In our latest compliance and enforcement report, we have once again demonstrated how we are using our powers to safeguard pension savers.


The bulletin for January to March 2018 shows how we are ensuring employers meet their automatic enrolment pension duties. This quarter’s enforcement action represented over 20% of the AE powers we’ve ever used, including nearly 20,000 Compliance Notices (CNs), over 11,000 £400 Fixed Penalty Notices (FPNs), and over 2,500 Escalating Penalty Notices (EPNs) for those who persistently failed to meet their duties.

This high number was due to a bulge of employer staging dates in autumn 2017, with their declaration of compliance due date falling five months later.

We also successfully prosecuted a company and its managing director for falsely claiming they had put their staff into a pension. Employers who deliberately put incorrect information on their declaration of compliance risk being found out in a number of ways, including from spot checks or whistleblowers.

Huge numbers of employers are starting their workplace pensions duties every month and the vast majority are successfully meeting their duties.

However, where an employer fails to do the right thing for their staff, we will take action using the wide range of powers available to us.

The bulletin highlights:

+ A total of 35,862 enforcement powers were used between January and March 2018 compared to 28,446 the previous quarter
+ 3,721 more fixed penalty notices were issued this quarter compared to last quarter
+ 2,037 more compliance notices were issued this quarter compared to last quarter
+ 431 more unpaid contribution notices were issued this quarter compared to last quarter

What steps can your clients take to ensure compliance with automatic enrolment?

They will need to ensure that they pay and maintain regular contributions into their chosen pension, monitor the age and earnings of their staff and enrol eligible staff, process any requests to join or leave the scheme, and keep and maintain accurate records. They’ll also need to re-enrol eligible staff into an automatic enrolment pension scheme every three years. Let’s take these in turn:

1. Pay and maintain regular contributions into the pension

Employers need to calculate and pay the employer contributions to their staff’s pension scheme on an ongoing basis. In addition, they’ll need to calculate staff contributions, make the necessary deductions from payroll, and transfer their contributions to the pension scheme. They’ll have agreed what these rates are and when to pay them with their chosen pension scheme. By law, your client and their staff have to make minimum contributions into the scheme, and they should be aware that these minimum contribution levels increased in April 2018, and are due to increase again in April 2019 (see below).

2. Monitor the age and earnings of all staff

Employers will need to monitor any changes in age and earnings of their staff to identify if they become eligible for automatic enrolment. They’ll also need to check eligibility of any new members of staff on the day they start work. Should staff members become eligible, for example by turning 22, or by meeting the earnings thresholds, then they’ll need to be put into a pension scheme and contributions paid to it. Payroll software should be able to support clients with this.

3. Process requests to opt in, join or leave the scheme, and keep and maintain accurate records

Opt in/join: If any staff write to their employer asking to join their workplace pension scheme, they must be put into it within a month of the request being received. Employers will have to pay into the pension scheme unless they are aged 16-74 and earn less than £490 a month or £113 per week.

Opt out: If any staff choose to leave the pension scheme within one month of being put into it, employers need to stop taking money out of their pay and arrange a full refund of what has been paid to date. This must happen within one month of their request.

Keeping records: Staff records need to be kept up-to-date, including who’s been enrolled and when, information about the pension scheme, and the contributions being paid. These records must be kept for six years, except for requests to leave the pension scheme which must be kept for four years.

4. Re-enrolment

Every three years, all staff who either opted out of their workplace pension scheme or have ceased to become members, need to be reassessed and re-enrolled if they meet certain criteria. Employers will need to write to them to tell them what they’ve done, and then they’ll need to re-declare their compliance to The Pensions Regulator. Further information on ongoing duties can be found on The Pensions Regulator’s website.

Useful links:
Business advisers: www.tpr.gov.uk/knowing-your-clients-ongoing-duties
Employers: www.tpr.gov.uk/ongoing-duties


By Darren Ryder – The Pensions Regulator


During a period of record low interest rates, the objective of achieving a 100% funding status seemed, at best, elusive, with the days of recording a pension scheme surplus appearing to have been firmly relegated to the pages of history for many pension schemes.


Unsurprisingly, the main focus for trustees historically has been achieving their scheme’s primary funding objective i.e. to reach 100% funding on a technical provisions basis. This implies an investment strategy that delivers a reasonable degree of investment outperformance during, and indeed after, the recovery period and is used to set sponsor contributions. This isn’t a surprise given the large deficits that many pension schemes have been plagued by.

However, we’ve witnessed a shift recently. Whilst the primary objective is still used to set contributions, investment strategy is increasingly set by a secondary objective; typically to become fully funded on a self-sufficiency basis. In our experience, the target of self-sufficiency varies according to scheme circumstances; the common theme is that any scheme that becomes 100% funded in this way should be in a position to substantively reduce risk within their investment portfolio, so that the impact of underperformance has a minimal effect on the sponsor.

This more challenging secondary objective might appear counter intuitive. However, strong performance from risk assets over the past several years, coupled with recent rate rises, has meant that many pension schemes now find themselves in a reasonably well funded position. Trustees and advisors have rightly been asking the questions “where next?” and “how do I protect these gains?” Following 2007 and all the difficulties that ensued, trustees know only too well the consequences of not correctly balancing risk and return within investment strategies, and the dangers of taking their eye off the longer term prize (whether this is self-sufficiency, buyout, buy-in etc).

There are obvious advantages to getting to this position, primarily:

Reduced risk and an increased likelihood of meeting benefit payments as and when they fall due:

Fully funded status based on self-sufficiency assumes only a marginal degree of future outperformance from investment strategy, allowing greater investment in liability matching assets. These assets can be tailored to meet benefit payments, reducing the likelihood of underperformance and a worsening of the funding level.

Benefits for the scheme sponsor:

The reduced risk of material investment underperformance means that any impact of unexpected deficit recovery contributions is unlikely to be substantive; this frees the sponsor to build its business, providing reassurance for all interested parties in the future.

With this in mind, it makes sense that schemes thinking about the end game (whether it is buy-out, buy-in etc.), consider selfsufficiency as a staging post. Indeed, where the cost of buy-out is truly prohibitive, achieving self-sufficiency may be a sensible solution itself to the pension risk problem.

Of course, in order to savour the long-term benefits of self-sufficiency a number of short-term challenges must be met.

The following issues will all need to be considered:

Recovery plan periods:

Pension schemes will need to give careful consideration to the recovery period assumed for achieving self-sufficiency. Too short a period may result in excessive investment risk being adopted initially. Too long a period may result in higher returns being sought when visibility of risk is poor; don’t forget it is easier to predict 2019 than 2029! A balance clearly needs to be struck.

Dynamic de-risking strategies:

The concept of a trigger-based dynamic de-risking strategy remains appropriate. However, an alternative to turning up the investment risk dial at outset is to turn it down at a slower pace over time. This strategy may be particularly appropriate for those pension schemes with clear, longer-term visibility of the sponsor covenant.

Additional sponsor contributions:

Whilst sponsors might baulk at the cost of buy-out or buy-in, they are often willing to pay some extra contributions for the reassurance that self-sufficiency provides. Sponsors seem surprisingly open to this discussion, especially when a spirit of collaboration is clearly evident. At the end of the day, the sponsor is likely to remain a pension scheme’s best friend.

Liability profile and cashflow issues:

For small and mature schemes, or those which experience a deluge of transfer requests, cash flow can be unpredictable. This suggests caution in scheduling investment risk, and requires adequate planning for unexpected or large scale events.

In conclusion, self-sufficiency might represent either an attractive staging post on the path to buy-out or even a sensible end game in itself; but simply deciding to go for it is not a magic bullet. Pension schemes will need a clear plan for managing the introduction of a secondary funding objective to ensure it does not unduly compromise the primary funding objective. The issues detailed above make it apparent that the key to success lies in: (i) understanding the interaction between the primary and secondary funding goals, and the trade-off between covenant and investment risk; (ii) understanding the tension between cost control and risk aversion; (iii) establishing a clear governance framework around what should be done, when and how; and (iii) remaining dynamic and capitalising on opportunities as and when they may arise. However, for all of the potential issues that introducing self-sufficiency as a secondary objective involves, the option to achieve a fully funded position that is reliant on a low risk investment strategy is attractive for sponsors and trustees alike.


By Scott Edmunds – Quantum Advisory


I recently moved house and for my morning commute to the train station, I continued to use the route I was familiar with. It was not until recently that someone told me about an alternative route to the station. Yes, it was a B road and slightly more complex to navigate but it was a much more pleasant drive, involved less traffic and, more importantly, was a quicker commute to the station. There was nothing wrong with my original route but my comfort and familiarity with it meant that I had not considered an alternative… until it was pointed out to me.


What does that have to do with pension scheme investments, you may ask? Well, most pension schemes have identified their longterm objective, whether that is buyout or self-sufficiency, and a direction of travel to reach that objective.

However, many schemes’ investment strategies continue to focus on the use of traditional asset classes, or those which are familiar, in order to achieve those objectives. Whilst the performance from traditional assets has been strong over the past few years, the outlook is less compelling.

In our opinion, there are currently attractive alternative investment opportunities which pension schemes should be considering as part of their overall strategy. These opportunities can improve the likelihood of schemes meeting their long-term objective, diversify their portfolio, and reduce their reliance on traditional assets.

Two strategies we think are appealing from a strategic perspective are infrastructure equity and private credit.

Infrastructure refers to largescale systems; services and facilities that are necessary for economic activity. The assets are associated with the provision of public goods and essential services. They tend to have monopolistic characteristics and high barriers to entry, which should mean their performance is less impacted by economic conditions (although there is no guarantee of this). Examples include airports, renewables, telecommunication networks and utilities.

For pension schemes, infrastructure equity has a number of characteristics which we believe makes a compelling case for its inclusion within portfolios. Whilst past performance is not a guide to the future, these characteristics included steady cash flow generation, low correlation to other traditional asset classes, and an attractive risk-return profile. We believe that the return expectation for infrastructure is around 7% per annum over 10 years which, we feel, is favourable on a risk-adjusted basis compared to a range of fixed income, equity and other alternative strategies. Private credit is another area that offers a unique and compelling investment opportunity to pension schemes due to its attractive risk-return characteristics and the income it provides.

This opportunity has arisen following the new bank regulations implemented in response to the last global financial crisis.

Many companies relied on banks for borrowing but, as banks have reduced lending, institutional investors like pension schemes have the opportunity to capture enhanced returns by providing finance in private markets.

There is a wide range of strategies within this area, from loans which are secured, backed by, say, an underlying property, or that rank high in the company’s capital structure and therefore benefit from better recovery rates than traditional bond investments, to higher risk strategies which target a higher level of return. Funds specialising in this asset class tend to target net-of-fee returns ranging from 3% for lower risk senior loans, to the low teens for higher-yielding loan strategies.

We believe the attractiveness of private credit strategies relative to other traditional assets include high potential returns, income generation to meet cash flows and, increased diversification.

Infrastructure and private credit strategies are not without their risks, and schemes should be aware of these before investing.

For example, both of these strategies are less liquid than traditional public market assets. In addition, manager selection is essential.

Pension schemes have been on an interesting journey over the past decade. Whilst they continue to navigate the numerous challenges ahead in order to reach their destination, we would encourage schemes to consider the alternative approaches available which may help reach that destination sooner. There are many roads one can take but, as the poet Robert Frost said, ‘Two roads diverged in a wood and I – I took the one less travelled by, and that has made all the difference’.


By Jeffrey Mulluck – Aon


A generation ago, pensions communication was a relatively simple business. Until 1988, employers could make membership of their occupational scheme a condition of employment, so there was little need to promote the benefits of membership. The scheme itself was likely to be a final salary arrangement. Members had no need to consider investment strategies, decumulation options or retirement dates. The point of retirement would be rigidly defined and would reflect the (then legal) mandatory retirement age. 


All major decisions would be determined by the scheme’s rules, and the nature of a Defined Benefit (DB) pension promise left many members to assume that all they needed do was wait for their retirement age for a pension to be provided. Perhaps the only major choice would be whether to exercise a commutation option. 

However, a supposedly simpler age still generated problems as a consequence of inadequate communication. Until 1977, married women had the option of paying National Insurance contributions at a reduced rate on the understanding that they would not accrue the State pension in their own right but would be able to claim a State pension based on 60% of their husband’s contribution history once both had reached State Pension Age. The full implications of exercising this option were not adequately understood, and in recent years a generation of women have reached retirement age with inadequate pension provision without being aware of the consequences of a decision made decades previously. Better communication would have avoided this.

Today’s workplace pension schemes are heavily dependent on effective communications as members need to be able to make informed decisions throughout their period of membership.

Although automatic enrolment now sees employees joining schemes by default, membership has, for the last thirty years, been voluntary, and new members must be provided with information which will allow them to decide if membership is in their best interests. Within the private sector the scheme will almost certainly be a Defined Contribution (DC) arrangement. Although the significant majority of members will remain invested in the scheme’s default fund throughout their membership, some will wish to consider alternatives, and these too must be adequately described in order to permit an informed choice. Finally, from their mid-fifties, members will consider decumulation options, and today decumulation need not necessarily be at the point of retirement. This is surely the most important aspect of modern pensions communications.

Members need to understand the different options available to them.

They need to understand the consequences of decumulation, such as the effect of the Money Purchase Annual Allowance, and they need to be aware of the risks posed by pensions scams.

The Government understood all too well that the groundbreaking reforms of Freedom and Choice required a major communications initiative to ensure that they could operate in a satisfactory manner. The launch of Pension Wise, and its forthcoming incorporation into a single financial guidance body, shows that effective pensions communication is vital if members are to achieve satisfactory retirement outcomes.

In an era where employees are likely to accrue retirement benefits with a range of different employers, keeping track of past pensions is increasingly difficult. The pensions dashboard is a bold solution that will use modern technology to allow members to trace a lifetime’s pension accrual and to make informed decisions about how best to use what they have saved.

Workplace pension provision has never been more complex than it is today.

Effective communication is vital if the current system is to serve members in an effective manner. Finding effective solutions presents a major challenge for today’s pensions professionals. It is a challenge which is addressed at some length in this month’s Pensions Aspects, and we hope you enjoy the ideas that we present here.


By Tim Middleton – PMI Technical Consultant


Thirty years ago, providing information to members about their accrued rights was a simple matter. In an era where Defined Benefit (DB) coverage was the norm, schemes were required to provide details only under specific circumstances, such as leaving service, the submission of a transfer request or imminent retirement. Then – as now – there was no statutory requirement for DB members to be provided with an annual benefit statement.


This was not perceived as a problem, as there was no incentive for schemes to try and improve levels of member engagement. Providing the benefit promise was the responsibility of the trustees alone and required no active role on the part of the member. Apart from anything else, until 1988, employers could make membership of the occupational scheme a condition of employment, and so members were required to accrue a benefit even (for whatever reason) they might not have wished to do so.

Another constraint on promoting member engagement was technological. In an era before the internet, providing information for members inevitably meant sending out paper documents. The costs arising from drafting, printing and posting documents made this process laborious and expensive. With little obvious benefit to the scheme in conducting such an exercise, it was obvious that many did not bother.

Today’s environment could not be more difficult. Today’s member is likely to belong to a Defined Contribution (DC) arrangement. He or she may have joined as a consequence of auto enrolment; active consent to join may not have been given, but the right to withdraw applies at any time. Crucially with a DC scheme, effective member engagement is absolutely necessary if members are to appreciate the true value of their benefit and ultimately achieve the goal of a satisfactory retirement outcome.

The onus lies with trustees and manager to ensure that members properly appreciate the value of scheme membership. Whilst the statutory requirements to provide an annual Benefit Statement and Statutory Money Purchase Illustration have been in place for many years, a communications revolution has arisen via the internet.

Online access to pension scheme information allows members to check – in real time – current fund values. They can make fund switches, review scheme rules and consider transfer and decumulation options. It may be possible to model the impact of changes to contribution rates or of bringing forward or deferring decumulation. Online information is extremely empowering for members and plays a vital role in promoting member satisfaction. For DC schemes, this is a crucially important consideration.

It is therefore surprising to learn that according to recent research as many as a third of employers sponsoring DC schemes have not provided online access to members. PwC established that younger members in particular consider the option to manage pension savings online is particularly important. Failing to provide access to a form of communication which younger people consider the norm is a serious obstacle to effective member engagement.

Auto enrolment has been one of the great success stories in the pensions industry in recent years.

Whilst PwC’s research suggests that employers are prepared to make the necessary financial commitment required to improve employee engagement with pension saving, there is for many a lack of clarity as to how this might best be achieved. Many lack an understanding of the associated technology and the benefits it can bring.

Bringing so many new employees into pension saving, when competition for scant employee financial resources has been so intense, has been a significant success. It would be a terrible failure if this success were to be compromised by a myopic approach to the importance of successful member engagement. Auto enrolment has been one of the great success stories in the pensions industry in recent years.

As is always the case with pensions, a vision for the longer term rather than a short-term fix is absolutely necessary.


By Tim Middleton – PMI Technical Consultant


Technology is the key to our financial futures, whether we offer savings products or services to pensions, or are one of the 14 million pensions savers in the UK. We can all benefit from technology, even if we don’t know it yet. But before we can get there, we have two knotty problems to solve. The first is to make it easier for people to save for retirement; the second is to make it possible for providers to operate in the market efficiently and effectively.


We have considerable financial vulnerability in the UK. 60% of adults have savings of less than £5,000. 30% have no private pension and will rely on the State for income when they retire. In today’s terms, that means living on c£8,000 a year, roughly half of what it takes to have a moderate lifestyle. In addition, £400 million pots have ‘lost’ their rightful owners, and around £1 billion might have been scammed from scheme members.

People do not trust the pensions industry and unfortunately, we don’t always do our utmost to change that perception.

It’s not obvious, but pension providers are financially vulnerable too. Inefficiency and high operating costs, coupled with a lack of perceived incentive to invest in the industry leads to an unintentional loss of value for everyone. There are estimates that the UK pensions industry is up to 30% more expensive (or less efficient), than elsewhere in Europe. This will be a major concern post Brexit, as it will affect competitiveness. Many administrators still rely on paper files and manual processing for a few really complex individual cases and sometimes for whole schemes. I am always disappointed when I hear administrators say that it is not cost effective to automate some calculations and processes, and decide instead to wait until a calculation is needed and do it manually. In turn they risk getting it wrong or taking a long time.

Poor quality of data and a dependence on legacy systems cost a fortune to maintain and consumes resources that could be used to optimise the way we do things. We also face an increasing squeeze on margins through charge caps and price competition. Sometimes we respond to that by subtly reducing the services, thereby perpetuating a cycle of low expectations, low trust, low savings, and increasing inefficiency.

We must do things differently and technology will help us get there, but how?

Some providers have already adopted robotics and biometrics for certain processes. Robotics is using a machine to do exactly the same thing as a human, but faster and more consistently. Robotics can help join the dots between clunky legacy systems, giving them a new lease of life, and avoiding significant replacement costs for now. Meanwhile, biometrics can help with member identification and can reduce member hassle with benefit claims. In other industries, artificial intelligence is already replacing roles that demand routine logical decisions, and in financial services machine learning is already helping people with pension decisions and savings nudges. Open banking has laid the groundwork for sharing data and switching providers. A similar concept of ‘open pensions’ could revolutionise the way we transfer and aggregate pension funds at the bulk or individual level.

The pensions dashboard is the biggest opportunity we have to kick-start pensions technology, through add-on apps and platforms, chosen by individuals or schemes, that will allow people to model and explore options and ultimately carry out transactions. Technology will help integrate pensions with mainstream saving and expenditure, and will bring pensions into the sunlight. Financial wellbeing isn’t just about the state of your bank account but must also include pension saving. People need to be able to see their whole financial world at a glance and be able to make sensible decisions without having to pay for a highly skilled and expensive, as well as rare, financial adviser.

People are perfectly capable of making complex decisions and choices if they are able to see clear, unambiguous and focused information at the right time.

Technology that merely replaces human processing will help reduce some costs, but without a quality sea change, will do little to build public trust in pensions. We must address the poor data issue and consider better processing. Dare I say it, we must simplify pension benefits themselves. Simplifying pension benefit bases is a magic bullet that everyone seems to ignore. We say it is too difficult, but this is not true. We tend to equate simplification with loss of value for members. It needn’t be, but the standardisation we see tends to come with PPF entry and this colours our view. We need to think in terms of benefit equivalence and fair value replacement, a concept well practised with incentive exercises, chiefly modifications like PIE ‘balanced deals’. We hide behind statutory increases and GMP equalisation as a block to simplification, but we can significantly simplify today even allowing for statutory barriers.

I see a communications revolution coming. Not just because of the pensions dashboard, which since it was mooted has been a catalyst for change, but also because of initiatives like simplified benefit statements and using video to tell stories about how pension saving helps society, and to explain in very simple language the options and choices at the right time for each individual. This will help make pension saving more meaningful, and I take my hat off to those schemes and consultants who are really thinking outside of the box.

Robotics advice has been slow to take off, with some commentators suggesting it might not always give the right answer. However, we need to realise that millions of people need some help and that help, which does not lie or mislead, is vastly superior to no help at all. With the expected growth in modelling apps and with some hope that future financial guidance will be seen as ‘help’ and not ‘advice’, technology will be able to dispel the mystery and bring pensions alive for most of the population. Roboadvice or some combination of robot and human guidance is part of the technology landscape. DC and DB consolidation will also rely on good technology, but many players are focused on the same old systems, processes and data, just relying on assets under management, and volume processing for efficiency. This misses the point and also misses the tremendous opportunity from technology to solve our issues of inefficiency.

Operational inefficiency needs investment in technology, but we must ensure we make changes that help pension systems (internal and external), to talk to one another and not just go for local solutions in isolation.

We need common data and transfer protocols, standards-based assurance, data integrity, and government leadership to make this happen.


By Margaret Snowdon – PASA


In June, the Department for Work & Pensions (DWP), published a consultation on clarifying trustees’ investment duties. This addressed the extent to which Environmental, Social and Governance (ESG) criteria should influence trustees’ decision making and also considered the extent to which trustees should consult members about investment policy. This represented something of a sea-change for trustees, and challenged many longestablished beliefs about what trustees should take into account when selecting assets for their scheme’s portfolio. To understand what is now being proposed, and why it challenges so many long-standing assumptions, it is worth reviewing the orthodoxy that has persisted for the last 35 years.


In 1985, the Cowan v Scargill judgment ruled that in making investment decisions, trustees were required to consider members’ best financial interests. This appeared to place significant constraints on trustees’ capacity to consider factors such as the environment or social impact. Although the Pensions Act 1995 (PA 95) required trustees to state in their Statement of Investment Principles (SIP) the extent to which investment policy was influenced by ethical considerations, it remained commonly believed that trustees ultimately had to consider profit over principle.

The current consultation follows a Law Commission review of 2014, and now gives strong guidance on the inclusion of ESG within the process of selecting investments. Members may recall that PMI’s Policy & Public Affairs Committee issued a member survey as part of its formal response.

The Government proposes that trustees now be required to include a statement within the SIP describing their policy on ESG.

This seems uncontroversial: it is an extension of the provisions in force since PA 95, and was strongly supported by members.

However, a more contentious proposal was that trustees be required to consult members about investment decisions. Many respondents considered this a step too far. Some argued that overall levels of member engagement would be too low to have any meaningful impact. Others were concerned that such a process would be vulnerable to being hijacked and manipulated by minority activist groups.

A third proposal was that trustees be required to record their involvement in corporate governance. This was largely supported by PMI members, who took the view that institutional investors have historically performed poorly in their stewardship of publicly quoted companies.

The Government’s proposals show the extent to which thinking has changed concerning the perceived duties of trustees.

This perhaps reflects the extent to which views of the public generally have evolved in recent decades. Trustees are now required to behave as responsible citizens, and to balance difficult priorities of financial security on the one hand, and social responsibility on the other.

Whilst the impact on trustees may be to make the role more complex than has been the case in the past, the overall consequence for society, and indeed the planet, is to be welcomed. This represents a major new challenge for trustees, and one which will see PMI work closely with the trustee community in order to achieve successful implementation.


By Tim Middleton – PMI Technical Consultant


The employer covenant review has continually evolved since the concept was first introduced, and it is time for another iteration. Covenant advisors need to move away from just giving trustees a rating of covenant and instead provide advice to better help trustees consider a level of supportable scheme investment risk, an appropriate time period to target full funding, and the affordability of the scheme’s potential current and future cash requirements for the sponsor. The old covenant review is dead, let us now embrace the accession of this new era of covenant.


Employer Covenant reviews still place significant weight on proprietary rating scales, but as trustees aim to project forward their journey plan to full funding, they are now demanding an output that helps them make decisions off the back of the review. That requires another reinvention of the employer covenant.

The rating is helpful in allowing trustees to assess the likelihood of the member’s benefits being paid in full, and therefore in guiding them to the appropriate funding target. However, it is less helpful in then assisting them to make decisions off the back of it.

Firstly, advisors currently talk in different languages, making it hard to translate how one piece of advice should influence actions in another area. For example, covenant advisors require their rating scale to be translated by the actuary and investment advisor.

Instead, Covenant advisors now should be talking the language of risk, longevity, and funding.

This requires a deconstruction of the covenant review into 3 constituent parts:

a. Sponsor risk capacity and risk correlation with the scheme – giving the trustees a clear view on how much downside risk the sponsor could support, and the extent to which any correlation between scheme and sponsor increases or mitigates this risk;

b. Longevity of covenant – Can a view be given on the period over which the trustees can place reliance on the covenant? Some sponsors have characteristics that allow for a longer term view to be taken;

c. Affordability of cash now and in a downside scenario – what is the sponsor’s capacity to meet a fall in funding levels over the scheme’s lifetime? What is the payment profile of the scheme over its life and are there any shortfalls in scheme liquidity that need to be considered? How might the covenant be impacted by increasing funding towards the scheme

These terms fit better with the 4 key levers that trustees have at their disposal

1. Changing investment risk;

2. requesting increased cash from the sponsor;

3. changing the time period over which the scheme targets full funding; or, ultimately,

4. accepting that a lower target might be required.

As a result, trustees get better information about the relevant factors impacting the sponsor, leading to greater confidence over the longterm future of the scheme.

By understanding the covenant/investment/funding drivers of a particular strategy this also allows trustees the possibility of creating a genuinely integrated risk management framework (not just one that plays lip service to integration by presenting 3 separate monitoring frameworks in the same document and hoping no one will notice they don’t integrate)

As more and more schemes enter run off, there is a need for ever greater integration amongst trustees, sponsors and advisors. Covenant advisors have a responsibility to help this dialogue by focussing on the needs of the trustees, and by helping trustees articulate to management the benefits of greater collaboration between scheme and sponsor.

Long live the employer covenant – there are exciting times ahead.


By James Berkley – Associate Partner EY


Go on, be honest, as a seasoned pensions professional have you pulled together all your pension statements in the last year and considered whether you are on track to have the retirement you realistically dream about? Probably not, and I’m no different….although I do have a spreadsheet.

But we have an expectation that busy everyday people gather all their statements that they’ve received over the last year, make sense of them, and make informed choices. Or at least, that’s our aspiration.


Supporting Personal Ownership of Retirement Savings

In the 2017 Automatic Enrolment Review, the DWP proposed an objective to support individuals to have a greater sense of personal ownership of their retirement savings.

But, how easy do we make it for everyone? Well, we provide:
+ a statement of members’ estimated annual income from defined benefit schemes if you’re lucky enough to continue to contribute towards one, and issue a statement when people leave, and
+ an annual statement of a member’s defined contribution savings

But with an expectation that, on average, we’ll have 11 employers in our working life, and perhaps as many providers, everything will be all over the place. And then of course, according to Zoopla, over a lifetime we’ll move house an average of 8 times, so will we really let our previous providers or employers know that we’ve moved? Well, maybe at some point.

And not only do people have little time but many find financial information difficult to understand.

For example, 1 in 5 UK adults don’t understand their bank statements, which just shows ‘money in’, ‘money out’ and ‘the balance’.

So, you see the challenge. Not only are our retirement income and savings information in many different places, but when we try to make sense of our statements, they’re all very different: different words, a fair bit of jargon, different numbers in different places on different statements, and with numbers based on different assumptions.

Annual Statements: A Missed Opportunity

So it’s tough to make sense of the information we get, even if we’re really keen. And that’s why, in the Automatic Enrolment Review consultation last year, the Annual Statement was described by many as the ‘missed opportunity’.
Working with Vince Franklin and Mark Scantlebury from communication consultants Quietroom, and with Karen Mumgaard from Eversheds Sutherland providing valuable legal direction, we decided to ignore the regulation and produce a short and simple annual statement with only the information that mattered most to members; with no jargon.

An early version of the Simpler Annual Statement, which was further developed to make it legally compliant, was included in the DWP’s Automatic Enrolment 2017 Review Report which was published last December. Since then we’ve further developed it with industry and it’s just going through some qualitative and quantitative user testing led by Ignition House. The current version, which will inevitably change, is shown in the illustration, with an explanation of the ‘what’ but particularly the ‘why’.

The output from the user testing will lead to further changes to the Simpler Annual Statement which we hope to launch later this year as a proposed approach for best practice.

Industry Collaboration: Making the Difference

The real difference that we could make as an industry, without the need for additional regulation, is to adopt the Simpler Annual Statement, but, naturally, with schemes and providers using their individual branding, colour, illustrations and links to further communication.

Gregg McClymont, Director of Policy and External Affairs at The People’s Pension, said “whilst a world class pension system should deliver efficient outcomes without demanding individual engagement, for those that do wish to engage, it should be easy and satisfying. The People’s Pension believes that it’s firmly in members’ interests that annual statements, across all pension providers, use the same assumptions and provide the same information so that members have a better chance to understand what savings they have and where.”

Romi Savova of Pension Bee says that “by giving members consistency of the essential information they need, we can help them to make sense of the numbers on their statements”.

That’s the clear message coming out of the user testing that Ignition House are conducting. Janette Weir, from Ignition House, said: “Members have consistently given very positive feedback on the new statement, saying it simple, jargon free, and presents the key information they need to know about their pension in a very visually appealing way. At just two pages long, they can read and fully digest the information in less than 5 minutes, which is often a world away from their current experience”.

Future Vision: Future Work

The Simpler Annual Statement is expected to be launched later this year following which, as we look for wider adoption, industry associations will work with schemes and providers to consider its implementation and identify any further improvements that can be made.

Nathan Long from Hargreaves Lansdown says ‘”there’s no doubt that shedding the gobbledygook from annual statements will make them easier for pension savers to understand. We should get behind this initiative of providing a more simple way of explaining pensions consistently as an industry, compared to the current yawn-inducing illustrations. The longer term vision should be online personalised engagement at teachable moments.”

With the work by the PLSA on Retirement Income Targets, to help members think about how much they need to save, the Simpler Annual Statement making it easier to understand both how much they’ve saved and how much they might have at retirement, the proposed Pension Dashboard will ultimately bring all members’ information together in one place, in a simple and consistent way.

So, all this work is complementary to contribute towards supporting individuals to have a greater sense of personal ownership of their retirement savings. One step at a time, we’re making life simpler for savers.


By Ruston Smith – Independent non-Executive Chairman


Whilst I have been working in financial services for over 20 years, when I became Managing Director of Origo at the beginning of this year, one of the first things I did was to tour the industry to get a fresh perspective and hear what various stakeholders believe is important for the industry and the UK consumer.


What was extremely encouraging to see was the focus on customers/members and helping them achieve good outcomes. What I was somewhat surprised to learn, however, was how a number of key processes are still subject to manual processing.

Given the functionality and capabilities that lie within the phones we all carry around in our pockets, and how fast and easy online access to bank accounts are forming consumers’ expectations of what is the norm, for pensions administration processes to be carried out using paper-based systems mixed with large, complex spreadsheets seems incongruous to the way we now live our lives and run our businesses. Add to this the fact that pension provider systems and processes are increasingly under greater scrutiny by Government, which is very much focused on the consumer experience, and there is a clear need for change.

There are numerous reasons why processes are lagging technology: time, resource and money sum up the key ones.

All companies, no matter how large, have finite amounts of each, and the considerable amount of legislation and regulation with which the pension industry has had to deal with over the past few years have focused priorities. Add to that mix the legacy systems companies have acquired over the years, along with the need to make a business case for improving back-office administration against more pressing issues, and it is understandable that in some areas industry processes have fallen behind the available technology.

So, how do we address this? Let’s take as an example bulk pension transfers; the transferring of a pension scheme’s members (in full or part), from one provider or administrator to another.

To carry out a bulk transfer, considerable data and information on payments and entitlements has to be collated, monitored, and passed between the ceding and receiving parties.

When using manual paperbased transfer processes, they are open to a range of disadvantages:

+ Delays in the sending and receiving of data by organisations and the member
+ Issues around accuracy of transfer information, as changes continue to occur during the transfer process
+ Formatting errors
+ Delays and costs of manually updating information
+ Keying errors
+ Communication breakdowns between scheme and providers
+ Contacting and dealing with the ‘right’ contacts at counterparties to progress the transfer
+ Data transfer issues
+ Data security issues
+ Out-of-market issues.

Automating bulk transfers enables processes to be better controlled and the majority of the issues listed above to be resolved. Most importantly, it can also lower costs as well as the risks for all parties, particularly the scheme members.

Automating the bulk transfers process enables faster switching between ceding and receiving parties and can deliver:

+ Faster, member-centric service
+ Transparent, trackable process
+ Secure and reliable transfer and communications between transferring parties
+ Consistency and integrity of data (as all transfer parties work from the same data)
+ Savings for providers and administrators in terms of time and money
+ Common approach across the industry
+ Significantly reduced costs per transfer as well as overall costs
+ Better member outcomes.

It also helps employers to save considerable time and resource commitment.

How it works

Origo has been operating a bulk transfers service since 2015. This is how it works.

First, a trust framework is signed up to by transferring counterparties, with each party aware of its obligations and rights. This framework enables the receiving party (for contractbased schemes), to collect consent from each member on behalf of the ceding party at the point of application.

This does away with paperwork inefficiencies which occur between organisations and individuals, ultimately slowing down the transfer.

This framework is the open Common Declaration Standard now managed by Criterion. The system defines, and all parties agree, ahead of any transfer, the information that is absolutely critical and common to effect the transfer. This removes any uncertainty and confusion, and saves administrator time.

Formatted CSV files are then uploaded to Options Transfers, a secure online service, avoiding data security risks that emailing CSV files can cause, critical under GDPR.

Changes and updates to the information can then be conducted through one secure point by each transferring counterparty. This avoids confusion as to which file, or information about a particular member or even an entire scheme, is the latest and most up-to-date. The changes are recorded for future auditing purposes, as well as being automatically notified to the other transferring party, with any action required in order to progress the transfer quickly flagged. Another advantage of using a secure bulk transfers hub is that contact information of the teams and individuals responsible for administering the transfer can be added, speeding up relevant communications. For example, notes can be sent securely, helping to ensure all transferring parties are kept abreast of any anomalies in an efficient and fully auditable way.

Finally, automation includes secure, automated monitoring and co-ordination, as well as prompting of actions, and full MI and audit trail for review and compliance requirements.

There are some very clear wins here. The scheme member experiences a safer, faster, customer-focused service. The schemes and administrators have a faster, less labourintensive and therefore less expensive process, with a significantly reduced possibility of error, and which is trackable and auditable.

This means that not only is the process more efficient and cost effective, but providers can better communicate with the member where they are in the process. For the new scheme taking on the business, that level of service and member attention can help cement the member’s confidence that the switch is in their best interests.

By providing a better service to members, automating bulk transfers also gives a clear message from the industry to Government around improving the consumer experience, as well as enhancing individual companies’ reputations in the industry.

And this is just one of the reasons that I joined Origo – to be at the forefront of positive change in the industry.

By automating transfers through Origo’s Options Bulk Transfers service, we are able to help the schemes, trustees, and administrators to create greater efficiencies, reduce their costs, and deliver better outcomes for members. I see that as a very positive step in the right direction for all concerned.