One of the odd things (asymmetries) about pensions is that 90% of the attention is focussed on 10% of the schemes. The top 100 pension funds in Britain have more assets under management than the next 900 . And if you took the top 1000 schemes’ assets away (as the Government did with the Royal Mail Pension Scheme) you’d take more than 40% of our corporate pension assets with you.
So the UK pension industry is asymmetric with a small group of schemes USS, the Coalworkers, the PPF , BT,the pharmas the clearing banks ,BP and Shell, a few other ex-nationalised utilities and outliers such as the Pensions Trust and the larger Local Government schemes
The only small scheme that exerts any influence is NEST and that’s because the industry is convinced it will overtake the PPF as the Government’s flagship funded scheme.
Now these schemes set standards, smaller schemes look to what they are doing in terms of Governance, benefit strategy and investment strategy. Consultants will pollenate smaller schemes with ideas they’ve picked up from the bigger schemes and in turn their will be re-pollenation downwards so even the smallest occupational schemes get some benefit from improvements at the top.
For the most part, my work is done at the bottom end of the existing corporate pension foodchain and most of my efforts are spent getting to the 1m + employers who haven’t got their foot on the pension ladder.
Like a burly central defender, I get a nosebleed when I go forward and find the air pretty thin when I talk to the Chief Investment and Risk officers of these great schemes who count the values of their assets in billions.
But just as John Terry and Reo Ferdinand have scored goals with their direct smash and grab style, so I find myself being listened to by those in large schemes. Indeed a very large chunk of my company’s revenues in the past twelve months have been from large shcemes.
I ponder why this is. It’s useful to look at the work we’ve been doing and it falls into two areas.
- Changing the ways members see their corporate benefits (especially their pension benefits).
- Helping large funds to ask the awkward questions that otherwise would sit like elephants in the trustee’s boardroom.l
I won’t go on about (1) but I’ll talk a little about (2) because it touches on behavioural economics and is rather interesting.
Tapper’s law is this; the higher you go up the food chain, the harder it is to admit that you are wrong. This is why senior executives need proper oversight.
Traditional consultants should be able to point to the elephants, expose them and send them back to the Safari Park. But the consultants who service the needs of the largest schemes are often conflicted from asking the difficult questions as it was they who created the problem. And these are the very senior gurus who Tapper’s law tells us find it hardest to admit a mistake could have been made by them (or by extension their firm).
So every so often, these BSDs need to check each other out, and it usually has to be done tangentially. For instance a CEO of one of these large funds may get the Chief Risk Officer to look at a function normally managed by the Chief Investment Officer because he or she is smart enough to know that the CIO is not going to admit to his or her own mistake.
And they are probably going to have to source the difficult questions from people like me rather than their consultants because we have nothing to lose. We are the Shakespearean fools whispering in King Lear’s ear the truths about his daughters.
And occasionally we come across an idea which is at the bleeding edge which is so razor sharp that no one else will touch it.
Catch this falling knife if you are brave and skilled but leave it well alone if you are closing in on retirement and put up a “no vacancies” sign in the guest-house called innovation.
And why it is so important that we have brave and skilled people running the big schemes is that unless ideas like mine are given bandwidth, investigated and adopted, bad practices will remain at the top of the food chain. And if they can persist with the largest schemes, they will multiply down the chain.
The big schemes have a duty of care to the whole pension industry as does their trade body the NAPF. If the NAPF becomes conflicted because it becomes overly dependent on the support of the suppliers then it loses its teeth to stamp our malpractice (usually from those suppliers). That I fear has happened.
And painful as it is for them to hear this, the NAPF needs to listen to what I have to say.
I know I am right because I have seen with my own eyes European schemes take on-board the new ideas and technologies that I carry in my rucksack. There is nothing simple about my message for it is this.
We are overpaying for the services we purchase to manage our funds, we are losing returns on money through poor execution and in some extreme cases we are allowing ourselves to get ripped-off by unscrupulous brokers, traders and candlestick makers.
Those who I work with, who carry out the forensic testing that identifies where this is going on and carry out the restitutional work to make sure problems do not consider are few and far between. Thank goodness for that for we do not need armies of such highly-paid people.
These people are confident, so confident that they do not have to charge clients fees to find out if there is work to be done. They know that there are millions to be saved every time they shake the piggy bank so they work on a no-win, no-fee basis. And because nobody at the top can admit they are wrong, they find lots of wrong-doing which can quietly and discretely be put right without anyone needing to lose their job or even get a red face.
And of course this matters, because the costs of poor execution are passed on to the people who pay the bills for these large schemes – typically the shareholder or the tax-payer; E.G. YOU!
And it matters too because cleaning up the problems at the top of the food chain means that we’re cleaning things up further down and further down again.
We really are all in this together and if you want to know what we are up against you can get yourself down to Brighton on 24th September to attend the little talk advertised on this blog.