Reshaping, Reforming, Refining - The Future of Pensions

A few interesting snippets in Professional Pensions this week, indicating changes to the pensions industry. The editor Jonathan Stapleton is quite right to identify Aon’s move to merge its pensions administration and HR processing businesses as the shape of things to come.

Pensions business is changing more rapidly today than ever. The large Defined Benefit plans are getting smaller. They’re all closed plans anyhow, so by definition, will decrease in importance. The admin, which might have been managed within a ‘package’ of fees covering the more lucrative valuation work, is now being exposed. Valuations are less and less big triennial events and much more ‘business as usual’ reviews at pretty much every trustee meeting. The complexities of yesteryear are lessening and the weeks of valuation calculations required of old have been replaced by pre written computer programmes with results at the touch of a button.

All this to say that Defined Benefit plans are not the monsters they once were and legacy administration merging with other processing makes sense. The administration of Defined Contribution plans is growing though, with an increasing numbers of members thanks to Auto-enrolment. Packaging is everything here. Simple plans, large numbers, computer processing, limited choice.

But behind the supposed simplicity of large Defined Contribution plans are hundreds of smaller ones, each with different rules, different needs and employers who often legitimately resist the pull to ‘merge’ with bigger plans and thus lose their identity.

With a combination of pressures on the pensions industry such as the recession and longevity, costs are a clearer focus than in the past. Providers will adapt. Providers will have to adapt, as Aon clearly are.

Admin is here to stay of course. And those plans too small for Aon’s radar will be picked up by smaller administrators. A changing pensions world. But not a decreasing one.

Not so much a dogs life.....

Just had to check my calendar. No, it’s not April 1^st. So the headline in Pensions Age is genuine- the police are paying pensions to dogs!

It’s kind of funny, but sad at the same time. Up to £1,500 per dog, it’s actually a subsidy for the pet owners who take the dogs in at the end of the dogs police career.

At the risk of upsetting pet owners everywhere (and I was one until a couple of years ago- Wesley, our wonderful Chocolate Labrador), I can’t see how we can justify pensions for pets. I work in India alongside charity workers who get less than that a year. And amongst the poorest of the Dalit community who live on next to nothing.

Punter Southall are quoted in the article, saying ‘retired Nottinghamshire police dogs will be better provided for by their employers than many in our society’. It’s a strange world.

In (Modest) Praise of Pensions

We don’t always get it right. And it’s in our psyche to be critical of ourselves; disparaging even. But, actually, we’ve not done such a bad job with pensions.

We have a State system that works, that despite the recent changes, meets the needs of the poorer in society, and gives the rest of us a ‘not too bad result’ for our time in the workplace.

And we have an occupational pension system that is the envy of many. The Italians have had governments fall because of attempted pension reform. The French are in trouble- surely it is only a matter of time before their system collapses with the emphasis on PAYG and such low retirement ages? And the Greeks… Well, the Greeks.

We’ve made mistakes for sure. The day the accountants beat the actuaries at their own game and insisted on present market values. That was, to my mind, the death knell for Defined Benefits. But our Defined Contribution system works well if the employer is willing to put in a decent amount.

And the new Auto-Enrolment legislation is working. Lots more people in pension plans. A greater awareness of pensions. Less stress on the State as a result. I know… it’s only a start, not enough going in, etc, etc. But don’t be so hard on yourself! It’s a success!

Not only that, we have the longest standing Pensions Minister in history- and he actually understands his brief!

I do wish we would be more careful with the headlines we feed to the press (especially to the Express and Mail!) If we can get into the habit of presenting challenges in a more positive way, we may get a more positive slant on the problems we face in pensions.

Since Samuel Pepys had to pay a pension to his predecessor as Clerk of the Navy Board, we’ve done alright. Not great. Not fantastically. But just about alright.

Achieving

Bill Gates said ‘I'm a great believer that any tool that enhances communication has profound effects in terms of how people can learn from each other, and how they can achieve the kind of freedoms that they're interested in.’

That’s what happened this week on Mallowstreet. It started with a post from John Reeve, bemoaning the latest negative pension headlines in the Daily Mail. The online discussion then began to involve others, including the person that had fed the headline to the Daily Mail, Ros Altmann.

And yesterday, the discussion went live. A live streamed debate, an additional tool ‘that enhances communication’, with John and Ros among the guests.

Some great comments too. Weaknesses in the pension system rightly identified. An acceptance by Ros (I think) that although she may be right with her comments, she may need to be more careful with what she feeds to the papers.

And a decision to take it further into some kind of live debate.

There is power in clear communication. When we communicate well, it brings understanding and takes the debate forward. And maybe, just maybe, it will lead to action and an achieving of ‘the kind of freedoms we are interested in’.

Well done Mallowstreet.

A Saturate of Actuaries

Professional Pensions reckons that with less defined benefit plans, we will have an industry saturated with actuaries. I always wondered what the plural of an actuary was – a ‘saturate of actuaries’ does it for me!

Seriously though, I’m not sure there will be any ‘saturate’. Actuaries are bright people- they will find other things to do rather than hang around 'in a position where they are not needed', to quote Richard Butcher in the article.

And Richard surely has a lot to say! Quoted in no less than FOUR different articles in the same 10^th October edition of the magazine. Lazy journalism of course. Quote the person that reaches out to you rather than seeking views from others in the industry. And accepting the view of consultants rather than some of those at the sharp end. Having said that, at least Professional Pensions are creating some decent news coverage- some magazines seem to have given up looking for new stories and just keep repeating the same old arguments in seemingly new articles.

Muddleware

Now why didn't I think of that?! Well done to Andrew Cheseldene for coining a new word in his Pensions World article.

And an appropriate word too.

Preparing for Auto-Enrolment is complicated. The various eligibility criteria see to that. And payroll providers were very slow to come up with integrated solutions. To my (slightly cynical) mind, this was because they wanted their clients to come to them and ask for the solution. The payroll provider could then charge for their solution rather than preparing a generic answer for all clients at their own cost.

That aside, I do think that the payroll provider will be the best route for most companies. Consultants have got in on the act, (initially, I think, because of the slowness of payroll providers to help), offering 'middleware'. But as Andrew points out, this can actually be 'muddleware' at best. And expensive muddleware at that!

Better to batter down the door of the payroll provider than go for expensive solutions that may well be inferior to an integrated payroll solution.

The Pendulum Swings

It wasn't long ago that pretty much every in-house pension team you could think of was either moving to outside consultants or at least going as far as a tender for the business. And that included a number of in-house investment teams being disbanded.

As highlighted in Pensions Week, it looks like the pendulum may be swinging the other way again. Tesco and British Coal have both moved back to in-house investment teams, and in Tesco’s case, they went further in choosing to ignore the contradictory advice of their consultants.

Admittedly, with Tesco and British Coal, we are talking about two of the biggest pension funds in the country, but I predict more will follow their lead, for two reasons. Firstly, the blurring of investment advice with investment management. Consultants in some cases are trying to have their cake and eat it. And it’s pretty obvious that’s what they are doing.

Secondly, systems are far more superior nowadays. Even over the last five years, the sophistication of the IT systems behind the trades and the software used to measure and present investments have all improved exponentially.  It’s just easier to manage.

Look for the next lot of headlines. They won’t be far away.