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Why do we see complexity in the simplest things?

Author: Nick Johnson

7 July 2014

Some things in life inexplicably seem more complicated than they actually are. Certain tasks only need to be mentioned to provoke a frown... or even naked fear.

Like putting up a deckchair, for instance.

With the World Cup now well underway, it seems appropriate to steer you in the direction of Jack Charlton’s miserable failure to put up a deckchair at the 1990 tournament.

Captured at the time on film, and later repeated for the world to see in a ‘fly on the wall’ documentary, the Ireland manager and former World Cup winner ended up in an undignified heap as he was shamefully defeated by the humble poolside chair.

Someone with undeniable coordination, control and balance managed to make a meal of a simple task. Of course, Jack’s debacle could have been down to the distractions of beer and bikini-clad women which seemed to feature strongly in World Cups gone by...

Or it could be that deckchairs are hard to handle simply because people are put off by their reputation for trickiness. Just like (here it comes!)... bulk annuities.

So now I’m on a mission. I don’t want to see anyone else caught up in a metaphoric mess of canvas and wood when they’re trying to get their heads around my ‘specialist subject’. I know most people don’t even know what a bulk annuity is, so I’m going to start with a kind of extended definition. Here goes:

Bulk Purchase Annuity: what’s in a name?

You could go with the ‘Ronseal’ definition: it is a lot of annuities bundled up together and bought under one policy. But that’s a bit like saying the Theory of Relativity is a theory that concerns how things relate to each other.

So let’s take it a little further. In ten linked statements, a bulk purchase annuity is:

  • an insurance policy purchased by defined benefit pension scheme trustees...
  • that covers some or all of the pension benefits payable to a defined group of pension scheme members...
  • where the final price paid is determined by both financial conditions and member data at the date of purchase...
  • both of which may not be fully known at the actual date of purchase...
  • thereby requiring an adjustment to price once these have been verified...
  • with this adjustment being calculated as if the verified information had been known at the date of purchase...
  • but without any price change as a result of changes in data, financial conditions or the insurer’s view of the world after the date of purchase...
  • the policy will initially be a buy-in policy, which allows a single payment (gross of tax) to trustees or direct to members (net of tax)...
  • with the option to convert to a buy-out policy, where individual policies are issued in the member’s name...
  • whilst in buy-in phase, the policy should allow benefits to be reshaped as required by the scheme rules, for example on wind-up, change of legislation or other required changes to scheme benefits.

I know there is a lot of innovation and new thinking in the BPA market, and that those of you who are experienced in this market may say this is either a gross simplification or just stating the obvious – but that’s really what my intention is here; the obvious is normally only obvious to someone who knows the right answer.

And a simple task is only simple when you know how to do it.

Isn’t it, Jack?

Watch this space...

In the weeks to come I’ll expand further on my mission to de-mystify bulk annuities. But to do this, I could use some input on what the biggest mysteries are. Do you have any questions? Something you’ve always wanted to know about bulk annuities but were afraid to ask?

Get in touch. Ask me anything you like as long as it’s not how to put up a deck chair.

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