Cartoons – Page 3 – We Know Zero

Bring Two Brains’ Hammer Inside the Tent

13. March 2018 · Write a comment · Categories: Cartoons, Economics, Pensions

While the NHS has been asked to find £22 billion in savings by 2020, the latest figures from the Student Loans Company show that over £13 billion has been found to fund student loans for 2016/17 alone, without increasing the Government’s deficit and without appearing in the Public Sector Borrowing Requirement until some time in the 2040s. How is this possible?

The key difference is that the money the Government provides in student loans are seen as just that: loans. However, unlike any other kind of loan (and the reason that commercial banks declined to join the SLC – which was the original plan and the reason it was set up with a company structure), only between 40 and 45% is expected ever to be repaid, the repayment term is limited to a maximum of 30 years and the payments limited to a percentage of earnings above a minimum earnings threshold (which is about to increase to £25,000 pa). It is in reality a graduate tax masquerading as a loan, with the “sticker price” of £9,250 pa (which is of course a real price for overseas students) just used to ensure students don’t feel like they are paying this tax on someone else’s behalf. However the payments made by the Government since 2011 as “loans” have not led to any outcry about uncosted commitments, or passing the bill onto future generations which you might expect. Which is surprising, as it has meant that Higher Education has effectively been allowed to sidestep the austerity policies applied to just about every other Government department completely.

One might think that the architect of such a scheme would be quite popular within the Higher Education space. Far from it. Since the announcement of his appointment as the new Chancellor at the University of Leicester, the Leicester branch of the UCU has widened the campaign it is already running against the Joint Negotiating Council’s decision to close the USS pension scheme to further defined benefit accrual to embrace a #WillettsOut position. The students who occupied the corridor outside the Leicester VC’s office for two days similarly had Willetts’ removal on their list.

Apart from elements of his voting record (he was strongly in favour of an elected House of Lords and was strongly against the ban on fox-hunting. TheyWorkForYou additionally records that, amongst other things, he was strongly in favour of the Iraq War, strongly in favour of an investigation into it, moderately against equal gay rights, and very strongly for replacing Trident), the main charges against him seemed to date from an article about him in the Guardian from 2011.

Now without minimising the differences of opinion which I and many of my colleagues will clearly have with David Willetts on a wide range of issues, I do think we are in danger of surrounding ourselves with the comfortable cushions of like-minded individuals all equally in the dark about the regulatory changes in store for us and at risk of all the worst consequences of Group Think. I would therefore like to put forward an alternative view.

The University of Leicester is facing, along with the rest of the Higher Education sector, serious challenges over the coming decades in response to an expansion of the proportion of young people going to university which no political party is going to want to reverse (and which I, for one, would not want them to). David Willetts was the chief driver of much of these reforms and has a clear vision of what they are trying to achieve, set out in his book A University Education. He is currently a visiting professor at King’s College London where he works with the Policy Institute at King’s, a visiting professor at the Cass Business School, Chair of the British Science Association, a member of the Council of the Institute for Fiscal Studies and an Honorary Fellow at Nuffield College, Oxford. However his real passion is around social mobility, something which I believe is important to many of us here at Leicester, and which has led him to a role as Executive Chair of the Resolution Foundation. As a former cabinet minister and shadow cabinet minister from 1996 until 2014, Willetts is very well connected, a formidable debater and would make a fierce friend of the University, fighting Leicester’s corner in what is likely to be an increasingly challenging period.

David Willetts would undoubtedly bring significant challenge with him. Arguing with him (I watched him in debate with Stefan Collini and a variably outraged university audience at the Senate House last year) can sometimes feel like doing battle with a hammer. But it may be that this is what we need to respond successfully to the new world which is coming rather than yet another comfortable cushion to make us feel better. Let’s welcome him inside the tent.

CAct: the future may be highly uncertain but I am very confident that this is a good idea

23. February 2018 · 2 comments · Categories: Actuarial, Cartoons, Regulation

Sometimes an idea comes along that seems so obviously good that you wonder why it hasn’t been done a long time ago.

The Institute and Faculty of Actuaries (IFoA) are currently consulting on just such an idea in my view: the Chartered Actuary (CAct). Currently someone is a qualified actuary when they get to the associate level, however you wouldn’t know it. There are very few qualified roles available for associates and most firms assume hardly anyone will stay at that point but instead continue to fellowship. Indeed many actuaries leave the CA3 subject (soon to become CP3 under Curriculum 2019) in Communications until last currently, and therefore qualify at both levels simultaneously.

This will happen no more. CAct will be a distinct qualification, and a required qualification point for all student actuaries to reach before going any further. It will be globally recognised as the generalist actuarial qualification from the IFoA, as well as also possibly the final purely actuarial stage of an actuary’s qualification journey in future. The specialisation in actuarial subjects, via the specialist principles and specialist advanced modules, will still be taken by many, particularly those aiming for practising certificates, but there will be time and space for other specialisations: in data science, business management and many other areas. The hope (and I think this is a realistic hope) is that this will massively expand the range of areas where actuaries will be able to make a difference in the future.

Why do we need to? Well, as Derek Cribb, the IFoA’s Chief Executive wrote in the December issue of The Actuary:

Globally, there are around 70,000 qualified actuaries, but more than five million qualified accountants and a similar number of lawyers…Why is this relevant? Bluntly, numbers matter. Whether we are concerned about operational economies of scale, and the consequent impact on membership costs, or whether it’s about building external awareness of the value the profession brings, there is strength in numbers.

Now of course it can be argued that this is what every corporate leader always wants, and that some not-for-profit organisations could usefully benefit from considering alternative structures (particularly relevant currently in the university sector which I inhabit), but in this case, when our regulatory body the Financial Reporting Council is primarily concerned with another, much larger, profession, the existential threat is real. If you believe as I do that actuaries have a unique skill set, which is likely to be lost to a wide range of businesses and other sectors if it is unable to meet the demand for those skills due to a simple lack of numbers, then the need to take any perceived barrier to practise away from our emerging young professionals is clear.

Whatever your views on this idea, please respond to the consultation, which is open until Wednesday (28 February) and can be found here. I have found widespread support amongst the students I speak to as an actuary working in higher education, both in the UK and also notably in my discussions with Mumbai students earlier this month. I feel it is our responsibility as Fellows not to stand in their way as we in turn hand them the responsibility of taking our profession into a new generation.

The future may be highly uncertain, but I am very confident that this is a good idea.

What if we made the State Pension Age irrelevant?

19. August 2017 · Write a comment · Categories: Actuarial, Cartoons, Pensions, Regulation

There has been a lot written about the State Pension Age (SPA) in the UK in the last year. This was primarily because the UK Government has been carrying out its first periodic review of the SPA. John Cridland was asked to carry out an independent review of the State Pension Age, which reported in March this year with over 150 responses received and 12 recommendations made plus a proposal for an auto enrolment review. This was followed by the Secretary of State for Work and Pension’s report on the first Government review of State Pension age, as required under the Pensions Act 2014 last month, in which Cridland’s central recommendations on the timetable for SPA change were accepted, ie:

The State Pension age should continue to be universal across the UK, increasing over time to reflect improvements in life expectancy.
The State Pension age should increase to age 68 between 2037 and 2039.
The State Pension age should not increase by more than one year in any 10-year period (assuming there are
no exceptional changes to the data used).
Individuals should get 10 years’ notice of any new changes to State Pension age.

However the report was noticeably silent about Cridland’s other recommendations, including:

that means-tested access to some pension income will remain at 67 and will continue to lag a year behind for rises thereafter.
that the conditionality under Universal Credit should be adjusted for people approaching State Pension age, to enable a smoother transition into retirement.
supporting working past State Pension age
to do more to help carers in the workplace:
the provision of a Mid-life MOT
support for the use of older workers as trainers

Other commentators have given their analysis, some, like the Work and Pensions Parliamentary Select Committee, have pointed out that many people will not live to see the new SPA, something rather lost in the massive groupings Cridland referred to where the lowest average was across a group titled “Routine”. These were described as socio-economic groupings but seemed in reality to be more occupational. There is some reference to healthy life expectancy, but no attempt to quantify how this varies by population. It therefore gives the rather misleading average of around 10 years of healthy life expectancy at age 65 for both men and women.

Contrast this with the Office of National Statistics’ (ONS) rather more comprehensive look at the subject and, in particular, these graphs:

The graphs are more encouraging for women in terms of life expectancy, but no more encouraging for healthy life expectancy.

Other commentators such as the OECD have suggested that the top 5-10% wealthiest stop receiving it altogether to allow it to be more generous for everyone else. The most prominent actuarial view so far has probably come from Paul Sweeting, who proposes a means tested approach to paying state pension which allows the pace of SPA increase to be slower but at the same cost. While I share most of Paul’s analysis of the problem, I do not share his conclusion that the only solutions are faster increases to the State Pension Age, or means testing. My problems with means testing as opposed to universal benefits boil down to two main objections:

People will not contribute to other savings vehicles if they think these will just reduce benefits elsewhere. This was how the Minimum Income Guarantee killed the Stakeholder Pension.
Many people do not claim means tested benefits which they are entitled to. Whether through pride or fear of the dauntingly long forms the DWP produce for any claimed benefit or a combination of the two, a study in 2003 indicated that 1 in 6 people did not claim benefits representing over 10% of their total income.

I therefore think there has to be another way, and I think it might be a form of universal basic income (UBI). Compass have produced one of the more recent reports on the feasibility of this, and there are many different forms, with full schemes or pilots now running mainly at a regional level at present in the United States, Canada and India amongst other countries.

The basic features of most of these schemes are that the personal allowance is abolished in favour of a regular income paid to everyone, perhaps with different rates at different ages but not means tested. Different schemes make different adjustments to existing taxes and maintain different combinations of existing benefits, both means tested and universal. Compass have modelled five possible schemes, and believe that paying a lower UBI but leaving in place the current means-tested benefits system while reducing households’ dependence on means testing by taking into account their UBI when calculating them may be a feasible way forward.

The main arguments for a UBI approach are:

it would directly address most of the inequality of outcomes discussed above, particularly the decile likely to be condemned to 18 years of work in ill health and a retirement of 4 years by 2037 unless both their life expectancy and healthy life expectancy increase, at exactly the time when both appear to be slowing (at the 0.4 months pa rate of improvements since 2011, these expectancies would only have increased by 8 months by 2037)
by providing a guaranteed minimum income, the safety net we provide as a society would be much more robust, and that reducing the reliance on means testing would tackle the problems of take up and the inevitable poverty traps which means testing creates
people could choose to work less and have more time for other things (although previous experiments suggest this number would be small), alternatively it would make retraining much easier
people would have more bargaining power in the labour market, which is clearly problematic in the UK in particular, with the stagnation of real wages for a considerable period now

Many people think their jobs are useless and that they are trapped in them with no marginal income to let them transition to something more meaningful. Neither does it seem as if getting everyone into work is good for us physically, further exacerbating the healthy life expectancy problem at lower deciles.

I am therefore surprised that there is not more research into feasible UBI schemes. The reference section at the back of the Compass report was shorter than that in many of my 3rd year undergraduate dissertations, and yet it is clearly an area in urgent need of some modelling. Anyone out there fancy joining me in a working party to look at this?

RSA ANIMATE: Economics is for Everyone!

02. August 2016 · Write a comment · Categories: Cartoons, Economics

Ha-Joon Chang invites you to get involved in economic debate and not leave it to the experts in the latest RSA Animate of his Economics: The User’s Guide.

Well worth 12 minutes of your time!

Vote for Me!

22. May 2016 · Write a comment · Categories: Actuarial, Cartoons, Economics, Regulation

It is election time for the UK Actuarial Profession. The annual Council election is our chance to have our voices heard and to help in setting the strategic direction of the Institute and Faculty of Actuaries (IFoA). And this year I am running!

I think the next 10 years could be one of the most formative periods the profession has seen – with politics and economics at something of a turning point globally, and the place for actuaries and the finance industry more generally within that open to question as never before. I feel, as a former pensions actuary who now works with the actuaries of the future every day, that I have something to contribute to the process of actuaries finding their place in this new world.

So if you are a member of the IFoA please watch my video below and, if you share my priorities for the profession, I would greatly appreciate your vote.

Thinking in groups

26. February 2016 · Write a comment · Categories: Actuarial, Cartoons, Economics, Risk

Two women were fighting on my train the other morning. It was a packed train, with people standing the length of the carriage, so I didn’t see it so much as hear it. The first woman felt she had been pushed by the other one and complained very loudly and with much swearing. The second woman made some comment about the first woman’s mother and it escalated from there, getting louder and louder. Neither was prepared to let the other have the last word and, seeing the impact the mother comment had had, the second woman used it again. At which point the first woman hit her. The other passengers had been sitting and standing grim-faced up until this point, but now one or two intervened. One, who had the bearing of a lay preacher, attempted to assume sufficient authority to stop the argument. He was ignored. Another one stood and put the second woman in his seat and stood between them.

The second woman continued to make comments, but as much to herself as to the first woman. She kept stamping her feet in frustration. She was clearly in unbearable discomfort, but not from any physical pain. Finally she called the police and, as we pulled into New Street Station, started to give a physical description of her assailant. “Everyone on the train saw it” she said several times, while the passengers around her stared in any direction but hers.

I don’t know what happened next in the lives of these two women, although an announcement was made a couple of days later on the same service that police were working their way through the train for witness statements about the incident. They never appeared in my carriage, and I am not sure what I would have said if they had. And I don’t know what your reaction to my story is – whether that the other passengers, including me, should have acted differently or some commentary on the behaviour of the two women. I am, however, reasonably confident that you will have a reaction, perhaps quite a strong one, despite my limitations as a narrator. The reason I am confident about this is that I found myself, involuntarily, completely absorbed in the dispute, upset when one of the women expressed upset, constructing back stories for each of them, questioning their strategic wisdom at various points and, by the time we arrived at New Street Station and I dispersed with all the other witnesses, emotionally drained. And a look at the faces around the carriage suggested to me that most of my fellow passengers reacted similarly.

Why am I telling you this? Because it is a clear example of our domesticated brains in action. The almost physical pain this argument caused me and most of my fellow passengers is the reason we can travel from Sutton Coldfield to Birmingham every day with rarely an incident. It is often referred to these days, in pejorative terms, as Group Think. The shared assumptions and behaviours which allow us to live alongside each other in peace. I then get on a second train each day from Birmingham to Leicester, which I tell everyone is a great train to work on. But this is only because I can trust the 80 or so other passengers not to start an argument. The police could not cope if everyone behaved like the two women in my story. When the police do make an appeal for witnesses, they do so secure in the knowledge that nothing they say or do will encourage more than a handful to come forward, so strong is our group instinct to stay out of each other’s lives if we can. It is not indifference but survival. You need very strong structures to counteract the very strong instinct for Group Think.

However the reason Group Think is used pejoratively is that we have had vivid demonstrations of its power to make large groups of people behave stupidly. For example, herding behaviour in financial markets often causing the very problems people are trying to protect themselves from by going with the crowd. Or regulatory regimes which seem to encourage monocultures to develop, whether in finance, health, education, politics or academia, based on shared assumptions rather than encouraging diversity, because monocultures are easier to regulate. Many professions, including the actuarial profession, have introduced specific professional guidance to encourage whistle-blowing where appropriate, ie standing up to the policies and practices of their own organisations in most cases, which often means doing battle with Group Think. How successful such initiatives prove to be remains to be seen.

Encouraging challenges to Group Think is hard. It normally means going out of your way to allow views to be expressed you don’t agree with. It makes getting your own way harder to achieve. It can seem to us like the opposite of strong leadership and decisiveness when we seek out opinions that will make decision-making more complex. But we have made our society so complex and organisationaly fragile that this is what we are going to need to do more of in the future to stop it all from crashing down around us.

Kurt Vonnegut – The Shapes of Stories

15. February 2016 · Write a comment · Categories: Cartoons, Demographics, Risk

I wanted to share this lovely account of Vonnegut’s story shapes because it is one very powerful way to categorise different outcomes and, as such, potentially a very interesting way of illustrating them and their implications. I feel sure I will be returning to this theme soon.

Kurt Vonnegut - The Shapes of Stories

by mayaeilam.

From Visually.

Too much choice is no choice at all

10. April 2015 · Write a comment · Categories: Actuarial, Cartoons, Defined Ambition, Pensions, Regulation

Defined ambition has failed.

This was mainly because, tasked with suggesting a less onerous alternative to defined benefit (DB) schemes that gave more protection than defined contribution (DC) schemes, the pensions industry (including actuaries) did not get behind the least bad option, but instead presented a spectrum of options
The public and employers were unimpressed
And employers had enough on their plate anyway dealing with auto-enrolment
So they have now all (or nearly all) enrolled their employees into DC
And the reason they are in DC now is the same reason they were in DB before: because they were offered so many choices they lost sight of the fact that there was a choice.

The time to significantly influence corporate pension provision would appear to have passed until people realise how hard it is to make sufficient provision via a DC scheme. That may not be until the money actually runs out as the finance industry has a proven track record in keeping people in schemes (eg the early personal pensions and later endowment mortgages) long after they retain the capacity to do them any good.

In the meantime, people with DC pensions and madly transferring DB members now have freedom and choice. I predict that this too will fail.

This will mainly be because, tasked with providing cost-effective advice to people to empower them to make good decisions about their financial future, the pensions industry do not get their act together and just present a spectrum of options
The public will be unimpressed
And employers, who might have been persuaded to increase employee education and engagement in pensions, will have enough on their plate anyway dealing with auto-enrolment
So now most of them will be managing their own retirement with not enough money, vulnerable to pensions scammers and paying far more tax than they need to
And the reason they will not be in an annuity now is the same reason they were in one before: because they were offered so many choices (see the Pension Wise website, inexplicably still in an unfinished Beta state) they lost sight of the fact there was a choice.

The time to significantly influence individual pension provision appears to be rapidly running out.

How does this story end, I wonder?

Never trust an actuary?

06. August 2014 · Write a comment · Categories: Actuarial, Cartoons, Pensions, Regulation, Risk

Trust me. I’M AN ACTUARY!

I commented on the Pensions Regulator’s new code of funding in a recent post. The reason I am returning to it so soon is that a good friend of mine has pointed out a rather important, but subtle, aspect of the new code which I had missed. It goes to the heart of what we should expect from a professional in any field.

Experts and the Problem of P2C2Es

In 1990, while still in hiding from would-be assassins keen to implement Ayatollah Khomeini’s fatwa, Salman Rushdie wrote a book for his son called Haroun and the Sea of Stories. This introduced the idea of P2C2Es or Processes Too Complicated To Explain. These were how awkward things, like the fact that the Earth had a second moon which held the source of all the world’s stories, were kept hidden from ordinary people. All the people who worked on P2C2Es were employed at P2C2E House in Gup City under a Grand Comptroller. When I read it to my son a few years later I enjoyed the story of very clever people conspiring against the general public as a fairy tale.

Since 2008, it has become increasingly clear that this is no fairy tale. Whether you are looking for the cheapest quote for insuring your life, house or your car; a medical opinion about your health; an investment that meets your needs: it is a P2C2E.

Malcolm Gladwell and others make the case that expert failure is what we should really fear, when important things rely on experts not making mistakes doing things that most people do not understand. The inability to challenge expert opinion has cost us all a lot of money in the last few years. We should stay clear of P2C2Es whenever we can in my view. Professionals should present evidence and the intuitions gained from their experience, but leave the decisions to people with skin in the game.

Other professionals disagree with this. There is, from time to time, a push to get rid of juries in cases where the evidence is thought too complicated (eg fraud) or too dangerous to make public in even a limited way (eg terrorism). Some of these succeed, others don’t. There are also frequent political arguments about what we should have a referendum on, from Scottish independence (got one if you’re Scottish) to membership of the EU (one is promised) to recalling your MP mid-term (so far no luck on this one).

There is a similar divergence of opinion amongst actuaries. Since the Pensions Regulator’s first code of practice for funding was launched, in 2006, the scheme actuary’s role has been clearly set out as one of adviser to the scheme trustees and not, other than in the rare cases it was cemented in the scheme rules, a decision maker. However there are actuaries who look back wistfully to the days when they effectively set the funding target for pension schemes and all parties deferred to their expertise. I am not one of them.

Because this was really no good at all if you were a trustee expected to take responsibility for a process you were never really let in on. The arrival at a contribution rate or a funding deficit for a scheme funding on a basis presented to them as a fait accompli was to many trustees a P2C2E. We risk returning to those days with the new code of funding.

What this has to do with pensions

Compare the wording of the new Code of Practice for pension scheme funding with the previous one:

2006 code

The actuary is not passing an opinion on the trustees’ choice of method and assumptions.

2014 code

Trustees should have good reasons if they decide not to follow the actuary’s advice. They should recognise that if they instruct their actuary to certify the technical provisions and/or schedule of contributions using an approach which the actuary considers would be a failure to comply with Part 3, the actuary would have to report that certification to the regulator as the regulator considers such certification to be materially significant.

Where Part 3 refers to the funding regulations for actuarial valuations. Previously actuaries who were unable to provide the required certification of the calculation of the technical provisions or of the adequacy of the schedule of contributions had to report the matter to the regulator only if a proper process had not been followed or the recovery plan didn’t add up to the deficit. It was thought that going any further would involve passing an opinion on the trustees’ choice of method and assumptions.

Will the new code make schemes better funded? In some cases perhaps, but at the cost of moving scheme trustees into a more passive role where they do not feel the same level of responsibility for the final outcome. It is the difference between roads where cars are driven by people concerned with road safety and the ones we have where drivers are primarily concerned with not setting off speed cameras. The general level of safety is reduced in both cases, with the further danger that this passivity will trickle into other areas of trustee responsibility. And the risk to the schemes of the group think of scheme actuaries (a relatively small group of professionals who tend to all cluster around the same schedule of continuing professional development (CPD) events) is massively increased.

Ha-Joon Chang famously said never trust an economist. Is it any less dangerous to trust an actuary under these circumstances?

As easy as ABC?

01. June 2014 · Write a comment · Categories: Cartoons, Legal, Pensions, Regulation

With the recent revelations about the tax affairs of Gabby Logan and Gary Barlow in the news, it seems a good time to focus on the pension scheme equivalent.

Asset-backed contributions or ABCs have been lurking in the background of pension scheme funding for a while (Marks and Spencer set up such an arrangement in 2007), but have really only come to prominence since 2010. As you can see, they had quite a few takers over the next three years:

The total number of ABCs has now grown to more than 60, with a value of more than £6 billion. The value of each has tended to be around 10-20% of total scheme assets.

So why is this? For employers the answer is easy:

The employer can “pay” across an asset to the scheme while continuing to use it within its business.
The future stream of payments to the scheme is capitalised to make an immediate increase to the scheme’s funding level, which both makes the company accounts look better (although the Financial Reporting Council have been looking hard at a number of these) and reduces its Pension Protection Fund levy.
There is the potential to accelerate the tax relief on employer contributions if it is set up carefully.
The new effective “recovery period” (ie the period over which the stream of payments is paid from the special purpose vehicle known as a Scottish limited partnership (SLP) into the scheme) is usually longer than that of the recovery plan it replaces. It may also be more “back end loaded”, ie with a lump sum at the end allowing lower payments in the short to medium term.

But for trustees it is less clear:

The payments into the scheme are normally lower than they would be under a recovery plan which would not attract additional scrutiny from the Pensions Regulator.
The “asset” the employer is offering should already have been priced into the funding negotiations as part of the assets of the company included within the trustees’ covenant review. The ability to gain access to this asset on the occurrence of certain trigger events is, in principle, no different from the employer allowing the scheme to take a charge over that asset. However there are likely to be more hurdles to realising the asset under an SLP-type arrangement, as these arrangements are inherently more complicated than a simple legal charge.
There is usually no flexibility about the payments from such an arrangement which are targeted to meet a notional funding target many years in the future. By this time, the true funding target is likely to have changed, as will the value of the asset held in the SLP.
In order to make the arrangement work, they have to be a corporate trustee, even if they have not previously felt the need to incorporate to carry out their duties.

In summary, this is a vehicle for getting around the restriction on employer-related investment (ERI) of 5% of total assets which has existed since the Pensions Act 1995 came in. The only exceptions previously were small self-administered schemes (SSASs) which could use company property and loans to the company as assets on the basis that all the people in them were directors of the company. Whether it achieves this or not is as yet untested in the courts, although there have been some very confident legal opinions expressed about the fact that the letter of the ERI legislation only refers to shares or other securities, which cannot exist in this case because:

The SLP is an unincorporated body within the UK so it cannot issue shares. As one lawyer has said “the magic of a SLP is its distinct legal identity”.
A partnership interest is not generally considered a share (which is why, the confident legal opinion goes, along with the safeguards written into the agreements, Scottish independence would not make these deals suddenly illegal – although this obviously begs the question of why then you would go to such great lengths to create a SLP in the first place).

The Pensions Regulator is clearly uncomfortable with these arrangements, sensing that they are just devices for driving a coach and horses through its code of practice on funding. However, they are not illegal, so the Regulator has been able to do no more than issue guidance to trustees and their advisers on asset-backed contributions, with a long list of risks that they pose and advice trustees would need to seek before agreeing to one. They correctly point out that an ABC is not a bond-like investment, as some have suggested (unless by bond you mean a corporate bond issued by the sponsor of the scheme, ie an investment which becomes riskier the worse your sponsor is doing – which is not normally the point of bond investment). But the real kicker is the requirement they have set for a separate underpin that would protect the scheme’s position eg “in the event that the courts find that ABCs are void for illegality or where there is a change in the law”. This could turn out to be very expensive for the 60 such arrangements already in place.

However, just for a moment, despite all memories of other situations where lawyers have told us that scheme documents are copper-bottomed but which have subsequently proved to have traces of straw (equalisation, for instance), let us assume that the ABC drawn up in the way the Regulator has suggested will benefit the schemes which participate. These arrangements may observe the letter of the legislation but they clearly do not observe their spirit. Just look at the typical structure of one:

And then tell me that it bears no resemblance to the kind of “tax management scheme” we have seen punished recently. Here is Chris Moyles’ one as an example:

More and more voices are questioning the tax relief that pensions receive (the Institute of Fiscal Studies being one recent example). Steve Webb has also indicated that he would like to see a reduction in tax relief on pension contributions for higher rate taxpayers. Is this really the time to be championing schemes which accelerate that tax relief even more?

We Know Zero