More pensions nonsense from the “investment community”


How have have the people who invest pension funds become so out of touch with the people who retire from them?

This question occurred to me several times yesterday as I listened to a large numbers of charming and intelligent people making no sense at all.

I’m not allowed to name names or attribute comments from the pensions investment conference I went to . It was  under the odious Chatham House rules that allow the great and the good to speak their mind “frankly and without attribution”.

Frankly, the great and the good spent most of yesterday staring into their own navels.

It was deemed a pensions conference . Most people I spoke to had forgotten that pension funds were there to pay pensions and those who hadn’t were generally Dutch.

We might have had a reasonable discussion about how the 500,000 people who buy annuities this year and next could be spared locking into artificially depressed individual annuities.

We might have had a reasonable discussion as to how to use “smart beta” to provide better DC defaults and perhaps create the “90% right” solutions that people agreed were better than today’s complexity.

We might also have discussed how “upstream governance” – raising the game of the companies we invest into, can be achieved to help DC investors as well as the sponsors of DB schemes.

The conference was long on calls for “plain speaking” but rather longer on glib phrases and jargon. Does anyone use the word “endogenous”? I had to look it up on google in one of the intervals, it means “deriving from an internal state” and was used repeatedly to describe why bankers went wrong in 2008. Let’s use “plain speaking” as speakers told us us to, the bankers screwed up because bankers only give a t*** about bankers. Judging from yesterday, that’s not  changed.

There’s “endogenicity” for you.

But I rant.

My point and I’ve said this enough times here for this to be becoming a theme, is that investment consultants know nothing about DC and seem to be no nearer understanding it now than they were ten years ago when I heard Roger Urwin calling for fundamental reform of the individual annuity process which he referred to as Dc’s “fatal flaw”.

In ten years nothing has happened, despite a number of academic works being produced that show that you can create the conditions under which occupational DC plans could provide scheme pensions rather than abandoning members to at best the OMO and at worst “seal clubbing“, we have seen no progress in developing the product (save for good work by Alliance Bernstein).

What’s more, with the exception of L & G and their investment managers LGIM, there has been precious little work on the development of diversified defaults at suitable pricing. If LGIM can do it, surely others can follow.

But I rant….

Oh and another thing!!!

The investment fraternity have finally got it into their head that people are seriously peeved by excessive executive pay, by lack of accountability to shareholders on major strategic decisions and on the failure of many management boards to behave in a socially responsible way towards the environment and people. They recognise this and fund managers are even beginning to exercise some control (vide Citibank this morning). But all the effort is happening with DB pensions.

Fair Pensions‘s stunning report on the absence of voting policies from the managers and trustees of contract based plans – the insurers – seems to have gone unnoticed. I tried to have a conversation to someone who claimed to be head of the multi manager practice of one of Britain’s biggest fund manager and he didn’t even know what I was talking about.

If you don’t know what I’m talking about, look out for future articles on!

My point – I will stop ranting soon – is that the investment community , despite recognising that by the end of the decade, more pensions money will be in DC than DB, have totally failed to come up with sensible DC strategies. Instead they have continue to concentrate on milking DB assets through LDI, endgame and glide path strategies.

Investment Consultants continue to sit in ivory towers listening to learned lectures on 100 year investment trends, the long -term equity risk premium, compressed investment returns,  demographics and the like. They talk an absurd language of alphas and betas but fail to get to grips with simple things like pensioner poverty.

What’s needed is some proper solutions to the problems facing people retiring today to save them from future penury and inspire those generations retiring tomorrow to want to save for their future.

One speaker said “simplify your strategy or  raise your game”; I’d modify that “simplify your strategy and raise your game”.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in Bankers, Change, dc pensions, defined aspiration, Public sector pensions, Retirement and tagged , , , , , , , . Bookmark the permalink.

9 Responses to More pensions nonsense from the “investment community”

  1. martin says:

    I could give you many examples where an industry has been subject to technologically induced disruption and the market incumbents, whilst aware of what was happening, were so deeply resistant to change that they merely defended their current position rather than embrace the new world. Then ultimately new entrants took their business away. Thus it seems with pensions, although not perhaps from technological change. Many professional people have spent their entire working lives building up a particular expertise and market understanding and so understandably find it hard to press the “reset” button and start again. It is not just people but organisations too which have a certain way of thinking and it is surprisingly hard to change that.

    I believe in you Henry but you will just have to keep banging the drum. Do not lose faith – one day you will be vindicated!

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