool cabs” and has vowed never to complain about the London weather and traffic again.  As well as having one hell of a name, Mason is probably one of the happiest cabbies I’ve ever met.  So, if anyone else has the luck of getting in his cab please remember to tip for his “boyz” back in India.

Apart from that it’s been a fairly busy but quiet week:  No major pension news, students quietly getting on with their study and the rest of us busy holding the fort and getting the work done. Happy days J

Taxi Drivers, Tax and the Thin White Duke

5 April 2013, It’s been quite a week.  At 8.45am on Monday morning I arrived at White City for the second BBC women’s’ expert training day.  No pressure, just a full day training culminating in a pitch to some very senior programme commissioners and a crash course in interviewing, Question Time style.

On Tuesday we ran our monthly Mazars “Lunch and Learn” for internal audit staff, where we gave an update on the changes to FRS102 and IAS19, as well as sharing cakes for Comic Relief.  The guardian ran a nice piece on the BBC day, where I am quoted here http://www.guardian.co.uk/media/2013/mar/18/bbc-expert-women-days-salford-glasgow-cardiff

On Tuesday evening I was treated to a trip to the Churchill Theatre in Bromley to see “Driving Miss Daisy”.  A lovely little play which was delivered well and pleasantly enough for me after a busy day.

Wednesday brought the budget and an early morning trip to the wilds of Essex to meet a team who have just done an MBO and inherited with it a large final salary pension scheme deficit.   Problem solved (well at least we now have a plan) I headed back to HQ for a meeting with the Mazars UK advisory board before a quick listen to the budget and an afternoon and evening of actuarial technical work (yes, it does happen!).

Regarding the budget, happily the chancellor let us pension people off, with no major changes to the UK pension framework and the scrapping of smoothed pension valuations, which would have given actuaries a lot of work for not much gain for our clients.

On Thursday I hosted a panel session for the PMI’s Spring Conference at Dexter House, London.  Our panel, made up of expert lawyer Alison Winstanley from Wragge, fellow actuary Richard Crowhurst from Hymans Robertson and tax specialist Chris Coulston from Deloitte, presented an alternative way of funding final salary scheme “black holes”.  This is by using security over an asset, such as property, rather than stumping up cash for the pension scheme trustees.   Star of the show though was undoubtedly Peter Nicholas from Anthony Hodges Consulting who gave us some stern warnings from the Australian compulsory pension regime, namely get de-accumulation right and engage the public in pension education as soon as possible.

Friday brought rain and an early morning trip to Somerset to see a team of two with 4 separate auto-enrolment dates to meet in the next 12 months.  More interesting though was the taxi driver who took me from Castle Cary train station and back.  I quote “I don’t know why my old employer keeps sending me paperwork because I stopped paying into their pension years ago.  I just put it in the bin”.  On our 30 minute journey I established that he had worked for a company with a large final salary scheme for 12 years.  They had been sending him a benefit statement and he had been binning it.  He thought he had no benefits as had stopped paying in.  On leaving I asked him to promise me he would read the next statement he got.  He did.  And for me this was my biggest achievement this week.

Back to London and an early evening visit to the Thin White Duke at the V&A museum.  We queued for over an hour as members, but it was worth it.  From Bromley to Berlin via being lost in space and culminating in a huge montage of live concerts two stories high, all in sennheiser quality headphones.  At 66 David Bowie is the ultimate “pensioner”, still working and no sign of stopping.  A great inspiration.

The search for the balanced trustee body

I have spent a lot of time recently considering the question of what is a balanced trustee body.

As an actuary at Mazars I am privileged to work with individuals across a number of disciplines, including those of behavioural science, accountancy, tax, insolvency and the making of great coffee (do not underestimate the skill of my colleagues in the latter group.)

When I joined Mazars in September 2011 I made a point of talking to as many people as I could, with a view to sharing skills and establishing whether we could develop products that would be bigger than the sum of our two parts. I found two goldmines, one of which was Board Polarities.

The principle of Board Polarities is simple. When a number of individuals come together as a group to make decisions and then implement those decisions, they are often asked to exhibit conflicting behaviours, or strategies. The theory of polarities says that a “balanced group” will make “balanced” decisions within these pressures and so exhibit good governance as a group.

This struck chords with me, given the Pension Regulator’s focus on governance, and my own belief that good governance is the route to good outcomes. The Mazars model identifies five conflicting behaviours or strategies. A score is given to each five of the conflicting behaviours, with the ideal position being neutral on all five – the “perfect” balanced board.

My team’s challenge was to map these behaviours on to scheme trustees. Interestingly, the fit was pretty instant. The assessment, made up of around 80 questions that trustees answer individually also translated well onto the pension scheme model.

So how does it work? All trustees answer around 80 questions, answers being on a scale of 1 to 5. This takes about 30 minutes per trustee. The results are collated and presented for the trustee group as a whole. The range of answers is also provided which gives an interesting insight into a trustee board’s coherence in view. The interesting point about the exercise is that it draws out issues in governance, which lead on to discussions about risk appetite, strategy, behaviours and the practical ability to achieve the funding strategy that the scheme actuary has set. All pretty fundamental stuff.

Interestingly for me, I am yet to meet the perfectly “balanced trustee” and am not sure, really whether they exist.

So the question remains: Does the “balanced trustee” exist? And would a trustee body work any better if they achieved that elusive score. I’m interested to hear from Trustees who would like to trial the model for free.

Please let me know.

Taking your team on tour

Checking my email and diary this week I noticed an invitation to sing with yet another high profile “cross over” classical singer. If anyone knows me they will know that I have a background in classical music and, having spent a couple of years performing on a full time basis and running my own classical music “cross over” group, I now occasionally get asked to “gig” on these events. Having joined Mazars I’m now slowing down and just doing the “big ones” and running a global pensions business 😉 Yes, laugh, I did too…..but it’s a nice place to be.

So, why mention this? Why is it relevant to pensions? And why would anyone else want to listen to my musings of the music industry….? Well, the thing that I didn’t realise back in 2004 when I was sitting in a studio in Brick Lane, trying to get Mike Batt to promote my recent album, was just how much of the work I was doing then was parallel to how we pitch for business and market our services now in pensions. They say that the music business leads the rest of the field and, having been there, there is something in that.

So what are my thoughts? What did I learn in the “toughest industry in the business” and is Simon Cowell really worth his salt?

So firstly, let’s compare the products. Music…Easily accessible, very disposable and very dependent on how the person generating the product looks. Pensions….Not very accessible, totally not disposable and, actually if you can do the job, nobody gives a monkeys how glamorous you are.

So what are the parallels? The fact is, the sales process is the same.

  • You need an album, i.e. USP. Get in the studio and record your pitch. You need to know what your pitch is and also why are you that better than everyone else. Then you need to tweak how it sounds? 
  • Once you have an album, get in rehearsal. You need to be able to give that concert in front of any prospect that may come your way. You need to rehearse it, know which band members will play each part and deliver, unconditionally, whenever you need to. 
  • The pensions industry is like music in that there are about 10 well tested and successful chord progressions that everyone trades on and makes a fortune out of. It’s a standard product but it’s the production around your chord progressions that matters, and the marketing. People buy people, and like in music industry, if a client clicks with you and loves you they will buy.

Why Steve Jobs changed the UK Pensions Industry forever

Today we lost one of the pioneers of the 20th and 21st centuries. The achievements of Steve Jobs have been widely celebrated today across all industries, with obviously some specific focus from his own sector, IT. But what did this leader of business do for the pensions industry? If we look, there are a number of things we owe to this giant of innovation.

  • The increased use of online administration platforms for all types of pension schemes. The introduction of the PC into the home enabled schemes to interact with pension scheme members in a new way. It is now the norm for members to log in to a personal home page showing details of their pension benefits. This would not have been possible without the early work Steve Jobs and his peers did on putting PCs in our home. 
  • The engagement of the Baby Boomers with technology (not to be underplayed, this one!) The item on my retired trustee clients’ Christmas wish list last year was the iPad. Its size and ease of use gave a previously unreached group of people the same opportunities to interact and obtain information via the internet as the younger generations. As an industry dealing daily with these individuals Steve Jobs changed the way our industry works, and certainly made my life much easier as a pension professional. 
  • Obtaining market information, news and data feeds instantly and conveniently. I receive all the news I need (including legal updates and investment market data) on a timely manner from a gadget smaller than an A5 piece of paper. Enough said. 
  • Finally, social media. The ease at which we now interact and share knowledge, and opinion, as a profession and industry, can almost solely be credited to one man and his visions.

So, tomorrow, as you go about your daily tasks in pensions, spare a thought for the guy who helped make so much of what you do possible.