“Innovation – what innovation?” – Pension PlayPen confounded by DC investments

SunriseThe 50th London Pension PlayPen lunch took place as ever at the Counting House (attendees listed below).

At the opening show of hand six of us could see no great innovation happening in UK DC and three saw “potential” or even “actual” progress.

We kicked off with a well articulated case study from Jonathan Fish about how Zurich had arrived at its new default investment structure.

Within a  budget of 20-25bps, Zurich looked to meet the feedback from its focus groups . The feedback was that investors wanted certainty and a smoothed ride and were prepared to write off some pension for peace of mind.

Zurich’s priority was to control risks and provide a smoother journey with a target to reduce   risk to 2/3 market average. In terms of budget apportionment, approximately half the budget is being spent on growth and half on smoothing.

Opinion was divided between those who saw this as a provider covering itself or as a provider genuinely championing consumer interests. There was not a lot of enthusiasm for this approach as innovative.

The lunch went on to debate exactly where innovation could be found. In a strenuous though never heated debate three themes emerged

1.  The investment of people’s money must engage people in what the money does (examples of house purchase and lottery tickets were offered as “engaged investments”

2. The efficiency of the investment was linked to the lack or otherwise in intermediation. Hargreaves spoke passionately of the value of a whole of life investment directly in property or equities where the income deriving from the asset pays the pension.

3. There was confusion over what we could consider investment risk. The room was split between those who considered those with little savings could or should not take capital risk and those who thought that smoothing the road was less important than getting to the right destination.

There was general agreement that there is no consensus on what should be done on key questions such as the annuity problem, polar views on smoothing and whether individual or collective solutions are best.

Several members of the group agreed to take these questions off-line to their various organisations and see whether a more structured discussion could be established.

Watch this space

 

Attending

Andy Agethangelou  – CIPP

Henry Tapper – First Actuarial

Robert O’Donovan – Neon Legal

Alan Smith -First Actuarial

Renata Kairyte – Redington

Alice Cheung – Redington

Jonathan Fish – Zurich

David Hargreaves Independent thinker

Carole Costello – Vanguard

Alison Munro – (former) Logica DC scheme (trustee)

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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