“Ring out the old – ring in the new”- who will be our investment fiduciaries in retirement?


Yesterday I went to the Schroders DC Challenge conference which was all about “delivering value and certainty” to retirement savers.

I left enlightened by some interesting debates and one or two talks. I’ll share with you three observations that I jotted down as we went along.

Observation one – the new model trustee wants nothing to do with post-retirement member outcomes

Unless my ears deceived me, I heard a panel of trustees (professional and otherwise) claim that the business of looking after the funds of DC pensioners is  a responsibility too far.

Methinks the trustee doth protest too much!

It’s true that they were talking about the impossible obligation imposed on them to organisae and deliver the guidance guarantee. (I think that this burden will be transferred to a centralised agency but that’s another matter).

I just don’t understand why the financial welfare of a member is none of a trustee’s business. In my books the trustee’s job is to protect the member’s interests and maximise the outcomes of their savings.

Suggesting that trustees’ obligations end at the point someone decides to start spending their saving is like walking out of the ground at  at half-time (when you’re the ref!).

I’ve spoken earlier this week about the regrettable trend towards “risk-based trusteeship”. It seems that the new model trustee sees the implementation of risk controls to protect members as “job done”. 

Which might explain why trustees showed so little concern at the start statistic that only a quarter of those buying annuities with the proceeds of DC trusts were shopping around.

Presumably there was no risk in consigning members to a broken annuity market and expensive and often inappropriate retail products.

But there is a risk that in providing a default decumulation fund, trustees might sail out of their safe harbour.

I have to disagree with this view. It is not a matter of risk , it is a matter of wanting to act in the best interests of members. If trustees do not consider that their primary objective, they have abdicated their fiduciary responsibilities, they should forfeit the title of trustee and call themselves “risk managers.


Observation two – many trustees are not engaging with their new duties post 2015, nor are likely to

Well those trustees who think adapting the funds on their watch to help people spend as well as save is a burden, have obviously not studied the DWP Command Paper “Further measures for savers” where they will find a list of new duties besides which the duty to help members in retirement is child’s play.

I know some DC Trustees who welcome these new obligations. They are looking forward to 2015 as an opportunity to do good work for their members and are relishing the challenge of exercising proper controls, communicating with members and helping organise sensible options for members spending their pots.

But they are very few and far between. This morning I am meeting with Morten Nilsson , CEO of Now Pensions. I am quite sure that both from a commercial and from a fiduciary perspective, he will be relishing the opportunity to manage the investments of those spending the pots they have built up in his master trust.

But it’s not for nothing that a whole chapter of the DWP Command paper is given over to the capacity of occupational trusts (and we should include in this sub-scale) master trusts to addd value post 2015.

For trust boards with no appetite for the struggle , the option to transfer assets and their obligations to other trustees will be welcome. I am sure that NOW, Peoples and other master trusts are looking at 2015 as an opportunity to consolidate many occupational DC schemes.


Observation three –  Asset managers have an opportunity to get some skin in the DC game but they’ll have to show some fiduciary responsibility for member outcomes

Which brings me to my third observation. It is time that those who manage the assets on behalf of the UK working population, took some fiduciary responsibility for retirement outcomes.

I have been scathing of asset managers in this respect and will continue to be so. However, I did see some glimmers of hope at yesterdays Schroders Conference  “The DC Challenge- delivering value and certainty”.

Much of what was said by the hosts I agreed with. 

I wish they would not continue peddling the myth of the “psychologically scarred DC saver”. DC savers are not scarred by events like 1987 and 2008, they do not need to be wrapped in cotton wool as they save. They know they have plenty of time to make up for investment losses and some of them are even comforted by pound cost averaging.

But the use of volatility caps to provide smoother investment returns will be really useful in the post retirement phase where drawing down income or capital at the time of a sharp fall in unit values can result in “pounds cost ravaging”. You get to be psychologically scarred when your predicted income stream in retirement is reduced for ever by having to sell too many units to meet an income payment. This is real not mythical damage.

In an excellent talk, John McLaughlin demonstrated that a variable volatility cap applied to a Global Balanced Portfolio and a Global Equity Portfolio targeting a maximum loss of 12%pa over any rolling 12 months period could achieve its goal (net of fees).

Schroders are now testing whether a fund with an easier CPI+2% target could achieve a target of not falling more than 8% in a rolling 12 month period.

These may not sound hugely ambitious targets and they aren’t, I pointed out that there needs to be more conviction from Schroders in their system. My suggestion was that they offered a free year’s management if they ever lost a member more than 8%. Well the session was called the DC Challenge.

While I got some dirty looks from my friends Stephen Bowles and Hilary Vince, I think we understood each other. 

For consultants, trustees and members to want to work with asset managers, we expect some risk sharing. Asset managers are happy enough to take their fees in the good times, but when hard-times happen and they fail to reach their targets, shouldn’t this be acknowledged in lower fees and some form of compensation to those who have been let down?

What I am asking of fund managers is that they pick up some of the Fiduciary slack created by the abdication of the sponsors of occupational pensions and their trustees of responsibility for later life member outcomes.


What I learned from attending Schroders DC Challenge was three things.

That the new model trustee wants nothing to do with post-retirement member outcomes

That many trustees are not engaging with their new duties post 2015, nor are likely to

Asset managers have an opportunity to get some skin in the DC game but they’ll have to show some fiduciary responsibility for member outcomes

I will be speaking on this topic at the Pension Network’s Special meeting on Friday 16th May and look forward to getting some interesting feedback from its audience. If you have any comments on these points, please feedback below or contact me on henry.tapper@pensionplaypen.com.

This post first appeared in http://www.pensionplalypen.com/top-thinkingtarget pensions

About henry tapper

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