Everything you wanted to know about auto-enrolment but were too embarrassed to ask (and some gorillas)
Friday, May 20th, 2011

I was at London Zoo yesterday with pensions minister Steve Webb and Jelf head of benefits Steve Herbert (oh and about 150 HR professionals). Webb is very impressive. He even answered questions, which is only the second time I have ever seen a minister bother, certainly at an industry event.

However, one comment from the minister might make IFAs a bit unsure of themselves. When asked about the incentives to save in a pension and particularly about tax relief, the minister said: “Roughly off the top of my head, 10 per cent pay higher rate tax. Of the people you deal with I imagine, 90 per cent who pay tax, pay it at the standard basic rate. We have no plans to touch that. I think it is very possible in the circles we move in to get fixated on the tax treatment for the highest earners who aren’t the problem. I am not aware of any plans to do anything to reduce the tax treatment for lower rate tax payers,” begging the question what about the higher rate.

At the meeting, Jelf surveyed the audience with those clever touch pads while the minister sat at the front. The answers at this stage probably aren’t all that disturbing for him. I have pasted them here.

  • The vast majority of employers (92.1%) believe that automatic enrolment will be good for employees.  49.4% believe it will be good for the employer
  • Most (63%) believe that NEST will be complementary to their existing pension, rather than in competition
  • 29.5% of employers are aware of their staging date for automatic enrolment and are prepared.
  • 95% felt they would be prepared by the date of automatic enrolment
  • 52.2% felt their voices were now being heard

However while I wouldn’t want to wish any more work on the excellent and knowledgeable Mr Herbert as he seems rather busy, I did think of two books he might write, which could make unlikely bestsellers in the next few years as in –

Everything employers ever wanted to know about auto-enrolment but were too embarrassed to ask and its equally potentially best selling follow up Everything employees ever wanted to know about auto-enrolment but were too embarrassed to ask.

Anyway I would love to bring you news of what the gorillas and the otters thought about auto-enrolment (it was free entrance after the event) but unfortunately I had to return to my desk and file some copy). Another time perhaps.
Mercer climate change report is a big financial planning challenge
Wednesday, February 16th, 2011

Global consultancy Mercer is suggesting that the risk to investment portfolios from climate change is around ten per cent over the next two decades. Mercer, which compiled the report, along with many of its institutional clients, plans to work with them to reduce this risk.

This has to be a challenge for financial planners. Even if you tend to the sceptical side of things when it comes to global warming, there is still a risk that climate change regulations will place  costs on old industries and lift them from new ones. And if you do expect the climate to change significantly then it must surely be considered for its long term impact on portfolios. It suggests that some time, not far into the future, financial planning is going to have to take this issue into account. Whether that involves actively discounting climate change or incorporating it into the strategy, the time will surely come when you have to make investors aware of their choices and the different types of strategies available, regardless of your view or theirs.
Guest blog – Shannon Currie – stochastic models and the risk of losing everything
Friday, October 29th, 2010

Risk is an interesting word. We use it to mean both Probability – the chance of something going wrong, and Impact – how badly it will go wrong IF it goes wrong.

All well and good, but it seems to me that most risk profiling processes focus on Probability rather than Impact. This is especially true with Stochastic modelling tools, which purport a range of probabilities for any given outcome.

What this process will naturally miss is the potential for the value of some products to reduce to zero or in more extreme cases to a minus! 

The problem seems to be that, understandably, the profilers use historic data about the performance and behaviour of separate asset classes over significant periods of time.

This is all well and good, but when these processes are applied to products that have a degree of financial engineering or gearing involved in them, then all bets are off.

This not only includes Structured Products, but some types of Property fund, Hedge Funds and ‘Alternative’ assets.

History tells us that whilst the FTSE 100 is unlikely (!) to go to zero value overnight, these types of products can do so, and some will do so.

 So, for clients to give informed consent, they need to not only understand that ‘The prices of units can fall as well as rise’, but that ‘the value of this investment may, under stress, reduce to and remain at zero’.

 To quote Nassim Taleb in a recent article “Don’t give children dynamite sticks even if they come with a warning label” 

 Not only do we need to protect clients from themselves, sometimes we need a reminder to protect ourselves from ourselves.

Shannon Currie is director of Perceptive Planning