Tailored Plan investor update Q2 2020

Dom Byrne from the Tailored Plan fund manager, BlackRock, updates us on the plan's performance in Q2 and the latest news.

Hi, I’m Dom Byrne from BlackRock, and I’m here to give you an update about the Tailored Plan, which you are invested in.

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

With stock markets coming off one of the sharpest and deepest declines in history, the second quarter of 2020 was characterised by a broad recovery. The COVID-19 pandemic caused the most difficult situation the world’s economy has faced in modern history. Economies globally are still struggling with the impacts of the pandemic and the accompanying lockdown restrictions that brought activity to a virtual standstill, with several countries likely to record a recession in the first half of 2020.

However, encouraging signs have started to emerge amid a predominantly challenging outlook. Some data suggests that the economic contraction across developed countries has bottomed and there are hopes for a potential coronavirus vaccine (which does not exist yet). Financial markets have moved ahead on expectations of an economic rebound and, as a result, stock markets recorded strong positive returns over the last three months.

Portfolios delivered positive returns, particularly for younger customers with over 20 years to retire (for example). For those younger customers, this is mainly because they are more heavily invested in global stock markets, which have outperformed bond investments over the most recent period (source: BlackRock, as of 30 June 2020. Performance gross of fees in GBP). The results were particularly encouraging given the sharp losses experienced in the first quarter of 2020. Over the longer-term (i.e. over the last five years), the portfolios have delivered strong positive returns.

Looking more deeply into the drivers of return, all the markets that the plan invests in delivered positive returns but there were some key themes. Firstly, it was beneficial to own stocks from developed markets outside of the UK, both in terms of large and small companies. Secondly, it was beneficial to own a wide range of fixed income (bonds) exposures as inflation linked, corporate and emerging bonds outperformed traditional UK government bonds (UK gilts).

Despite the recent recovery in stock markets, we still advocate the use of diversification within portfolios to help better manage risk as we approach retirement. This doesn’t mean we can eliminate risk entirely, but we aim to build a portfolio that has a range of sources of risk and return, as opposed to being reliant on one single market. We expect that, despite lower long-term return potential, owning diversifying strategies such as bonds can help in periods of market stress. For example, UK bonds have significantly outperformed UK shares so far in 2020. Finally, timing markets is very hard particularly when trying to respond to periods of severe shock. Therefore, having a plan to de-risk as you approach retirement is critical. For example, de-risking our portfolios after the recent sell-off would have meant missing out on the subsequent recovery.

What can savers expect for the next quarter?

The initial COVID-19 contraction is larger than the great financial crisis of 2008, but we believe its cumulative impact on the economy will likely be less as long as the policy response remains strong enough to cushion the blow. Normal economic crisis and recovery cycle does not apply, so we are tracking three signposts: how successful economies are at restarting activity while controlling the virus spread; whether stimulus is still sufficient and reaching households and businesses; and whether any signs of financial vulnerabilities or permanent scarring of productive capacity are emerging. Markets are laser-focused on changes in any of these three “known unknowns,” and a possible second wave of infections and policy fatigue are major risks in the second half of 2020.

The shock will have long-term consequences that are starting to play out. Policymakers are funneling money directly to the (non-financial) private sector, with debt monetisation, which is a way for the central banks to finance the government spending, being a possibility down the road. The pandemic is reinforcing structural trends such as ecommerce and sustainability; amplifying deglobalisation and geopolitical fragmentation; and may deliver a generational shock to the emerging world.

We expect volatility to remain elevated over the near-term and, whilst we appreciate this is challenging given the uncertainty in markets, we believe savers should take a long-term perspective. This is particularly relevant for those savers with a long time to retirement. This is because, simply put, we still expect shares to outperform other assets such as cash and fixed income over the long-term and therefore believe stocks and other risky assets have the potential to help our savings grow over time.

How has BlackRock driven positive social change in the past quarter?

Sustainability considerations are at the core of our approach to how BlackRock invests, manages risk and executes its stewardship responsibilities. This commitment is based on our conviction that climate risk is investment risk and that sustainability-integrated portfolios can produce better risk-adjusted returns to investors in the long-term.

While BlackRock Investment Stewardship team (BIS) has been engaging with the companies on sustainability issues for years, this year we are focusing more on engaging with firms in carbon-intensive sectors. These include for example ExxonMobil, where BlackRock voted against directors due to significant concerns about climate risk management and supported a shareholder proposal on governance; or TransDigm, a U.S. aviation manufacturer, where BlackRock voted against a director for lack of progress on climate risk reporting and supported shareholder proposal to adopt emissions goals. These companies face material financial risks during the transition to a low-carbon economy. Together, they represent a significant proportion of market capitalisation and CO2 emissions in their respective regions. BIS is determined to maximise the impact of its climate-related engagements.

In 2020, we have identified 244 companies that are making insufficient progress integrating climate risk into their business models or disclosures. Of these companies, we took voting action against 53, or 22%. We have put the remaining 191 companies “on watch.” Those that do not make significant progress risk voting action against management in 2021.

Through this report, we hope to provide a deeper look at our engagement process and methods; how we are working to promote transparency in investment stewardship, both in our own activities and through the adoption of disclosure standards; our involvement with Climate Action 100+; and our view on the importance of social factors to the long-term health of companies and society as a whole.

The opinions expressed are as of June 30th 2020 from BlackRock and are subject to change at any time due to changes in market or economic conditions.

Risks warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

BlackRock DC LifePath UK Risks

Credit Risk: The issuer of a financial asset held within the Fund may not pay income or repay capital to the Fund when due.

Equity Risk: The values of equities fluctuate daily and a Fund investing in equities could incur significant losses. The price of equities can be influenced by many factors at the individual company level, as well as by broader economic and political developments, including daily stock market movements, political factors, economic news changes in investment sentiment, trends in economic growth, inflation and interest rates, issuer-specific factors, corporate earnings reports, demographic trends and catastrophic events.

Derivative Risk: The Fund uses derivatives as part of its investment strategy. Compared to a fund which only invests in traditional instruments such as stocks and bonds, derivatives are potentially subject to a higher level of risk.

Liquidity Risk: The Fund’s investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair.

Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Important information

Issued by BlackRock Life Limited (“BLL”), which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. The Fund described in this document is available only to trustees and members of pension schemes registered under Part IV of the Finance Act 2004 via an insurance policy which would be issued either by BLL, or by another insurer of such business. BLL’s registered office is 12 Throgmorton Avenue, London, EC2N 2DL, England, Tel +44 (0)20 7743 3000. Registered in England and Wales number 02223202. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

Rates of exchange may cause the value of investments to go up or down. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Any objective or target will be treated as a target only and should not be considered as an assurance or guarantee of performance of the Fund or any part of it. The Fund objectives and policies include a guide to the main investments to which the Fund is likely to be exposed. The Fund is not necessarily restricted to holding these investments only. Subject to the Fund’s objectives, the Fund may hold any investments and utilise any investment techniques, including the use of derivatives, permitted under the Financial Conduct Authority’s New Conduct of Business Sourcebook which contain the rules by which investment of the Fund is governed. The BlackRock Life Limited’s notional fund units have a single unit price. The unit prices are normally calculated on each business day. For performance reporting, notional units are valued at special closing prices on the last working day of each quarter to enable comparison with the relevant benchmark index.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

© 2020 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK and SO WHAT DO I DO WITH MY MONEY are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

Your updated fact sheet will soon be available to download in the BeeHive. If you’d like to ask a question in the next update or share your thoughts, you can get in touch with PensionBee via email or Twitter.

As with all investments, past performance is not indicative of future performance and you may get back less than you start with.

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Tailored Plan investor update Q1 2020

Dom Byrne from the Tailored Plan fund manager, BlackRock, updates us on the plan's performance in Q1 and the latest news.

Hi, I’m Dom Byrne from BlackRock, and I’m here to give you an update about the Tailored Plan, which you are invested in.

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

The first quarter of 2020 is one for the history books, as coronavirus caused unprecedented medical, economic and human challenges. The rapid spread of coronavirus around the globe, the economic repercussions and the high degree of uncertainty around the severity and length of this virus, has led to incredible moves across stocks, exchange rates, commodities and government bonds.

In a matter of weeks, global equity benchmarks fell from record highs into a bear market, which means a market where the prices are falling (source: BlackRock, as of 31 March 2020). Global stocks have fallen by over ^_basic_rate (as measured by the MSCI World Index) and the FTSE All Share-TR Index (UK Stocks) plunged by ^{_corporation_tax}. (source: BlackRock, as of 31 March 2020). US 10yr Treasuries and Gold were two of the few asset classes to provide some form of safe haven during the quarter but even these were subject to a rollercoaster ride as investors looked to sell in an indiscriminate fashion.

The market downturn has a more pronounced effect for Tailored Plan investors who hold a greater allocation of what we refer to as “risky assets”. This means that longer-dated vintages, designed for savers that have a long time (e.g. over 20 years) to their retirement date, have underperformed the shorter-dated vintages (where our investments are more suitable for investors approaching and navigating retirement).

Our portfolios are “fully invested” across company shares and bonds depending on when an investor expects to retire. Whilst these periods are challenging, no one likes to see pension savings decline; we believe that a key to retirement success is ensuring that individuals remain invested, even in times of market stress. When we approach retirement, customers are even more aware of the value of their pots and whilst customers have experienced significantly less losses here – negative returns can often lead to them selling out of investment strategies.

Our policy of being “fully invested” is based on time horizon. When we have many years to retirement, we hold more riskier assets such as stocks and property because over the long-term we expect them to generate superior growth to lower risk portfolios. When we approach investments, we hold bonds that don’t expect positive returns all the time, but have diversification properties when held alongside stocks to reduce the impact of losses. We also design our strategy to facilitate drawing down income through retirement, so we hold allocations to stocks to help grow the portfolio over the long-term even in these “at retirement” portfolios. Even when we retire, let’s say at the age of 65, we still have to manage our portfolios with the expectation that customers will want to remain invested and drawdown an income for several years.

Risk: Diversification and asset allocation may not fully protect you from market risk.

The other important point to consider is that timing markets in periods of stress is very difficult to execute with repeatable success. We have seen this over the decades with periods of stress followed by periods of recovery, mini rallies followed by further weakness. It’s why we talk about recoveries having a “V” or a “W” shape, or several other letters in the alphabet. Our approach doesn’t aim to time markets during or after these periods of stress so we set a long-term approach that gradually de-risks over time as opposed to responding or forecasting short-term events. This, as mentioned, doesn’t mean you will never see losses to your portfolios but by considering some of the key risks such as market risk, inflation risk and longevity (the risk of outliving our savings), and managing those risks through time, we set a long-term plan for PensionBee customers that may help them save for and spend in retirement.

What can savers expect for the next quarter?

The coronavirus pandemic is set to deliver a sharp and deep economic shock. Stringent containment and social distancing policies will bring economic activity to a near standstill, and lead to a sharp contraction in growth for the second quarter. However, provided government intervention aimed at supporting households and businesses through the shock is swift, we would expect markets to recover with limited permanent economic damage over the long-term. This includes drastic public health measures to stem the spread of the infection, as well as coordinated monetary and fiscal policies to prevent disruptions that could cause lasting economic damage.

We see encouraging signs from major central banks and governments that such a monetary and fiscal response is starting to take shape. The governments and central banks responses have been swift – and we expect the total government intervention to be similar in size to that of the global financial crisis in 2008, but compressed into a shorter time frame. While the shock is of unknown depth and duration, we see the shock as akin to a large-scale natural disaster that severely disrupts activity for one or two quarters, but eventually results in a sharp economic recovery.

Markets, in our view, may ultimately settle down if three conditions are met: 1) visibility on the ultimate scale of the coronavirus outbreak and evidence the infection rate has peaked over the long-term; 2) quick and coordinated government and central bank response; and 3) confidence that financial markets are functioning properly.

At the time of writing (14 April 2020) we have seen a short-term recovery in the portfolios but it is too early to call an end to the volatility. We cannot with any certainty pinpoint a specific date or level in markets that will give us the confidence to say, “it’s over”. However, over the long-term we still believe that owning a diversified portfolio of stocks and other assets with the potential to outperform cash will be beneficial and that, through adding assets such as UK government bonds we can help manage risk for customers as they approach retirement.

No crisis is ever the same but historically, after every period of market fall, a rebound follows and so whilst it is uncomfortable living and working (and saving) through this crisis, we believe savers should take a long-term perspective.

One positive has been the strength and depth of our investment team, our investment process and our continual engagement with PensionBee throughout the crisis. Despite rather unusual working conditions, the Investment Committee who are responsible for overseeing the strategy (and the portfolio managers who ensure contributions are invested in line with our long-term plans), have been able to function as normal. I am proud of how my colleagues have all come together in this challenging time and proud that the team have been well equipped to look after the savings of PensionBee customers.

How has BlackRock driven positive social change in the past quarter?

The past quarter has presented multiple challenges to people in every corner of the planet from health, social and economic perspectives. While we are facing unprecedented events such as the coronavirus outbreak and witnessing the global markets struggle, we believe it is important to be reactive to the immediate challenges, while also staying focused on our longer-term commitments.

At BlackRock we are committed to supporting people affected by the coronavirus outbreak. As a part of our coronavirus response, BlackRock has committed USD $50 million to pandemic relief efforts globally to aid the healthcare workers and provide medical supplies, as well as support the foodbank networks for citizens. Here in the UK we are working with organisations such as the National Emergencies Trust to support the urgent needs of those most affected by the outbreak.

Keeping our long-term aspirations in mind, BlackRock has also announced the launch of the BlackRock Foundation earlier than planned, with the aim to broaden the firm’s philanthropic investments in economic mobility, financial resiliency and sustainability. “The contribution we’re making – in line with our purpose as a firm – will support our commitment to creating greater financial well-being and advancing sustainability,” said Larry Fink, Chairman and CEO of BlackRock. “These funds will be strategically deployed to partners and programs aligned with this mission, helping catalyse new and innovative ideas that support social and economic progress for more people around the world. The BlackRock Foundation will support our conviction that the transition to a more sustainable economy must be inclusive, fair and just.”

Recognising our social responsibility as a large asset manager, we constantly look to enhance our approaches to stewardship as Larry Fink has stated in his latest letter to the CEOs. This past quarter we have worked on intensifying our focus and engagement with companies on sustainability-related issues and proactively promoting effective disclosures of climate-related risks.

During our engagements, we advocate for disclosures aligned with the reporting frameworks developed by the Task Force on Climate related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB) and are already seeing results. These frameworks consider the physical, liability, and transition risks associated with climate change and provide guidance to companies for disclosing material, decision-useful information that is comparable within each industry.

Our Q1 2020 Stewardship report provides multiple case studies and insights into our stewardship activities in this quarter, which you can access at the following link. To pick one example, we recently engaged with the heads of ESG and sustainability of an Irish construction company to discuss its approach to managing and reporting on its sustainability practices suggesting aligning its climate risk reporting with the TCFD framework. Cement production represents ^_ni_rate of the company’s revenues, however accounts for 8^{_personal_allowance_rate} of the company’s total carbon footprint. To manage these greenhouse gas (GHG) emissions challenges, the company is focusing on its emissions intensity (520kgCO2/t by 2030) rather than setting an absolute GHG target that would constrain cement production volumes.

Nonetheless, the company met its 2020 target and is seeking to further reduce its GHG emissions intensity by an additional 8% by 2030. We are encouraged that the company has set an ambition to achieve carbon neutrality along the cement and concrete value chain by 2050. This science-based target (SBT) at a 2-degree scenario has been independently verified to be in line with the Paris Agreement. From a reporting standpoint, we were also encouraged to learn from the engagement that the company is in the process of enhancing disclosures and is reviewing both the TCFD and SASB reporting frameworks. The company indicated that it welcomed the TCFD recommendations and is actively participating in TCFD’s preparers forum. While it is early days in the company’s reporting journey, we are encouraged with the tone of our engagement. We will be looking to the company to align its climate risk reporting more explicitly with those recommendations going forward

Risk: Case studies are for illustrative purposes only; they are not meant as a guarantee of any future results or experience, and should not be interpreted as advice or a recommendation.

Views expressed are of BlackRock.

Risks warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

BlackRock DC LifePath UK Risks

Credit Risk: The issuer of a financial asset held within the Fund may not pay income or repay capital to the Fund when due.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Important information

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

As with all investments, past performance is not indicative of future performance and you may get back less than you start with.

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Success in the tech industry and PensionBee’s approach to software delivery

The tech industry is full of knowledgeable, skilled and driven people so starting out as a software developer has its challenges. Learn more.

This blog piece started its life very differently. It was supposed to be an insight into Software Delivery at PensionBee - every other fintech publishes blog pieces around life behind-the-scenes so why should we not also do the same thing? Also, given I’ve been a huge part of setting up some of the practices that we have in place now, it should be relatively simple to write about. But it hasn’t been easy to write about because it involves looking at my own achievements - something that’s quite difficult to do when you’re full of critical self evaluation and believe that nothing’s ever enough.

The interlinking of performance with a sense of self is common in the tech industry. The industry is full of knowledgeable, skilled and driven people. Some view those people as someone they can aspire to be - they are optimistic of their own skills and ability to advance themselves. Others, however, find it very daunting: we will never be as intelligent and as perfect as those people. They seem to know everything, or understand things easily, and they rarely seem to ask for help or make mistakes. Whereas our experiences are the exact opposite - things are difficult or confusing and if we ask for help, we worry that people will think we are dumb. And so we feel like we don’t belong in this role or industry.

In researching these feelings, I found that Imposter Syndrome, Perfectionism and Anxiety are very common in the tech industry. There are many tips on how to overcome these feelings - common to all content is the importance of talking about the feelings. Makes sense, right? It’s our shared experiences that connect us as people and these help us build relationships. So this is me, sharing my experience, in the hope that it will resonate with someone and stop them being a blocker to their own achievements.

PensionBee anniversaries are always very special days, where cohorts of NewBees remember joining the company, reminiscing over when friendships began and journeys that have been taken together. For me, my PensionBee anniversary is a super-special day for so many reasons. But one reason always feels a little more important than the others: “I have luckily, somehow, made it another year here”. My journey to PensionBee will help you understand why I feel this way.

About three years ago, I made a fairly risky decision to quit my job as a Release Manager in Financial Services, and enrol in a coding bootcamp to retrain as a Software Engineer. Half way through the course (I remember the day very vividly), I had the realisation that no matter how much the course taught me, I would never know enough to be the perfect Software Engineer that all companies seem to want. But no matter, I had started down this path and so would deal with that after graduation - more on a British Asian girl’s need to achieve, later. Job hunting as a Junior Software Engineer is tricky to say the least - “I really don’t know enough, nor have enough experience, so how do I get someone to hire me” - but when you are a career-changer, trying to find a place (if at all) for your previous skills, feels like a bit of a confusing mess. PensionBee saw through my disarray and hired me as the fourth person in the tech team (employee number 19).

I’d like to say that my fears were all nonsense and that there was sunshine and rainbows and beautiful code everywhere. But alas, I spent the first few months (at least!) trying to use what felt like a “starter” toolkit to tackle some really heavy-duty real world challenges. And when the tech got too difficult to understand or I got frustrated with having to ask for help all the time, I fell back into doing what I knew I was good at: software delivery. So that’s all the stuff that goes around the code writing bit: analysing bugs and issues, pseudo coding out solutions, pulling together feature walkthroughs, post-launch support etc. It took about six months for me to work out a very basic, lightweight project delivery methodology for PensionBee. Called the Project Scoping Document, it was simply a list of questions to ensure that there was some structure around project delivery. Sounds a little win-win, right? PensionBee needed a process for delivering software and I had the knowledge and skills. But there was very little about it that felt like progress or achievement, for me personally. Deep down, I was hiding behind the procedural aspect of being a Software Engineer because I felt like I just wasn’t good enough at writing code: I was too scared to start a feature, I would just write and rewrite code, I feared code review. I just felt so out of my depth. I felt like a fraud - trying to build software despite not really knowing as much as everyone else in the team.

How did I get past this? My one hot tip? By finding some love and compassion for myself. Being brought up in British Asian household, there was always a hard push to become more accomplished. As a girl, I was always encouraged to prove myself as at least equal to a male counterpart. This resulted in a very very strong determination to succeed at everything that I do, in a way that doesn’t allow for mistakes and failures. But that approach doesn’t work when changing careers - especially given, it in itself feels like failure. And it most certainly doesn’t apply when you are a Software Engineer - so much of the role is about trying out solutions and “learning on the job” and learning from others. This truth has been coached into me through Weekly Feedback and Quarterly Reviews, and it has helped me treat myself more kindly.

Whilst these sessions are normal practices at PensionBee, my meetings are effective because of the work that my manager, Jonathan, does with me. I have often been told that as a “Woman in Tech“ I need to have only female role models and mentors, but I don’t believe this is correct. Finding a person who understands me and will champion me and my progression, is far more important to me than the gender of the person I ask for advice. And that is what I get in Jonathan. He has taken the time to understand me and what I want for my career, he then works with me to keep me focussed on this path highlighting where I am progressing and where I can push myself more. His logical and structured input helps me find clarity when my own thoughts fail me. And this is why it is important to talk.

Every quarter, I take the chance to reflect on the progress I have made personally and professionally: I celebrate my successes with Jonathan, and work with him to set goals that stretch me in a way that will help me recognise my own achievement in retrospect. But I have to do both. Because in doing so, I feel more empowered as a Software Engineer at PensionBee - I realise I rightfully belong here.

Both PensionBee and I have matured a lot in the last three years - the company is bigger, the tech team is bigger, we have multidisciplinary project teams, we have better structures in place for delivering software - based on my knowledge and experiences, and improved through constant trial and improvement (we love a project retro at PensionBee!). I have learned to make peace with my past and my desire for my future: focussing on both my technical upskilling (the whole challenging reason for becoming a Software Engineer!) and on embedding delivery Best Practises (something I know that I can do!). But it is something that I have to work on every day - I guess a little daily self-improvement never hurt anyone!

And if decision paralysis doesn’t get the better of me, I might actually get round to building the Continuous Integration/Continuous Delivery pipelines to support some of the Best Practices that we have in place.

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Why we are so excited to announce State Street Global Advisors as our new investor

On Friday, December 8, 2017 - just one week before PensionBee’s third birthday - I had the pleasure of signing an investment agreement for State Street Global Advisors (SSGA), the world’s third largest asset manager, to take a strategic minority stake in PensionBee. In doing so, SSGA became our largest external shareholder and the PensionBee team couldn’t be more excited! Here’s why.

A long-term partner

We have been working with SSGA since PensionBee was just a few sentences on a piece of paper with a bad (albeit soon-to-be-improved!) logo. We were introduced by a founding investor in PensionBee and when the intro email landed with our future SSGA team, it simply said: “Can you guys have a quick look at the attached and we should then discuss for 5 mins….” The attached was a 1-page summary of the business idea and the precursor to our very first meeting.

A real desire to help us innovate in the pension industry

When I first walked onto the top floor of State Street’s London HQ, I was nervous and excited. The 1-pager had turned into a PowerPoint, but there was a lot more to do before we would become the pension manager we are today. Even then, SSGA took a real interest in our plan to help people consolidate small pots and get on top of their retirement savings. When we asked for an appropriate fund to help people save more efficiently, they showed us the Tracker Plan, one of the core products on our platform today. When they were gathering ideas on how to get people saving for their Contribute magazine, our opinion mattered. SSGA have always supported our unique approach to helping people save for the future and we can’t wait to roll this out in other ways and in other countries.

Walking the talk when it comes to gender equality

These days, most people in the world of finance have heard of State Street’s Fearless Girl, a statue that stands off against the Wall Street bull defiantly. She represents the empowerment of women across the business world and she is not just a token. Our investment conversation with SSGA began in September 2016 - when I was 7 months pregnant. As a CEO, raising money when pregnant is daunting and I have read some shocking stories of investor behaviour. But it didn’t matter and I always felt that the firm was incredibly supportive of my family and my 1-year old.

A down to earth team we can have fun with (and who also have a small obsession for bees)

The SSGA team is easy to work with and so down to earth. I suspect this is one of the reasons clients love them and why our cultures mesh so well. When I was in Boston, global HQ, we talked shop at a pasta joint I used to frequent as a student at Harvard. Our investment closing dinner was at The Sichuan - a trendy Chinese restaurant next to Old Street. In SSGA, we know we have a partner we can change the industry with while also having fun, whether that involves discussing the shape of the perfect bee or the best ways to get people in control of their retirement.

Welcome on board SSGA team! Here’s to making pension savings better.

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Should I take money from my pension to help my family?

Freelance financial journalist, Laura Miller, discusses the considerations to make before deciding to take money from your pension to help your loved ones.

Financial experts may tell you you’re mad! But wanting to help friends and family in times of trouble is a natural response - so should you give away money from your pension to help loved ones?

With 8 million UK workers furloughed on a ^_basic_rate pay cut, tens of thousands more being made redundant, and Britain bracing for the worst recession in 300 years, many household budgets are in freefall.

Your healthy-looking pension can make you feel well-off by comparison and able to dip into your pot to help out others. Two things: 1) that money has to last you maybe 30 years, is it really that much? 2) are you really prepared to impoverish your own future to help someone else now?

Even if the answer to both of these questions is ‘yes’, you may still wish to consider further whether this is the right action to take. Follow these four golden rules to find out the safest way to take money from your pension to help loved ones.

1) First take the free, impartial and independent guidance from Pension Wise, and consider professional advice, to ensure you fully understand the consequences of withdrawing money from your pension.

2) Don’t fall for scammers! Only those aged 55 and over can access their pension – anyone telling you otherwise wants you to break the rules (you’ll pay a ^{_pension_release_tax_amount} tax bill), or is trying to defraud you of your savings.

PensionBee recently found two thirds of people couldn’t identify common scams like early pension access and offers of ‘free’ pension advice. Visit sites like Scam Man and the Financial Conduct Authority’s Scam Smart hub to learn more about how to protect yourself.

3) If you’re taking money from a workplace pension you’ll probably have to; transfer to a flexi-access drawdown plan; or take it as an uncrystallised funds pension lump sum. It’s a good idea to seek advice on which option is best for your needs, now and in the future. Each option takes time and has separate tax considerations.

4) If you follow some of the steps above and go ahead with withdrawing money from your pension it’s crucial to keep as much as you can invested, and continue saving for your future wherever possible. Do bear in mind that once you’ve started drawing your pension the amount you can save tax-free each year will reduce from a maximum of £40,000 to £4,000.

One of the biggest risks of accessing your pension savings before you need them is that you may run out of money in retirement, which could result in you needing to work much longer than you had planned.

A pension calculator can help you see how much you could have in retirement based on your current savings rate and the age you’d like to retire. It’ll show you if you’re on track for a comfortable retirement, or if you’ll need to increase your contributions or retire a little later to achieve the level of income you want.

Risk Warning: As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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September product spotlight

In September's product spotlight, we focus on some of the work we’ve been doing to improve the pension transfer process for our customers.

It’s not just new visual features like our onboarding checklist or podcast in the app we work on to improve our customers’ experience of interacting with and learning more about their pensions. A lot goes on behind the scenes to make our processes like transferring your pensions quicker.

Transferring a pension should be a quick and simple process. Unfortunately, this hasn’t historically been the case in the pensions industry. In fact, PensionBee was founded after our CEO; Romi Savova, encountered great difficulty transferring an old pension. In this month’s spotlight, we focus on some of the work we’ve been doing to improve the pension transfer process for our customers.

Making transfers quicker

Generally, the more information you can give us the faster we can transfer your pension. As a customer, there are some things you can do to help speed up your transfers. However, much of the transfer process remains out of your hands. Our ability to work with your old provider to transfer a pension depends on the accuracy of the information we hold and the speed with which we can complete building a pension record. Once we’ve done this we’ll have all the information needed to contact your old provider.

Preparing a pension transfer request

When you want to transfer a new pension we ask you to provide some basic details such as your pension’s provider and the policy number. Before we can send a transfer request to your old provider we build a pension record which collects all the details we need to send a transfer request to your old provider.

We often need to work out which department at your old provider to contact so we can send the transfer request or ask for more policy information. You may be surprised by how complicated it can be to find this out. We can sometimes determine this by the format of your pension’s policy number but some providers use several formats. To date, reviewing the information we receive and determining exactly who we need to contact has been a manual process.

Automatically matching your provider details

Our recent changes have resulted in a system that automates reviewing the pension information we receive to determine the best department to contact. The information you supply is matched automatically with the information we already hold about your old provider as far as possible. Successful matches mean we can build your pension record faster, reducing the manual review steps needed by our BeeKeepers, your UK-based personal account managers. As well as speed it also increases data accuracy, reducing the chances of errors being input on the pension record that can arise from manual input.

These improvements enable us to send the request to transfer a pension faster. It also reduces the likelihood that we’ll need to follow up with a customer if we have questions to clarify.

Increasing automatic transfer requests

We’ve also increased the number of newly added pensions we can automatically send transfer requests for to the providers.

Before sending a transfer request we perform several important checks on the pension information we receive. These include ensuring the policy number is in the correct format and that there aren’t any special benefits or exit fees. We inform our customers of any exit fees over £10 as well as any special benefits that we find. They can then decide if they still want to proceed with the transfer. If these checks pass the information can automatically be populated onto the pension record and the transfer request sent straight away.

Performing these checks automatically means there’s less need for our BeeKeepers to manually review and check this information. We can be confident a transfer request can be sent directly to your old provider. It also enables our BeeKeepers to spend more of their time resolving more complex transfer requests which can’t be automatically transferred.

Understanding your transfers’ status

After a new pension is added to your account, otherwise known as your BeeHive, there are many steps involved in transferring it. Sometimes a transfer needs to be put on hold. If it is, we’ll let you know why and what you need to do in the ‘Transfers’ tab of your BeeHive. Some of the reasons your pension may be put on hold we’ll let you know about include:

You’ve added a pension your employer’s actively paying into. We’ll let you know you’ll need to wait at least six weeks after you’ve left your job before resuming the transfer. Some providers won’t supply us with the information we need unless we can give them a policy number. We’ll let you know if you need to supply a policy number or contact your old provider’s HR department to find out what it is.

We’ll always email you if your transfer has been put on hold and any actions are needed. But we also wanted to be able to update you within the BeeHive if we require any further information about your transfers.

Transfer on hold notification

When you’re in your BeeHive it’s now easier to see if you need to take action on any of your pension transfers. If your transfer’s been put on hold you’ll see a notification on your ‘Funds’ tab.

Tap on the ‘Funds’ tab where we’ll highlight there’s an important notification related to your Transfers.

The notification is only available in the app at present but we’ll be expanding it to the online BeeHive soon too.

Future product news

Keep your eye out for our next product blog or catch up on previous posts. We’re looking forward to spotlighting more of our handy features and free financial tools plus we’ve got lots of great new updates in the works we’re looking forward to bringing you. Once released, we’ll let you know what they are and how they can help you save for a happy retirement.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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Regular withdrawals are coming soon!

Find out how we're making withdrawing from your pension easier through the much requested 'regular withdrawals' feature coming this summer.

Preserve Plan investor update Q3 2020

Nick Pidgeon from the Preserve Plan fund manager, State Street Global Advisors, updates us on the plan's performance in Q3 and the latest news.

Hi, I’m Nick Pidgeon from State Street Global Advisors, and we’re here to give you an update about the Preserve Plan, which you are invested in.

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

The Preserve Plan invests into short-term debt of high rated creditworthy companies with the principle aim to reduce risk and preserve your savings. COVID-19 led market stresses - which had prevailed over the second quarter of 2020 - eased throughout the third quarter. Improved market conditions resulted in lower returns for the short-term debt purchased for the plan. The plan performance, however, remains positive to short-term market conditions.

What can savers expect for the next quarter?

Challenging conditions are set to continue unfortunately, with the economic outlook remaining clouded as COVID-19 cases increase and tighter lockdown measures are implemented. These will likely have negative ramifications on the economy.

On a more positive note, the potential for a Negative Interest Rate Policy (NIRP) remains a threat, but expectations of this happening eased after Bank of England Governor Andrew Bailey said that the Bank were not about to use negative interest rates imminently and that the bank has a lot of work to do before considering cutting interest rates below zero.

Brexit trade negotiations are ongoing however at this stage, so it is impossible to say with any degree of certainty that a trade deal will be agreed within permitted time scales.

How has State Street Global Advisors driven positive social change in the past quarter?

Our aim is to promote positive changes to the environmental, social and corporate governance practices in the companies that the Plan invests in by engaging with them and voting on resolutions at company annual general meetings.

Climate change has been, and will continue to be, a key area of focus for our stewardship endeavours. As a result of the impact from COVID-19 the attention of many companies has shifted from longer-term sustainability matters to more immediate ESG and economic factors. It is important that companies focus on the short-term issues that have arisen but this should not be to the detriment of systematic risks, such as climate change, hence we have continued to engage with companies on the topic. So far this year we have had 72 specific climate-related engagements and they have focused on having companies:

Address the risk of climate change on their business
Commit to reducing carbon emissions
Educate boards ensuring directors are aware of climate risks
Provide climate reporting which conforms with relevant standards

Coupled to our engagement efforts to drive positive change, is the use of our vote at shareholder meetings. In recent years most climate-related shareholder resolutions were targeted at energy companies. This year however, we have seen a growing number aimed at financial institutions. One such example is a shareholder resolution raised with Barclays by the responsible investment charity, ShareAction. The resolution sought to direct the company to stop financing energy and utility companies that are not aligned with the Paris Agreement.

Following engagements with shareholders and ShareAction, Barclays announced a plan to reach net zero carbon emissions by 2050 and a commitment to align all of its financing activities with the goals and timelines of the Paris Agreement. Barclays also submitted its own management resolution on climate for investors to consider at the annual meeting vote. The spirit of both resolutions was broadly similar but we opted to support Barclays’ resolution and abstain from the resolution submitted by ShareAction for the following reasons:

We believe Barclays’ proposal was the more ambitious of the two. Further, Barclays’ ambition to achieve net zero emissions by 2050 covers all of its portfolio, not just lending (as proposed by ShareAction’s resolution).
The resolution submitted by Barclays sought to transition its provision of financial services across all sectors to align with the Paris Agreement, whereas ShareAction’s resolution was too narrowly focused on the “phaseout” of specific financial services in the energy and power sectors.
The passing of both resolutions could have created legal uncertainties, as they are both binding.

We will continue to engage and vote on climate change matters and our recently published Annual Climate Stewardship Review which providers further insights into our activities can be found here.

As with all investments, past performance is not indicative of future performance and you may get back less than you start with.

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Preserve Plan investor update Q1 2020

Nick Pidgeon from the Preserve Plan fund manager, State Street Global Advisors, updates us on the plan's performance in Q1 and the latest news.

Hi, I’m Nick Pidgeon from State Street Global Advisors, and we’re here to give you an update about the Preserve Plan, which you are invested in.

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

Without ignoring the devastating health impact that the coronavirus has had around the world, we are clearly in the midst of a very challenging period for companies and the economy, more generally.

Both the social and economic environment that we find ourselves in is unprecedented, and the majority of investments have suffered losses. However, as a reminder, the Preserve Plan invests your money into short-term debt of high rated creditworthy companies. In the recent period, the value of these types of investments have held up.

The principle aim of the Plan is to reduce risk and preserve your savings. Recent times have been a good test of this aim, and we’re pleased to report that in an environment where UK stocks fell by around 24%, the Preserve Plan’s value remained stable.

What can savers expect for the next quarter?

We expect this challenging environment to continue into the near-term with damage to economic activity over the coming months. However, whilst there are still major risks that are yet to be played out, and a recession is a real possibility, it is also worth remembering that unlike other crises such as natural disasters of earthquakes and flooding, there is no damage to physical infrastructure in this instance. Factories remain ready for workers to return and for production to ramp up.

In addition, we have seen governments all around the world react faster than ever to help support the global economy through this period. As a result, there are fewer barriers to the economy getting back up and running once coronavirus is contained. Whilst this is our expectation, there are still many unpredictable factors and the next quarter is likely to be very difficult.

Whilst we expect the market to be bumpy, the Preserve Plan will continue to hold very low-risk investments, helping to protect the value of your savings during these periods of uncertainty.

How has State Street Global Advisors driven positive social change in the past quarter?

We drive positive social change to the companies that the Plan holds through engaging with them and voting on resolutions at company annual general meetings. Our aim is to promote positive changes to the environmental, social and corporate governance practices in the companies that the Plan invests in.

In light of the outbreak of coronavirus, our President and CEO, Cyrus Taraporevala sent a letter to the boards of companies that we invest in on your behalf, outlining how we will be engaging with them in 2020 given the serious impact the virus has had on many company’s employees, operations and customers.

In the coming months, our discussions with the companies that the Plan invests in will focus on immediate issues such as employee health, serving and protecting customers and ensuring the overall safety of supply chains. Importantly, we stand ready to help these companies to navigate financial threats and market uncertainty. The full version of the letter can be found here.

As with all investments, past performance is not indicative of future performance and you may get back less than you start with.

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Preserve Plan investor update Q2 2020

Nick Pidgeon from the Preserve Plan fund manager, State Street Global Advisors, updates us on the plan's performance in Q2 and the latest news.

Hi, I’m Nick Pidgeon from State Street Global Advisors, and we’re here to give you an update about the Preserve Plan, which you are invested in.

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

The Preserve Plan invests into short-term debt of high rated creditworthy companies with the principle aim to reduce risk and preserve your savings. The value of these types of holdings increased over the second quarter of 2020, as markets recovered from the COVID-19 induced stresses witnessed in the later stages of the first quarter, which in turn led to a positive fund performance.

What can savers expect for the next quarter?

Savers can expect challenges to continue as threats of second wave outbreaks continue to hamper economies. The UK economy showed small signs of recovery from lows seen in April after easing of some lockdown measures. This trend should continue in July as bars, restaurants and cinemas reopen, including a reduction in the official social distancing measure.

The threat of the Bank of England lowering interest rates from the current 0.1^{_personal_allowance_rate} below zero eased after this was not discussed in the latest monetary policy discussion in June, although Bank of England Governor Andrew Bailey was careful not to rule anything out. Negative rates could be bad for savers as it could mean even lower returns or even negative savings rates in some cases, but good for borrowers with cheaper mortgages and lending costs available.

The Preserve Plan invests into a range of short term investments that seek to achieve the highest return possible within the existing low risk framework which will continue even if the Bank of England moved interest rates into negative territory. We were therefore still pleased to see that the possibility of negative rates was not discussed in June.

How has State Street Global Advisors driven positive social change in the past quarter?

We drive positive social change to the companies that the plan holds through engaging with them and voting on resolutions at company annual general meetings. Our aim is to promote positive changes to the environmental, social and corporate governance practices that the plan invests in.

We recently engaged with Tesco plc, and discussed how strong corporate culture is vital to support the company’s ambitious sustainability efforts. Tesco was the first FTSE 100 company to set a target to become a zero-carbon business by 2050. The company has also committed to source 10^{_personal_allowance_rate} of its electricity from renewable sources by 2030, and so far, has achieved 58% of this goal. In our engagement, we found that Tesco’s board places significant focus on the wider culture of the business. Tesco’s sustainability strategy, the “Little Helps Plan”, is inspired by the company’s core values and aims to mobilise all parts of Tesco’s business to focus on the social and environmental challenges that matter most to its customers, employees, suppliers and stakeholders.

In addition, we engaged with Apple Inc ahead of their annual general meeting. We engaged with the company multiple times to discuss the resolution pertaining to “Freedom of Expression and Access to Information Policies”. We determined that the company’s practices could be further strengthened, as certain aspects lagged those of its peers. During our engagement, we encouraged Apple to establish and publish a formal policy statement on human rights. Apple was agreeable to this request and intends to publish a formal statement on human rights with mention of freedom of expression within a year.

Today, there is a global focus on the value of diversity in the boardroom. Diversity is about having a balance of backgrounds and experiences on boards that manage companies. When we engage with companies, the diversity conversation is no longer about “why” we are engaging on the issue. Instead, the focus is “why not” enhance their board by embracing the value of diversity.

Earlier this quarter, we celebrated the Fearless Girl campaign’s third anniversary and International Women’s Day by creating a “Living Wall”, highlighting the number of companies that have added their first female director to their boards since we began our campaign in 2017. The campaign began with us placing a statue of a girl near New York City’s Wall Street and calling on companies to have at least one woman on their boards, failing which, we would take voting action against directors on the board. After three years of productive engagements and voting, we are pleased to report that since the introduction of Fearless Girl in 2017, 681 companies, or approximately 49 percent of companies identified by State Street Global Advisors, responded to our call by adding a female director.

As with all investments, past performance is not indicative of future performance and you may get back less than you start with.

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Introducing the Pension Confident Podcast - with Peter Komolafe

Every month Peter Komolafe will be talking to experts from the PensionBee team and some of the best brains in personal finance, to discuss the biggest topics impacting your pension.

Governance and the Pensions Dashboards

In the final of our three blogs, Clare explains why the proposed governance structure will fall short on delivering government’s objectives.

In December, our CTO Jonathan Lister looked at the technical architecture for the pensions dashboard and concluded that an approach based on familiar design patterns and open APIs is preferable to the centralised model proposed in the feasibility study.

In the final of our three blogs, I explain why the proposed governance structure will fall short on delivering government’s objectives to ensure consumers are protected, industry pay all development and delivery costs, meet the 2019 deadline and, keep the UK at the forefront of the data revolution.

What does the DWP propose?

In the absence of a clear industry lead, the Department concludes that a new single delivery group will oversee and drive implementation. This will be led by a chair, steering group, implementation executive and working groups setup in time to launch the first dashboard in 2019.

The cost should be met by industry. Industry will also fund the development and delivery costs of the dashboard infrastructure, including the Pension Finder Service and identity verification, the non-commercial dashboard and all new regulatory functions related to dashboards.

Not only does this timeframe seem highly ambitious it also sounds extremely costly and potentially unnecessary. When considering the huge costs of setting up Open Banking, asking the pensions industry to pay to start again, on a voluntary basis, seems a tall order.

As Romi covered in her blog, with no commercial dashboards in sight for five years, the financial benefits for providers are unclear or at best distant. We know for some providers there may ultimately be no commercial benefit, so costs will be hard to justify.

Now I am not suggesting that government pay, but if industry are, we should reuse what already works to protect consumers and only set up new systems where nothing else exists.

What’s the justification for setting up another body?

Three reasons are given as to why the Open Banking Implementation Entity (OBIE) is unsuitable for this task and why a new body must be set up. These are:

OBIE already has a packed programme of work,
the pensions industry needs to build trust and clean data before they are ready to join up with other sectors of financial services and
finally, that it would require amendments to existing legislation to do so.

Firstly, the OBIE are both willing and able to expand to other financial products and in fact, have an extended remit to do so. The pensions industry does need to clean their data, but we’ve always known this would be phased over 2-3 years. In all scenarios those with good data go first.

Whilst it’s clear how the Department came to their conclusions, the unwritten reason appears to be that they don’t want to lose control by allowing the OBIE to run it.

The arguments as to why the OBIE cannot be used are weak in the face of evidence that the vast experience and skills accumulated by the 150 people already working there to deliver solutions are reusable and extendable to the challenges of pension dashboards. They also have an extensive framework supporting an existing liability model, fit for purpose regulatory permissions and a dispute resolution system to underpin governance.

The relative ease of extending OBIE’s remit and employing more people to deliver a Pensions Dashboard in contrast to the time and cost of recruiting and building an entire function from scratch deserves further examination.

Whilst it’s clear how the Department came to their conclusions, the unwritten reason appears to be that they don’t want to lose control by allowing the OBIE to run it.

Their arguments ignore the issue of set-up costs, which industry must bear, to build a parallel delivery body and governance structure, when one already exists.

The fact is we are going to need legislation for any new body to operate successfully anyway. Legislation is necessary in all scenarios.

So how much will it cost and who will ultimately pay?

Open Banking Ltd’s public financial accounts 2017 give us some indication of what the administrative expenses for running a similar body are, £28M.

Seeing as everyone knows where their bank account is (they don’t need to search), there are only nine stakeholders with up-to-date, clean data (CMA9) and there’s a legislative order to mandate them to pay for Open Banking Ltd’s activities, this is an arguably easier task than pensions, where none of the above applies..

In addition to the set-up and running costs of the duplicate body, pension providers will also need to pay to clean / digitise their data, overhaul IT infrastructure and build open APIs with no commercial incentive yet in sight.

Even in a scenario where we have legislation then who do we think is really going to pay for it? That’s right - consumers. Since many workplace schemes are already at the 0.75% charge cap, this can only mean cost cutting elsewhere. Across the board, the quality of products and services will be reduced. We can wave goodbye to future technological innovation or focus on engaging savers - the opportunity cost is huge.

Good governance is about protecting consumers

As we saw play out with the CMA9 and Open Banking, the only way to ensure consumers were given access to their data was to set up a completely independent entity led by a team from outside the banking industry. Prior to this the banks succeeded in controlling the initiative to suit their own interests.

Likewise, in pensions, the only way to ensure we protect consumers is to have a genuinely independent governance body and not one representing industry interests. The OBIE is that independent and neutral body proven to act in the interests of consumers, with a track record of challenging - and not bowing to - incumbents.

From a regulatory standpoint, to protect consumers from the outset we must reuse existing regulation and permissions. These already exist in the form of FCA’s Account Information Service Provider (AISP) permission, Payment Initiation Service Provider (PISP), the OBIE regulatory framework and Directory of organisations Financial Conduct Authority regulated to operate in the ecosystem. Not only are these fit for purpose, and exist, they already protect consumers and as yet haven’t seen one data breach.

Using these means that only regulated entities can operate in the ecosystem and unregulated screen scraping services, which breach FCA rules, can be shut down. Consumers can also use the Directory to check the list of regulated services available to them, as they can with Open Banking.

2019 is only achievable by using what we have

The only possible way to set up the governance body, deliver a dashboard, protect consumers, ensure industry voluntarily pay for it and meet the 2019 deadline is to use an existing body.

The study proposes the SFGB have until Spring 2019 to recruit a chair. The chair must then recruit the steering group, implementation executive and working groups in following months. They must all then agree design standards, set up a new governance framework and launch a dashboard almost immediately. It’s not realistic.

In contrast, the OBIE has structural framework and staff in place and can begin once government instructs them. And let’s not forget the scale of challenges faced by the OBIE when dealing with the banks. They have the proven track record of success in bringing together fragmented and fractious industries.

The OBIE might be busy, but they have the solid foundation to take on more. Pensions are a different beast to current accounts yes, but the principles are the same. OBIE will act if asked, with industry paying a levy (similar to banks) to expand and enhance their capability to include pensions.

The Open Finance revolution will not wait five years for pensions

The final, most worrying aspect to all of this is that the inevitable cost, complexity and long delays of starting from scratch will come at real price to both UK savers and UK plc. At a time when can neither can afford it.

The DWP’s governance approach risks relegating pensions to the shadows, missing being part of the Open Finance and, eventually, Open Life consumer revolution. The DWP say the pensions industry are not ready, but what about savers?

Consumers have already waited too many years for the ability to just see their own savings online and in one place.

The UK is a world leader in Open Banking and the entire world is emulating it’s approach. Work is currently underway in Australia to adapt UK Open Banking protocols to pensions and other savings vehicles. If the government doesn’t support extending OBIE standards into pensions then the UK will lose a strategic leadership opportunity and other countries, like Australia, will reap all the economic benefit that should belong to the UK.

“Open Banking is making sure you’re creating the best possible outcomes for customers… from small businesses to big companies. We’re looking forward to a bright future with #OpenBanking”. #TechnologyisGREAT #UKFintech 🇦🇺🇬🇧 pic.twitter.com/0Q7K4bIloV
_{— Dept. Int.Trade Aust (@tradegovukAUS)}

HM Government’s ‘Industrial Strategy - Building a Britain fit for the future’, clearly sets out an objective of putting the UK at the forefront of the data revolution while helping meet the needs of an aging society.

No country in the world has yet brought pensions into Open Finance to build successful commercial dashboards using Open Standards. It is in the national interest to promote the UK as a centre of excellence in fintech innovation and bring pensions into Open Finance now, rather than see our own Open Banking standards used to build international Pensions Dashboards we must copy in five years.

Conclusion

The only way to meet the 2019 deadline is to use using an existing governance and delivery body, the OBIE, to drive this forward. Anything else risks opening up consumers to unnecessary risk, delay and cost. It forces the industry to pay to duplicate something we already have, that already works and wants to expand its remit. This is on top of huge data cleansing and API building costs with no commercial incentive.

Consumers have already waited too many years for the ability to just see their own savings online and in one place. In every other area of their financial lives consumers are being empowered through Open Data. It’s imperative we allow pensions to be brought into this data revolution now, rather than once again allowing pensions to be labelled too different, too complex and ultimately too outdated, to engage with.

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Open Source Software - Are the sustainability problems getting better?

Business leaders are increasingly choosing to use open source software in their technology infrastructure. We explore whether open source software can improve the global sustainability problems.

Open source software (OSS) is the bedrock of the digital economy. It’s estimated to comprise 7^{_personal_allowance_rate}-9^{_personal_allowance_rate} of modern software solutions. The adoption of OSS into organisations is both deep and wide. Organisations that have already integrated OSS are increasingly deploying it into new areas of digital operations, often replacing functions served by proprietary software.

At the same time, OSS usage cuts across industries, from education to transport and not merely technology. Businesses of all sizes are choosing to deploy OSS not only because it’s a feasible option, but because OSS offers unique benefits to their business. The 2022 State of Open Source report found that 77% of organisations increased their usage of OSS in 2021, with 36% increasing usage significantly.

Unfortunately, the long-held concern over OSS sustainability continues. How can the development and maintenance of OSS receive the crucial ongoing support it needs to continue serving not just governments and businesses but indeed whole societies that benefit and even depend on it?

A fragile foundation

At its foundation OSS development is done almost entirely by volunteers, who freely give their personal time to work on OSS projects - think wikipedia, but for software. Many OSS projects serve the needs of organisations of all sizes, including among the very largest in the world, whilst being maintained by developers who lack almost any kind of financial or institutional support.

Businesses and governments across the world make extensive use of OSS yet many have little understanding of how the software they rely on is developed and maintained in the first place. For example, GitHub estimates that over one billion websites rely on OpenSSL for securing network connections, including the likes of Google and Facebook, yet the project has a core team of only 18 maintainers. The rapid digital consumerism of OSS adoption has not been met with the level of support it needs to sustain itself.

Commercial enterprises that rely on proprietary software can often put pressure on suppliers when features and fixes are needed. It’s hard to leverage that same kind of pressure on a community which has chosen to freely give their time and resources. But in such cases, any pressure may mean those developers are unable to keep up with requests, leading to burnout. They may even leave the project altogether, with the hope that other volunteers may step in to help.

Given a system which relies almost entirely on free labour and self-motivation it’s easy to see that this ‘way of working’ isn’t one that can be sustained indefinitely. The problems arising from a lack of sustainability may result in, at ‘best’, a slow down in digital innovation and at worst leaving gaping security vulnerabilities left exposed for longer. OSS has had its share of high-profile security issues such as the recent Log4j and Heartbleed vulnerabilities, which highlight the fragility of a system on which much of the modern world runs.

Where are we now?

Whilst OSS sustainability has been a concern for many years, the 2016 ‘Road and Bridges’ report written by Nadia Eghbal is seen as a crystallisation of the sustainability problems facing OSS as well as offering ways to remedy the situation. By this point, however, the report is several years old so it’s worth understanding how the sustainability issue has changed.

Financial support initiatives

A sustainable way to compensate developers has long been sought. Some fresh attempts to address the problem of financial support for OSS have been made in the last few years including the development of new funding models as well as adapting existing ones.

GitHub Sponsors, for instance, launched in 2019 to enable donations to open source projects and their maintainers and was later expanded to allow corporate sponsorship. Through this expansion, GitHub emphasises to organisations that they should recognise the importance of their ‘digital supply chain’, encouraging them to give back to the solutions that serve their business needs. Financial support in OSS has typically taken the form of one developer donating to another, yet incentivising and enabling commercial enterprises to support projects can enable much larger amounts of funding to flow into OSS.

Outside of the technology world, some financial support has started to filter through from other industries. In 2019, employment website Indeed, launched the FOSS Contributor Fund, whilst earlier this year, music streaming giant, Spotify launched its Free and Open Source Software (FOSS) Fund to support and pay developers of projects nominated by the Spotify R&D department.

Sponsorship and donations have been one of the most common ways to support OSS projects. OSS foundations also play an important role in financially stewarding the support of OSS but operate in a slightly different way than directly giving to projects. Instead, they seek to raise funding for the foundation itself, and in turn, distribute the funds among the projects it supports. Some of the largest foundations require ongoing funding to help support 100s of projects at the same time. The Apache Foundation, for example, supports more than 200 OSS projects, The Linux Foundation, over 400 and the Eclipse Foundation over 300 projects.

Leveraging the financial muscle of corporate organisations will hopefully help keep at least certain projects viable. Understandably, commercial businesses have a vested interest in supporting the OSS they use and it’s encouraging to see dedicated funding coming from such organisations. But given the dominance of certain projects, most financial support may end up going to the biggest projects or to a relatively narrow set of open source projects.

Emerging open source models

Of course, financial support is welcome and needed but it alone is unlikely to sustain OSS development in the long term. Some argue what’s needed are entirely new business models.

For instance, Tidelift has developed a type of managed services model for OSS enabling organisations that use OSS to receive direct support from a growing group of maintainers Tidelift has partnered with. Tidelift effectively provides organisations with dedicated support for their digital supply chain. Organisations subscribe to a paid management plan through which the maintainers who work on their products earn financial compensation. In this way, Tidelift helps to compensate maintainers whilst providing organisations with the assurance of reliable professional-grade software.

“Open source doesn’t just need ‘funding.’ It needs a better business model that works for creators and users alike, at massive scale,” - Donald Fischer, Co-Founder of Tidelift.

Open Collective, created in 2017, functions like a crowdfunding platform, except the support goes deeper. Open Collective connects OSS projects with those interested in financially supporting them by providing those projects with fundraising tools, helping them to pay their expenses and accepting sponsorship. By essentially taking care of financial administrative operations, they allow OSS projects to get on with the business of development whilst helping them raise and manage the funding they need.

Such new models are examples of the kinds of creative solutions OSS perhaps needs and so far appear promising yet they are still in their relatively early stages. Central to the idea of sustainability is something that is able to be supported continuously. More time, therefore, may be needed before a judgement can be made as to how effective such newer endeavours may be.

Other models, however, have been established for longer and proven to be relatively more successful than others but may only just be showing signs of fragility. The open core model in which a free ‘core’ version of the software is made available alongside paid-for add-ons which extend the functionality of the core offering, is one of the more successful models with companies such as Docker and Elastic both having grown hugely using an open core approach.

Yet concerns remain that open core brings with it some of the same constraints that already exist with proprietary software. For example, restricting or preventing community contributions from extending the core product to the point it ends up competing with the paid-for features or creating a type of ‘vendor lock-in’. Perhaps ironically, open core may to some extent work against the ethos of OSS offsetting its unique benefits such as the speed of developing new features by being constrained by more commercial goals. In recent years, Elastic is a company whose use of the open core model blurs the spirit of open source development, to the extent that it’s questionable whether the project can still be called open source.

Beyond financial support

Perhaps naturally, the conversation around sustainability tends to centre around funding. However, sustainable OSS requires a more holistic approach.

Open Source Program Offices (OSPOs) are one way that organisations can assess their wider relationship with OSS and understand its importance to their business. OSPOs can help to foster investment in OSS in important non-financial ways such as making OSS contributions and participating in the OSS community. Though not a new concept, the number of OSPOs in organisations has been increasing. A 2022 report backed by the Linux Foundation found that 63% of respondents view OSPOs as critical to engineering success. It also reported that OSPOs are continuing to be adopted across industries and not just in technology, reflecting that more businesses are taking the value of OSS seriously and no longer simply ‘free-riding‘. Whilst the number of OSPOs is growing they still represent a small percentage of all the businesses that use OSS.

Human capital, as well as financial capital, is crucial to sustainability goals. Ensuring the continued success of OSS also requires that maintainers and contributors feel they are able to retain the capacity to contribute to projects. There’s some evidence that corporate support of employee contributions has been increasing in recent years. The 2020 FOSS Contributor Survey found that an increasing number of companies are implementing policies allowing employees to freely contribute to OSS. Additionally, just over half of respondents said they were paid by their employer for some of the contributions they make.

Certainly, this is the kind of ‘corporate backing’ many hope to see; an appreciation for the value of OSS followed by concrete measures to support contributions. Yet there still remain several concerns which may impact OSS projects. These include whether employers will push their employees to work on projects which most benefit the business rather than everyone who uses them, the impact there might be on a project if an employee is redeployed to work on proprietary software projects, or what may happen to a project if an employee is simply no longer paid to work on it.

Even where contributors are paid, for most making money isn’t their primary motivator. If it was, we probably wouldn’t be enjoying the benefits it brings us today. There’s often a fundamental difference in values between those who produce OSS and those who consume it. Aaron Stannard suggests a misalignment in mindset between the two groups. For those who use OSS, it’s easy to adopt a “take, take, take” attitude to solutions which are freely available, whilst the producers of OSS are typically motivated by reasons which aren’t commercial, such as the satisfaction that comes from creating something useful

Overall, some worry that corporate involvement in OSS may just become self-interested. Organisations need to ensure they protect the ethos and culture of the open source movement as they strive to support it.

A community of reciprocity

Just as technology itself is ever-evolving, tackling OSS’s sustainability problems continues to yield new solutions and ideas. Yet the sustainability problem is far from solved or perhaps even alleviated. New ideas in recent years may prove to be successful avenues of sustainability worth replicating but at the moment it’s too early to tell. And where progress has been made, it should perhaps come as no surprise that the greatest efforts have come from the technology industry itself.

Tackling sustainability problems with OSS will likely take multiple approaches, where different solutions exist side by side. As OSS is fundamentally fueled by its community of producers, addressing sustainability issues will need to involve its community of consumers beyond the technology industry.

If the community of those that use OSS work with and for the benefit of those who produce it, a reciprocal exchange of development and support can exist in much the same way as a living ecosystem’s able to thrive through the interdependence, of all who participate in it, on each other.

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Open Finance - exploring the benefits beyond Open Banking

We believe Open Finance has the ability to revolutionise consumers’ financial wellbeing. But whilst many may just be getting to grips with Open Banking we explore what Open Finance is and how it can benefit everyone.

What I learned about mothers and their pensions from answering Mumsnet questions

What are the burning questions that mums want answered when it comes to their pensions?

I was recently asked to answer some questions from Mumsnetters about their pensions.

With much talk this International Women’s Day of the ‘motherhood penalty’ contributing to the gender pension gap, this exercise was particularly instructive. It taught me a lot about the circumstances of this particular demographic, primarily women in their late 40s and 50s, although some younger, and also their retirement provision.

First off, there were more than 170 questions. More than we expected. I didn’t get through them all, although I wanted to. Women in this age bracket are thirsty for more pension information, but by this, I don’t mean to imply lacking in knowledge, because that clearly wasn’t the case. Many might have said they don’t know enough or even anything, but actually many of those participating were switched on, engaged, well-informed and curious.

Some asked about the best ways to invest a pension - what’s to argue against a passive global tracker fund? Not much, I replied. What’s the best way to access an income when you have a number of pots to draw from? How can I increase my workplace contributions?

Small’s a key word when mothers talk about their pensions. Even ‘absolutely tiny’. They’ve taken pensions when they can get them throughout working life, perhaps in part-time jobs, perhaps built up through a little bit of self-employment at some point. The random mixture of provision through the years, around childcare and in many cases before Auto-Enrolment came in in 2012 and you were lucky if your employer a) offered you a pension and b) actually encouraged you to pay in, is evident.

Mothers’ pensions may be small, but they are numerous. Many referred to a few ‘old defined benefit pensions’ and ‘small DC pots’ - they know the difference between defined benefit (DB) and defined contribution (DC).

I’m not surprised that this group of mothers talk about their old DB pots - the demographic of mothers with older children is just old enough to have had a DB pension through work when they started in working life, before this kind of pension became a public sector rarity.

For some, the DB pot came later in life, after kids and on joining the public sector. Some of the mothers referred to their ‘small’ NHS or teacher’s pension that they have been paying into for the last few years.

While some had some broader questions on pensions in general, most wanted help with their individual circumstances, not generic information. Their circumstances were often relatively complex, even if the sums involved were typically low. The recurring question was: ‘What should I do?’ By far the next biggest question was: ‘Should I consolidate?’.

It’s no surprise that consolidation is high up on their list of queries, with so many small pots around. Mothers like - need - to be organised in every way and I completely understand this desire to Marie Kondo your pensions. But the presence of the odd DB pension in the mix does complicate this effort to get all their pensions in one place.

Unfortunately, even taken together, the total of these pots is unlikely to qualify women for bespoke independent financial advice. That’s why they’re on this Mumsnet board. They need individual advice because of the complicated nature of their career histories and pension schemes, but perhaps can’t afford it because of the smallness of their overall pot. I referred several times to the free Government guidance service, Pension Wise.

Despite the lack of mega bucks, what I found heartening is that mothers do prioritise their pensions, at moments when they can. There’s clear evidence from those asking questions on this board that they have always tried to pay in, even if it’s been a relatively small amount. Mothers do what they can for themselves, although the odds are stacked against them. This is borne out by our own data around the contributions of our female customers, which we also published this week.

I love the fact that pensions are becoming a hot topic of open discussion. Maybe one day, they’ll be discussed as frequently and with as much passion as UK house prices. What would be ideal is if we could all become as clued-up in our own right about pensions as we are property. Answering these questions showed me that mothers on Mumsnet would like to be and I hope I helped just a little bit.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. Anything discussed on the podcast should not be regarded as financial advice.

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Match Plan investor update Q3 2020

Viraj Bhayani from the Match Plan fund manager, BlackRock, updates us on the plan's performance in Q3 and the latest news.

Hi, I’m Viraj Bhayani from BlackRock, and I’m here to give you an update about the Match Plan, which you are invested in.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

On an absolute scale, the quarter started off strongly, as the continued re-opening of economies combined with monetary and fiscal stimulus, maintained investor sentiment. However, towards the close of the period, increased instability was attributable to worries around rising COVID-19 cases, a resurfacing of Brexit tensions and investor concerns regarding technology companies’ valuations.

On a relative scale, the Match Plan aligns to the consensus of its peers in the pension sector. This means that some of the funds would have outperformed it and others would have underperformed it. In other words, by investing into the Match Plan, investors choose to be in an average fund that should represent the returns of the average of the pension sector. The Match Plan has been designed to help investors access a broad range of markets, in a straightforward and cost-effective way. This provides a greater degree of diversification than investing in a single asset class. This follows one of BlackRock’s core beliefs – that diversification is the key to achieving a more consistent investment experience over time. The return for the Match Plan over the three months ending September 30th 2020 was +0.65%.¹

Risk: Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Risk: Diversification and asset allocation may not fully protect you from market risk.

^{1 source: BlackRock, as of 30 September 2020. Performance gross of fees in GBP.}

What can savers expect for the next quarter?

The initial phase of the economic restart has been quicker than expected, but the part that lies ahead will be the hardest. Governments are incentivised to respond to rising cases with new containment measures as health concerns generally still trump economic ones. We are seeing this play out in Europe, with the introduction of curfews in France and Germany, and the month-long lockdown in England. Measures are targeted and local, but in sum, they have the potential to weigh on mobility and economic activity in the near-term. The timeline for a vaccine has been a positive surprise following accelerated efforts worldwide. Yet immunisation is not a panacea for the economy and a recovery to pre-COVID levels will take time.

We do not expect a similarly large hit to economic activity as seen in the spring. But the restart now looks to be facing significant challenges in the near-term. The risk is a broadening of containment measures that leads to a stalling for a few months – or even temporary reversal – of momentum in the economic restart. Ongoing policy support is crucial to help bridge businesses through any shock and avoid any long-lasting economic effects. Well-designed COVID-19 testing regimes are a key differentiator across countries – and asset returns.

The pandemic has exposed vulnerabilities of global supply chains and added a catalyst to geopolitical fragmentation. It has led to a policy revolution that blurs the boundaries between fiscal and monetary action – which could address some of the rising inequalities. And it has put a premium on sustainability, corporate responsibility and resilience of companies, sectors and countries. Market sentiment has been driven by the pandemic’s near-term evolution and the policy response, but these structural limits are transforming the investment landscape and will be significant to investment outcomes.

At BlackRock we are focusing on building real resilience for the whole portfolio. This goes beyond building a better blend of returns - it’s about ensuring the portfolio is well positioned at a more granular level to underlying themes, including sustainability. The pandemic has accelerated a tectonic shift toward sustainability and a call for a focus on resilience: diversifying across companies, sectors and countries that are positioned well for these trends. Therefore, over the long-term we believe that owning a diversified portfolio of stocks and other assets that incorporates sustainable insights will be beneficial for savers.

How has BlackRock driven positive social change in the past quarter?

BlackRock has recently been analysing our investment stewardship activities over the past year. Investment stewardship for BlackRock goes beyond simply voting at companies’ shareholder meetings, we also emphasise engagement - the direct dialogue with companies on governance issues that have a material impact on sustainable long-term financial performance. We advocate for robust corporate governance and the sound and sustainable business practices core to long-term value creation for our clients and promotion of positive social impact.

To highlight some of our key achievements in 2020, firstly BlackRock Investment Stewardship team voted against more directors than in previous years, reflecting heightened investor and societal expectations. Over 5,000 votes against directors at 2,809 companies² were driven by concerns regarding director independence, insufficient progress on board diversity, and overcommitted directors. BIS also held directors to account for insufficient progress on climate disclosures and compensation policies inconsistent with sustainable long-term financial performance (5,130 vs nearly 4,800 (this year vs prior year)².

Secondly, engaging corporate leaders has been our top priority. The events of the past six months, have reinforced the need for strong leadership so in 2020 BlackRock Investment Stewardship team increased its engagement by almost half (+^{_scot_top_rate}) – total engagements: 3,043 vs. 2,050 (in 2020 vs. 2019 respectively)² – both in reaction to the pandemic and to enable us to hold management accountable, particularly given our commitment to intensify our focus and engagement with companies on sustainability-related risks.

Thirdly, we believe investor expectations continue to rise. In light of the external environment and developments, we are currently reviewing our voting and engagement guidelines to provide more detail on our expectations and how we intend to reflect them in our voting actions in the next proxy season. BlackRock Investment Stewardship team has already set out expectations for 244 carbon-intensive companies making insufficient progress integrating climate risk into their business models or disclosures.² Those that do not make significant progress risk voting action being taken against management in 2021.

^{2 source: BlackRock 2020 Investment Stewardship Report, as at September 2020}

Views expressed are of BlackRock. Match Plan represents the BlackRock Consensus 85 Fund.

Risks warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Match Plan fund specific Risks

Credit Risk: The issuer of a financial asset held within the Fund may not pay income or repay capital to the Fund when due.

Equity Risk: The values of equities fluctuate daily and a Fund investing in equities could incur significant losses. The price of equities can be influenced by many factors at the individual company level, as well as by broader economic and political developments, including daily stock market movements, political factors, economic news changes in investment sentiment, trends in economic growth, inflation and interest rates, issuer-specific factors, corporate earnings reports, demographic trends and catastrophic events.

Derivative Risk: The Fund uses derivatives as part of its investment strategy. Compared to a fund which only invests in traditional instruments such as stocks and bonds, derivatives are potentially subject to a higher level of risk.

Liquidity Risk: The Fund’s investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair.

Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Important information

This material is for distribution to Professional Clients only and should not be relied upon by any other persons.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

As with all investments, past performance is not indicative of future performance and you may get back less than you start with.

‍

Match Plan investor update Q2 2020

Viraj Bhayani from the Match Plan fund manager, BlackRock, updates us on the plan's performance in Q2 and the latest news.

Hi, I’m Viraj Bhayani from BlackRock, and I’m here to give you an update about the Match Plan, which you are invested in.

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

TheMatch Plan is a diversified portfolio that follows the average of its peers in the Pension Sector at an accessible cost. The fund’s investments are guided by the strategies of similar funds, implementing the average across the pensions sector. As a result, the Match Plan aims to perform at the average when compared to its peers. The fund invests in a mix of bonds, shares and cash which allows it to minimise losses during market downturns and pick up the positive performance during market recoveries.

Following a challenging first quarter of the year, where the COVID-19 pandemic drove a sharp fall across markets, the second quarter reflected the improving global situation. The stimuli to the economy provided by governments and central banks have shown positive results in supporting the economies, and businesses have started reopening while the pandemic statistics look calmer in many areas of the world. While the uncertainty remains around the future of the COVID-19 virus and the recovery of the economies after the shock, investors started to regain confidence which was reflected in the rise in stocks and bonds prices.

The return for the Match Plan over the three months ending June 30th 2020 was 12.28% (GBP), which on an absolute scale, reflects the general market rally.

What can savers expect for the next quarter?

The initial COVID-19 contraction is larger than the great financial crisis in 2008, but we believe its cumulative impact on the economy will likely be less as long as the policy response remains strong enough to cushion the blow. Normal economic crisis and recovery cycle does not apply, so we are tracking three signposts: how successful economies are at restarting activity while controlling the virus spread; whether stimulus is still sufficient and reaching households and businesses; and whether any signs of financial vulnerabilities or permanent scarring of productive capacity are emerging. Markets are laser-focused on changes in any of these three “known unknowns,” and a possible second wave of infections and policy fatigue are major risks in the second half of 2020.

The shock will have long-term consequences that are starting to play out. Policymakers are funnelling money directly to the (non-financial) private sector, with debt monetisation, which is a way for the central banks to finance the government spending, being a possibility down the road. The pandemic is reinforcing structural trends such as ecommerce and sustainability; amplifying deglobalisation and geopolitical fragmentation; and may deliver a generational shock to the emerging world.

How has BlackRock driven positive social change in the past quarter?

The opinions expressed are as of June 30th 2020 from BlackRock and are subject to change at any time due to changes in market or economic conditions.

Risks warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

BlackRock DC LifePath UK Risks

Credit Risk: The issuer of a financial asset held within the Fund may not pay income or repay capital to the Fund when due.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Important information

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

As with all investments, past performance is not indicative of future performance and you may get back less than you start with.

‍

Match Plan investor update Q1 2020

Viraj Bhayani from the Match Plan fund manager, BlackRock, updates us on the plan's performance in Q1 and the latest news.

Hi, I’m Viraj Bhayani from BlackRock, and I’m here to give you an update about the Match Plan, which you are invested in.

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

The strategy of the Match Plan is to align to the Pension Sector average. By this I mean that the fund’s investments are guided by the strategies of similar funds, implementing the average across the pensions sector. As a result, the Match Plan aims to perform at the average when compared to its peers.

In the light of the recent market volatility driven by the COVID-19 global pandemic, the plan has performed negatively this quarter at -6.58% (as at 31 March 2020). The negative performance is driven by the fall in stock markets worldwide, whereby global stocks have fallen by over ^_basic_rate (as measured by the MSCI World Index) and UK stocks have decreased by over ^{_corporation_tax} (as measured by the FTSE All Share-TR Index) (source: BlackRock, as of 31 March 2020). In the past three months, the fund allocated 63.8% of the assets to stocks, in accordance with the fund objective and strategy, hence bearing the losses due to market fall.

The Match Plan is intended as a long-term investment that should be changed only when investor’s needs or requirements change over time. Despite the recent market volatility, the approach remains the same, which is why the fund has not been making short-term asset allocations in response to temporary market movements. During times of heightened volatility, BlackRock’s approach is to carefully review the risk in our portfolios to ensure they remain appropriate.

It is worth reiterating that the fund is aimed at a long-term investment horizon, where the market moves on to recover after shocks, such as the one we’re currently experiencing. The Match Plan is a diversified portfolio that follows the average of its peers at an accessible cost. Hence, the portfolio is well positioned to benefit from the market picking up following the stress.

Risk: Diversification and asset allocation may not fully protect you from market risk.

What can savers expect for the next quarter?

How has BlackRock driven positive social change in the past quarter?

Risk: Case studies are for illustrative purposes only; they are not meant as a guarantee of any future results or experience, and should not be interpreted as advice or a recommendation.

Views expressed are of BlackRock.

Risks warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

BlackRock DC LifePath UK Risks

Credit Risk: The issuer of a financial asset held within the Fund may not pay income or repay capital to the Fund when due.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Important information

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

As with all investments, past performance is not indicative of future performance and you may get back less than you start with.

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March product spotlight

In our product update series we highlight some of our recent new product features and updates. This month's edition focuses on a new checklist feature in the BeeHive and a provider search feature when adding a pension in the app.

Legal & General respond to our open letter regarding Shell

Find out how Legal & General have responded to our concerns around their investment in Shell.

*Read the initial letter to Legal & General from our CEO, Romi.*

Legal & General’s response

1. Statistics should come before company names

As climate change becomes ever more important, and more people want to understand why certain companies are included in a fund, we think it is important to make sure that statistics are not lost.

Perhaps it is not clear, but the index tracked by the fund actually reduces fossil fuel intensity by 57%, and emissions intensity by 22% (as at 30/09/19).

This fossil fuel reduction estimate is commensurate with analysis by reputable independent bodies (such as the International Energy Agency) around the amount of total fossil fuels that must still be left in the ground, if the world is to meet the targets of the Paris Agreement.

2. Companies are not included because they are ‘sufficiently contributing to our future’

That is a personal judgment upon which people can disagree and is not something considered for every one of the thousands of companies in the fund.

Companies are included (or more precisely not excluded) because they conform to certain transparent rules for index construction – not all of which are climate-related.

The fund has already significantly reduced exposure to hundreds of carbon-intensive stocks. Further exclusions might have unintended financial impacts.

For example, Shell is one of the largest payers of dividends in the UK. The Future World fund aims to balance these concerns between environmental sustainability and financial sustainability, by including three environmental factors as well as four investment factors.

3. Is Shell ‘doing enough’?

As you suggest, it is widely agreed that the oil and gas industry as a whole cannot continue to grow oil & gas expansion unabated if the world is to meet climate targets. However, there is no widespread agreement on what individual companies need to do. For example, you reference a study by Carbon Tracker that suggests Shell be required to cut emissions by 35%. However, this suggested cut depends on a number of assumptions about the behaviour of government-owned companies and competitors, the speed at which clean technologies scale up, the strength of future government policies, as well as the behaviour of consumers. Even under stringent measures to reach net zero emissions in 2050 – compatible with 1.5°C of global warming, the more ambitious interpretation of the Paris Agreement – this will take decades.

There are many potential pathways for the evolution of the energy system and still many uncertainties about which technologies (green hydrogen, carbon capture and storage) will get us there faster. (Incidentally, the ‘green revenues’ tilt gives investors positive upside on this).

Most pathways will still have a role (if gradually shrinking) for oil and gas companies. But there is the possibility that a few oil and gas companies end up with a consolidated share in the market ( producing more, even if everyone else is producing less), while still meeting climate change targets. This is not to downplay the seriousness of the challenge ahead – in some of our more ambitious modelling, climate policies could see demand for oil peaking globally in the next decade. Companies absolutely need to start planning now. And through our engagements we are demanding that they do this. Without this being an endorsement of Shell’s business model, we have seen some positive signs:

Shell has gone further than the majority of oil & gas companies by setting a carbon reduction target that also includes emissions from its customers (when they burn Shell’s fuel in cars and power plants). They are showing more responsibility – including by linking targets to pay - at a time when other oil majors refuse to even disclose total emissions.
Shell has also gone further than many of its peers by substantially investing in low-carbon technologies (including renewable energy). We do not, as a rule, expect oil and gas companies to turn into renewable companies – preferring that they gradually ‘wind down’ their business in line with climate goals, returning more money to shareholders. However, there may be individual companies that are successful at this, and Shell has outlined a serious ambition to become the world’s largest electricity company.
They have taken positive steps in quitting some trade bodies over differences in climate policy. Also, many people might not appreciate that ‘integrated’ companies like Shell don’t just provide oil and gas to burn. They also provide key components to make the plastics in our phones, along with other gadgets, latex gloves and MRIs in hospitals, chemicals, detergents and many others.

4. We agree that the company can do more

In our meetings with them are pushing for further transparency on how their upcoming production plans are aligned with the Paris Agreement. We will be monitoring how the company meets its emissions targets (as well as the profitability of its low-carbon, New Energies division).

We are also ramping up our data and analytics capacities, working in partnership with a leading energy consultancy, to be able to assess individual company or portfolio alignment to the targets of the Paris Agreement. Were the modelling or our engagement with the company to result in us having significant concerns around Shell’s strategy, we will take action either by voting against the chair of the board across all our assets, or by removing Shell from the Future World range.

If you have any more questions or concerns you would like us to raise with Legal & General directly, please reach out to us at engagement@pensionbee.com.

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E11: How to prepare for a happy retirement with Faith Archer, Mark Smith and Priyal Kanabar

The Pension Confident Podcast

PensionBee Content

24 Nov 2022

minute read

Nov 2022

Inside the BeeHive

Retirement Planning

This article was last updated on 12/01/2023

The following’s a transcript of our monthly podcast, The Pension Confident Podcast. Listen to episode 11, watch on YouTube or scroll on to read the conversation.

PHILIPPA: Welcome back to The Pension Confident Podcast with me, Philippa Lamb. This month we’ve got a question for you, what does a happy retirement look like?

The good news is that we’re living longer than we used to. When Queen Elizabeth was born in 1926, average life expectancy for women was just 62. Now it’s 83, so most of us can look forward to around 20 years of retirement or even longer. But what is retirement nowadays?

Well, it might be stopping work completely or working part-time, volunteering maybe, or even starting your own business. So, today we’re going to look at visualising your ideal retirement and the financial and lifestyle steps to make it a reality.

We’ve got three guests here today, Financial Journalist and Founder of Much More With Less, Faith Archer.

Hello Faith.

FAITH: Hello.

PHILIPPA: Mark Smith’s in the studio too. He’s Head of Media Relations at the Pensions and Lifetime Savings Association. That’s the PLSA. Hello Mark.

MARK: Hello.

PHILIPPA: And lastly, PensionBee‘s Senior Engagement Manager, Priyal Kanabar.

Priyal spends a lot of her time talking to customers about their ideal retirement, so she’s the perfect person for today’s discussion. Hello Priyal.

PRIYAL: Hello.

PHILIPPA: Before we start, please remember, anything discussed on this podcast shouldn’t be regarded as financial advice and when investing, your capital is at risk.

What could retirement look like?

Now, I know everyone around the table is used to talking to everyone else about their pensions and retirement, but I’m intrigued to know about your own plans. Mark, have you got a vision of your retirement years?

MARK: Yeah, I suppose I have. I’m 35, so hopefully retirement’s still a long way away. But I’ve got this fantasy of retiring early, perhaps going down to part-time work at some point as I get older. Maybe money’s less of a worry as I get older. And getting some space in the country somewhere, I know my partner would love to have some animals. So, just winding down and doing something like that.

PHILIPPA: You’ve got it all worked out. What sort of age are you thinking?

MARK: Oh, as soon as I can afford it.

PHILIPPA: Really?

MARK: Tomorrow if I can afford it. I absolutely can’t afford it tomorrow, but I want to be done working. I want to have the option to choose when I work, not have to work.

PHILIPPA: Okay. I think we’re clear about what Mark wants. Priyal, have you got an idea?

PRIYAL: It’s actually the opposite of Mark. I love working and I can’t see myself not working, especially for around 20 years in retirement. And I want to feel financially secure and I want to spend lots of time with people that I love.

PHILIPPA: This sounds like a packed program, Priyal. That’s all I’m saying, there’s only so many hours in the day! Faith, tell me.

FAITH: I think in some ways I don’t see my retirement as being too different from the life I lead right now. We’ve already moved out to the country, I’m self-employed and I think I’ve got quite a good balance between work and my own time and I enjoy what I do. I’m not sure I want to quit it completely. But the big thing I would love to do more of is travelling. It’s something that my husband and I used to do a lot of pre-kids. And obviously with the pandemic, that’s been reigned in massively. So I think carving out more time, hopefully if we’ve got enough money, to go travelling.

PHILIPPA: I’m on exactly the same page as you about that, working and travelling. Yeah, it’s a lovely combination, isn’t it?

Now look, Priyal, as I said, part of your role at PensionBee is talking to customers about their pensions and their retirement ambitions. What sort of things do they tell you that they want to do?

PRIYAL: Yeah, I’m very lucky. I get to spend a lot of my time talking to our amazing customers and it’s really interesting. A lot of them say they can’t imagine stopping work, but they want to focus on work that they have more passion for. So, Dermott’s a customer in his 40s, and he’s from Zimbabwe. And he’d love to open up a shop where he can sell Zimbabwean food and not run it for a profit, but just to benefit his community by bringing them the food. And another customer, Joe, recently retired early as he was kind of on the cusp of his 60s, and he married his wife at that time. He’s known her for 25 years, they got married and they’ve got lots of travels planned for their retirement.

So, I hear a variety of stories and I think what’s common is that all the customers hope to be very financially secure so that they can do what they dream of doing.

PHILIPPA: Yeah, would it be fair to say, I mean our expectations have grown, haven’t they, as our standards of living have grown over the years? And we don’t just want to get by in later life. I think most of us want to enjoy ourselves, don’t we? We’ve all said it around the table, our plans aren’t going to be that cheap are they?

PRIYAL: I think it varies. In some ways, we’ve got higher expectations and enjoy a higher quality of life. And certainly people of the boomer generation are very lucky because they were able to benefit from house price inflation, wage growth, and defined benefit pensions. Not all of them, but more so than millennials, which is my generation. I’m 31.

Whereas for my generation, we’re worried about the housing crisis and wage stagnation. So I think a lot of us are worried about whether we can even afford to have a retirement.

How to plan and save for that happy retirement

PHILIPPA: Mark. Let’s think about when people can retire. Because, you said you want to retire as soon as you can. Largely there’s no mandatory retirement age for most people nowadays, is there? So it’s kind of different to how it used to be. But there are rules, aren’t there? About when you can claim State Pension, when you can access your personal and workplace pensions. What are they?

MARK: Yeah, that’s right. I think that kind of carriage clock retirement where you work in that one job - the only job you’ve ever had, for the rest of your life - and then you get given a carriage clock and sent on your way with your gold plated final salary pension, those days are probably behind us.

PHILIPPA: That’s my parents’ generation. Yes, a long time ago.

MARK: Mine too. Yeah, you’re right. Most of us won’t be so lucky. But most people, I think, will probably be in a position that think they might be able to afford to retire when they get the State Pension. If they are eligible for it, the State Pension still makes up a really big proportion of most people’s retirement income, when they get to that retirement age. To be eligible to claim the basic State Pension, you’ll need 10 qualifying years of National Insurance contributions and for the full State Pension, you’ll need 35 qualifying years of National Insurance contributions.

PHILIPPA: Just remind us how much it is nowadays?

MARK: The full State Pension is £9,627.80 per year, which is £185.15 per week (2022/23). Following the Autumn Statement on 17 November, this is rising in line with inflation in April 2023 to £10,600 per year, which is £203.85 per week. Depending on what age you are now, you can take it between the ages of 66 and 68 - currently you can take it at 66, by 2028 this will rise to 67, and by 2037 this will rise to 68. But of course, you can flexibly take some of your private pension and your workplace pension when you get to the age of 55 (rising to 57 by 2028).

But there are lots of rules governing when you start accessing that, and then you’re limited to how much you can contribute to your pension afterwards. So you need to think really, really carefully before you start accessing that, because it does sort of change your circumstances quite drastically. But it’s quite common for people to start accessing some of that and moving to part-time, perhaps trying retirement out in a sense, and using that to supplement their income that they’re getting from whatever work they’re doing.

PHILIPPA: I mean Faith, if people are visualising their later life and when they might want to retire, have we got a shopping list of a few things they should be thinking about for sure?

FAITH: When it comes to planning your retirement and how you’re going to fund it, there’s a whole bunch of factors that you have to weigh up.

So, some of it’s when you start your retirement. So what age you’re going to retire, if you’re going to work part-time or if you’re going to stop completely. You’re also thinking about your life expectancy. I don’t know exactly when I’m going to die, but you can certainly kind of estimate how long your money’s going to need to stretch. You can toggle around with what income you can take - because if you take more income earlier rather than later, there’s more chance of running out of it.

And then there’s a whole range of factors that will impact you. Depending on how you take your money in retirement, what the stock market does, what inflation does, if you’re going to have to cope with rising prices, how the tax is going to be taken off your pension. And also thinking later on, whether you want to leave any money to your children.

PHILIPPA: So the whole thing can seem quite overwhelming, there’s quite a lot to think about?

FAITH: Definitely.

PHILIPPA: But handily, Priyal, I’ve been on the PensionBee website. There are a lot of tools and tips on there, aren’t there? Do you want to run us through what’s there?

PRIYAL: Yeah, a first powerful step is using the pension calculator you can use the sliders to put in when you want to retire, at what age, what income you expect to receive, how much you’re currently paying in, and how much you already have. And that can help you work out how much you need to pay in every month. Now, it’s not that the first time you log in you’re going to have the perfect plan, but it’s a process and it’s a habit, and getting into that habit can help you plan and save.

PHILIPPA: It’s a bit of a self education process, isn’t it? So it struck me when I went onto the site, as you said, there’s loads there. There’s the Pension Academy video series, there’s blogs and what struck me was that there’s really basic things on there. So, if you know nothing about pensions, you can go there and just start to understand what this is all about. You don’t need to know anything?

PRIYAL: Exactly.

PHILIPPA: The main thing is to start.

PRIYAL You can find our pension calculator. You just need to type into Google - PensionBee pension calculator. It’s amazing hearing customers say that the transformation, the level of confidence, that they develop through engaging with the content on the website. And we’ve really been focused on creating as simple an experience as we can because we feel that’s the way to help people develop that confidence. Pensions tend to be way too complicated and they really don’t need to be.

PHILIPPA: So Mark, let’s get down to the harder things. Most of us underestimate how much money we’re going to need, don’t we?

MARK: Yeah, I mean, working out how much you need is really, really difficult. When you ask anybody now, I mean how much do you spend in the average year now? I mean, most people won’t be able to answer that question. It’s a really difficult thing to work out.

In recognising this kind of shortcoming, in people being able to understand this stuff, the Pensions and Lifetime Savings Association, a few years ago, developed the Retirement Living Standards. Now when I joined the PLSA, these things were still under construction and I was really excited to get my teeth into them as someone whose job is to communicate complicated, sometimes confusing information about pensions to savers, I really sensed that these would really be able to bring things to life.

PHILIPPA: Yeah, these are really nice because they’re really understandable. Tell everyone how they work.

MARK: So they’re based on goods and services that people would typically buy or use when they’re retired and they’re pitched at three different levels - minimum, moderate and comfortable.

And they allow you to go on and have a look at the types of things that you might be able to enjoy doing at three different income levels. So the annual budget for the minimum standard is £12,800 for a single person, and £19,900 for a couple. And that’s going to include a week’s holiday in the UK, eating out about once a month and some affordable leisure activities about twice a week. But, on the other hand it’s probably not gonna include the budget to run a car. Now that level through the combination of a full State Pension, and normal Auto Enrolment that you would get in your workplace pension, that level should be very achievable for most people. We projected about three quarters of single employees are likely to achieve that level. Everyone who’s in a couple should be able to reach that because they are likely to share their costs.

PHILIPPA: Okay, so that would be a comfortable minimum. And if people felt they wanted to have a bit more wriggle room to enjoy themselves, what’s the next level up?

MARK: A bit more? So the moderate standard is £23,300 for a single person, and £34,000 for a couple. Now in addition to the minimum lifestyle, that’s gonna provide a little bit more financial security and more flexibility. For example, you could have a two week holiday, perhaps in Europe, and you’re going to be able to eat out a few times a month rather than just once a month. So a bit of a nicer lifestyle, but not shooting the lights out.

Not luxury, by any stretch of the imagination.

PHILIPPA: Yeah. And higher up?

MARK: And higher up, what we call the comfortable retirement living standard. Now I think this is probably really quite luxurious indeed. So you expect to enjoy regular beauty treatments, and theatre trips, and three week holidays to Europe, perhaps twice a year. Now this isn’t something that everybody’s going to want to be able to do in retirement. But at that level, it’s going to be £37,300 for a single person and £54,500 for a couple. So you can already see this is already reaching quite a luxurious standard.

Now, I should point out that these figures, because we want to keep them as universal as possible and as easy to understand as possible, they don’t include housing costs. So at the moment when people retire, still, most people would’ve paid off their mortgage and are likely to own their own home. But of course, societal trends are changing. So if you think you’re going to be renting at that point, you need to take that into account. Of course it’d be impossible for us to say the amount. That varies from county to county. So it’s really difficult for us to include that. So we’ve kept it as simple as we can.

There’s too much complication in pensions communications, I think, as it is. So housing’s kept out of it for now.

PHILIPPA: But useful, to kind of give you a sense of how much money you might need. I mean Priyal, you alluded to this earlier, what are your customers saying about their financial worries? It’s a tricky time. Are people worrying more than they did, that they won’t be able to save enough for retirement?

PRIYAL: Yeah, I mean we already saw high levels of consumer debt amongst people who are approaching retirement age. Another thing that I’m very aware of is the gender pension gap. Women tend to have different working patterns in terms of paid employment and tend to be assigned the main kind of care role.

PHILIPPA: Yeah. Childcare and healthcare. We talked about this on the podcast before actually, the gender pension gap. It’s significant, isn’t it?

PRIYAL: It really is. And while society’s attitudes have moved on and are much more in favour of gender equality, with women being appreciated in the workplace, many policies haven’t moved on. But yes, I’ve spoken to many women who are worried about the time they’ve had outside of employment, doing unpaid care work.

PHILIPPA: And they haven’t been contributing to their pension?

PRIYAL: Yes. And they’re looking at their pension pot when they’re 50. And often when they’re around that age, they also get assigned the care work for elderly relatives. So that has an impact on their pensions. So that’s a concern. Another concern is the cost of living crisis. People who are at an age where they want to make massive contributions into their pensions because they’re approaching retirement, maybe in their late 40s, early 50s and they can’t because of the pressures of the current crisis. And then we also have a growing number of people who can’t afford to buy their own home. So yes, many concerns.

PHILIPPA: I mean Faith, we’ve been talking about various different sorts of pensions. I’m thinking we should probably actually just run through the main ones. Can you give us a translation on what the State Pension is? Not everyone knows what that is. What is it?

FAITH: The State Pension is money you get from the government provided that you’ve made National Insurance contributions which are paid out of your salary, or your income if you’re Self-Employed. You need to rack up a certain number of full years of National Insurance contributions to qualify for a full State Pension. It’s currently 35 years for the full State Pension and 10 years for the basic State Pension. So the good thing about the State Pension is that typically, it increases. It goes up, at the moment, it goes up in line with the triple lock, which is the largest of three figures, 2.5%, inflation and the increase in average earnings. And it’s the highest of those three?

MARK: That’s right. Yeah. The highest of; inflation, wage growth or 2.5%.

PHILIPPA: And our new government is considering this right now?

FAITH: They’re weighing it up. I don’t think it’s in their interest quite yet to scrap the triple lock. But the point is, it goes up with inflation. The other kind of pension you’re going to have is a pension from your workplace, if you’re an employee. Once you earn over £10,000 in the UK, are at least 22 years old, and have not yet reached State Pension age, there’s Auto-Enrolment. That means that you’ll automatically have money towards your retirement savings unless you choose to opt out. That has the major advantage that you’ll get employer contributions and free money from tax relief. If you earn less than £10,000, but above £6,240, your employer doesn’t have to automatically enrol you, but if you ask to join, your employer will be unable to refuse you and must make contributions on your behalf. Opting out of a workplace pension is like turning down a pay rise.

FAITH: Now the workplace pensions, they used to be a ‘final salary’, defined benefit, where the money you got in retirement was related to how many years you’d paid in and what your salary was. And that was really nice.

PHILIPPA: Yeah, those days are long gone.

FAITH: You knew, you were just kind of guaranteed a certain amount of income.

PHILIPPA: You knew what you were gonna get and it was just happening.

FAITH: Yeah. And there are some people that still do benefit from defined benefit pensions, particularly if you work for the public sector. But it’s a much smaller proportion of the population.

PHILIPPA: Very few now.

FAITH: And, the rest of us have what’s called defined contribution pensions. Whether it’s a workplace pension or, whether it’s a private pension. So what you get in retirement depends on what you paid in, and what the stock market has done.

Things to think about when you’ve nearly reached retirement

PHILIPPA: We should talk about compounding shouldn’t we? Because this is the thing that’s not talked about enough. The joys of - the sooner you start and the longer you save, the better it gets. Just explain compound interest and how that plays in.

FAITH: Well, I think everybody’s familiar with the concept of interest. You put £100 in a savings account, maybe you get 1% interest. So at the end of the year, you get £1 added on. Brilliant, there’s your 1% interest. But if you don’t spend that money, if you leave it in the account, at the end of the next year, you don’t just get another £1 added to your £100, you’ll also get interest earned on top of the interest.

PHILIPPA: On your pound?

FAITH: So what it means is, your money goes up, not in a straight diagonal line, but it’s a curve. And the longer you leave it, the more the curve will tip upwards, and the more money you will have amassed.

PHILIPPA: So the younger you start, even if it’s tiny amounts, the better?

FAITH: Absolutely.

PHILIPPA: As time goes on and you get closer and closer to retirement, you’re going to be thinking about how you might start withdrawing from your pension. We’ve talked about this a little bit already. Before you start doing this, if you’re 50 or over, I think this is new, isn’t it, Faith? Your pension provider’s now required to suggest that you have an appointment with an organisation called Pension Wise. Now what is Pension Wise? I know you’ve had one of these meetings, tell us about that.

FAITH: I have, I’m now over 50 and I’ve actually done my Pension Wise appointment.

PHILIPPA: It’s okay Faith, that’s both of us. We can both admit to being over 50.

FAITH: Well, I’m over 50 and proud. I’m excited. I’m getting closer to getting my hands on that pension money.

PHILIPPA: Yeah.

FAITH: All those years of saving. And finally I might get to spend some of it. But it really is a good idea to talk to Pension Wise before you start spending your pension money. It’s a government body. The appointments are completely free. I’m gonna say that again, the appointments are free! And what Pension Wise can do is give you guidance about your pension options.

PHILIPPA: This is a great starting point.

FAITH: It absolutely is. I think mine was about 45 minutes and I was actually really impressed at how clearly they explained what the options were.

PHILIPPA: I mean, they didn’t tell you anything you didn’t already know, I’m assuming? But you thought it was a really good process?

FAITH: I thought it was a really good process, I think they covered a lot of ground during the interview. And I think crucially, one of the reasons I recommend anybody over 50 to have a Pension Wise appointment, is that if you actually put the preparation in beforehand, you are going to get the most out of the interview. If you actually go through the exercise of working out what money you have.

So, track down where your pensions are, where they’re held, in what funds, what the charges are, what else you have in terms of any cash savings, ISAs, investments. Actually look at your budget and work out what you spend now and how much you might like to spend in retirement. So just doing the exercise of sitting down, getting that information together, starting to think about what you would like your retirement to look like. That preparation for the interview is enormously helpful.

PHILIPPA So Mark, I’m gonna put you on the spot now. If you decide you’re ready to start withdrawing from your pension, it can be tricky to work out exactly how you want to do that and how you should do that. Can you just run us through the various ways you can take money out of your pension pot when the time comes?

MARK: Yes, that’s right. So, first and foremost you have to be 55 (57 from 2028) to start withdrawing from your pension. It’s not always advisable to start withdrawing at 55 because, if you want to carry on working and contributing to your pension, then you are limited at that point. So first thing’s first, make sure you actually need the money, or that you actually want to start accessing the money.

PHILIPPA: So, don’t take it just because you can?

MARK: Don’t take it just because you can. Especially to pay off, frivolous - I say frivolous things - but to buy luxuries, don’t take it out and buy a sports car for instance. Just because you really want one.

PHILIPPA: People do though, don’t they?

FAITH: Do they?

MARK: The data says that fewer people do than you’d think.

PHILIPPA: Oh you don’t think so? You read about these things, but is it not true, Faith?

FAITH: I think anybody who’s spent years and years paying their money into a pension does not suddenly change their complete financial personality at 55 and go, whoa, I’m gonna blow the lot!

PHILIPPA: So not even people who’ve been in a workplace scheme where they didn’t really feel they were having anything to do with their pension payments. Because you’re quite detached if you’re a workplace scheme, aren’t you?

FAITH: I think it depends on how much you’ve accrued and I think if your pension is a relatively small amount, £5,000 or £10,000. Then, that might not feel so significant. But anybody who’s built a bigger pension, I’m willing to bet that they think about it slightly more.

PHILIPPA: Okay, so Mark, I’m gonna go back to you because you’ve got more to tell us, haven’t you? So, consider not taking the money out unless you need it at 55.

MARK: It might be that you’re older, you’re closer to retiring and at that point you can take 25% of your pension tax free. It’s a really good idea to pay down things like debt at that point. Paying off your mortgage might be a good way to set yourself up for a decent retirement.

Then with the money that you’ve got left, there’s several ways you can take that. You can either use that money and buy what’s called an annuity. Now, essentially you swap a lump of money for a guaranteed level of income.

PHILIPPA: You can’t change your mind about that though, can you? Once you’ve brought that annuity, that’s done. There’s no going back?

MARK: Yeah, you’ve got the guaranteed amount but it’s irreversible. That’s right. The other way you can access your money is what’s known as drawdown, which is where you leave the money you’ve accumulated in some sort of investment pot. So some of it still remains in the stock market and in other types of investments that your pension fund normally holds.

So it has the potential to grow and you draw down from that flexibly, as much as you need. And the trouble with this strategy is that the amount you get isn’t guaranteed. So it fluctuates with how much you take out at any one time, but also how stock markets perform. So for instance, if you have a bad year where the stock market falls - it’s not unusual for the stock market to fall, 10%, 12%, 15% in some of its leaner years - and suddenly you find yourself having to draw money that’s reduced in value, that hurts your fund even more.

So you have to be in a really comfortable position, I think, to sort of rely on that drawdown strategy.

But I think actually more and more increasingly, the most relevant way for people to access their pension is to do it through a blend of all of these options.

PHILIPPA: Anything to add, Faith?

FAITH: There’s one other option, which is, if you’re in a position where you don’t have to take the 25% tax free lump sum at the beginning, you could instead choose to take payments, take lump sums as and when you need them, where 25% of that amount is tax free. And that sometimes could be useful if somebody’s got the State Pension, maybe they have pensions coming in from other directions, and they’re trying to bring their taxable income down.

MARK: If listeners are thinking, oh gosh, all this sounds incredibly complicated, then believe me, it is. Don’t rush into it and think very carefully before you do it.

PHILIPPA: But the flip side of that is that, you know, the nice thing is, there’s a lot more flexibility in the system now, isn’t there? Maybe not as much as you’d like, Mark, but you know it’s coming. It’s not like the old days where you start work, you get your pension. That’s it. I mean there’s a more flexible way of managing the money you’ve saved isn’t there? Would it be fair to say that, in your retirement?

FAITH: Absolutely. It’s far more flexible and I think it means that there’s much more flexibility in the fact that you don’t necessarily have to stop work on a set date. Because if you wanted to, for example, drop your hours and go part-time after the age of 55, then you could top up your income with either part of your tax free lump sum or using the payments that have part of them as tax free, rather than just buying an annuity which pays you a set amount every year regardless of whether you want all that money or not. You’ve got much more flexibility. And it doesn’t stop you from potentially later in life - because the older you get, the higher annuity payments you will get - if you start it later in life, you’ll get more money each year.

PHILIPPA: Basically, because they know they’re not gonna have to pay you that money for very long?

FAITH: Exactly. But it does mean that while you’re still in a situation where you’re quite comfortable taking stock market risks and you can kind of manage your money, you could drawdown. But then later in life, when you don’t want the hassle anymore, you could hand over money in exchange for a certain income.

MARK: It’s one of those frustrating areas in pensions where the savers are saying ‘What should I do?’ And the answer from the pensions industry is ‘Well, like everything in pensions, it depends.’ So it’s really important that you go and have individual tailored conversations with someone, like Pension Wise, before you do this stuff.

What will retirement look like in the future?

PHILIPPA: We’ve talked a bit about how pensions have changed and are evolving even now, and we need to wrap this up. But I’d like all your thoughts on how you’d like to see that process continue. What else would you like to see in terms of evolutions of the pension system, so that people can match their older years to the kind of flexibility we’re all looking for now? What would you like to see that isn’t there?

FAITH: I think there needs to be more support for the self-employed.

PHILIPPA: Yeah.

FAITH: I don’t know exactly how you’d do it, but I think there’s a massive chunk of the working population that aren’t being compelled to put money into pensions. What we’ve seen is that while for the working population, pension saving has increased and increased and increased after Auto Enrolment, during the same time period, the contributions to pensions by the self-employed have just fallen off a cliff.

PHILIPPA: Yeah, it’s a good point. Mark, any thoughts on what you’d like to see?

MARK: Yeah, for the Pensions Lifetime Savings Association, the question is perfect because we’ve very recently launched a publication which makes five recommendations, five pleas for the government to improve the pension system.

And the first one of those - amazingly, there are no national objectives for what the pension system is trying to achieve - so we want to see the creation of very clear objectives for what the UK pension system actually is. And we think the definitions for those should be around whether it’s adequate for people, whether it’s affordable for the government and whether it’s fair in the way that everybody’s able to get similar outcomes with the same rules that apply for them. We think the State Pension’s too low. I think by international standards and by other G7 economies, it’s lower compared to our counterparts in Europe.

We want to see reform of the State Pension so that we stick with the triple lock, but it needs to gradually increase so that we reach the level of the minimum Retirement Living Standard. We think contributions are still too low via the Automatic Enrolment system.

PHILIPPA: That should be more?

MARK: It should be more. In recent modelling we’ve done, half of people are still gonna retire with less than what we call the ‘target replacement rate‘ - which is the amount they should get.

There are also lots of under pensioned groups, so we’ve already talked about women, but the self-employed, gig economy workers, there are lots of people that are being a little bit let down by the system because they work strange hours, or they might have two jobs or three jobs or four jobs and the system doesn’t really help them.

PHILIPPA: It hasn’t caught up with work with working patterns has it?

MARK: Exactly. So we’re still living in a slightly antiquated, you know, the idea that we’re all working one job and one salary, but it’s just not the case for many, many people. And the other thing is more industry initiatives to help people better understand their pensions.

So, there are actions that pension schemes can take, that employers can take to, to improve pension contributions themselves. You don’t have to put the minimum in if you’re an employer, you might want to make your company more attractive to work for, by having a more attractive policy. And we’ve seen some creative policies around employers paying during periods of parental leave, they continue to pay the pension contributions at the normal salaried rate while that person’s away on parental leave. So there’s some creative ways that can really help people’s pension outcomes in the future. So lots for the government to do, we’ve given them a shopping list of things we’d like to see. But we think if all of these things were adopted, a median earner would see their pension income increase by about £4,000 a year or increase about 25% through the entire life of a pension saving journey. So there are some big outcomes to be achieved, if we can get there.

PHILIPPA: It’s good to know you’re all over making it happen.

MARK: Yeah, we’re banging the drums, certainly.

PHILIPPA: I think we’re going to leave it there. There’s so much more we can talk about, but I think we’ll leave it. Thank you everyone for being here today. It was a great discussion.

If you’d like to find out more about everything we have discussed, then check out the show notes where there are links to lots of useful articles. A final reminder that everything you’ve heard on this podcast should not be regarded as financial advice and whenever you invest your capital is at risk.

Join us again next month when we’ll be joined by Stand Up Comedian, Vix Leyton, and PensionBee’s CMO Jasper Martens for an episode all about translating financial jargon. Dividend yields, annuities, APR, what does it all mean? Do not miss that one. Thanks for listening.

Catch up on episode 10 and listen, watch on YouTube or read the transcript.

Dislaimer: The PLSA’s Retirement Living Standards were updated in January 2023 and the figures in this transcript have been updated to reflect this.

Risk warning

Period	Market Event	FTSE World TR GBP (%)	4Plus Plan (%)
4Plus Plan’s inception – 6 Sept 2013	QE Tapering, China Interbank Crisis and its aftermath	-5.44	-2.41
3 Oct 2014 – 15 May 2015	Oil price drop, Eurozone deflation fears & Greek election outcome	-5.87	-1.77
7 Jan 2016 – 14 Mar 2016	China’s currency policy turmoil, collapse in oil prices and weak US activity	-7.26	-1.54
15 June 2016 – 30 June 2016	BREXIT referendum	-2.05	-1.07

Period	Market Event	FTSE World TR GBP (%)	4Plus Plan (%)
4Plus Plan’s inception – 6 Sept 2013	QE Tapering, China Interbank Crisis and its aftermath	-5.44	-2.41
3 Oct 2014 – 15 May 2015	Oil price drop, Eurozone deflation fears & Greek election outcome	-5.87	-1.77
7 Jan 2016 – 14 Mar 2016	China’s currency policy turmoil, collapse in oil prices and weak US activity	-7.26	-1.54
15 June 2016 – 30 June 2016	BREXIT referendum	-2.05	-1.07

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Transfer your old pensions into one new online plan
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Pay just one simple annual fee

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Capital at risk

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

What can savers expect for the next quarter?

How has BlackRock driven positive social change in the past quarter?

Risks warnings

BlackRock DC LifePath UK Risks

Important information

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

What can savers expect for the next quarter?

How has BlackRock driven positive social change in the past quarter?

Risks warnings

BlackRock DC LifePath UK Risks

Important information

A long-term partner

A real desire to help us innovate in the pension industry

Walking the talk when it comes to gender equality

A down to earth team we can have fun with (and who also have a small obsession for bees)

Making transfers quicker

Preparing a pension transfer request

Automatically matching your provider details

Increasing automatic transfer requests

Understanding your transfers’ status

Transfer on hold notification

Future product news

What is our regular withdrawal feature?

Choose a withdrawal date and amount

Regular withdrawals and lump sum withdrawals

When will the regular withdrawal feature be available?

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

What can savers expect for the next quarter?

How has State Street Global Advisors driven positive social change in the past quarter?

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

What can savers expect for the next quarter?

How has State Street Global Advisors driven positive social change in the past quarter?

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

What can savers expect for the next quarter?

How has State Street Global Advisors driven positive social change in the past quarter?

What does the DWP propose?

What’s the justification for setting up another body?

So how much will it cost and who will ultimately pay?

Good governance is about protecting consumers

2019 is only achievable by using what we have

The Open Finance revolution will not wait five years for pensions

Conclusion

A fragile foundation

Where are we now?

Financial support initiatives

Emerging open source models

Beyond financial support

A community of reciprocity

What is Open Banking?

What is Open Finance and what benefits does it bring?

1. Greater financial transparency for consumers and lenders

2. Access to more financial products

3. Empowered to make better financial decisions

What are the challenges for Open Finance?

1. Consumer awareness

2. Regulation

What comes next for Open Finance?

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

What can savers expect for the next quarter?

How has BlackRock driven positive social change in the past quarter?

Risks warnings

Match Plan fund specific Risks

Important information

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

What can savers expect for the next quarter?

How has BlackRock driven positive social change in the past quarter?

Risks warnings

BlackRock DC LifePath UK Risks

Important information

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

What can savers expect for the next quarter?

How has BlackRock driven positive social change in the past quarter?

Risks warnings

BlackRock DC LifePath UK Risks

Important information

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