Putting the world to rights – in a snazzy waistcoat!

 

nico

Nico Aspinall

 

One of the reasons that pension schemes are so boring is that they never seem to do anything. They take your money and then they give you it back, in the intervening years you are none the wiser about what is happening to your money.

Meanwhile, the money you invested in your house, the season ticket , your children’s education gives you demonstrable evidence that you made good or bad decisions, even if the investments didn’t work out- you had the joy of ownership.


The contradictory world of Nico Aspinall

I’ve known about this man (I could call him young lad) for some time. He’s got a brain the size of a planet , wears a waistcoat and has a foppish fringe and a big smile. Here is someone rather more than a conventional actuary.

Five years ago, Nico wrote a leaned paper for the Institue of Actuaries telling them to wake up and smell the coffee on climate change. Five years later he was speaking at a meeting of investment people worrying about how to make money out of our DC pensions.

I chatted with him afterwards, I’m pleased to hear that he will soon be as free a spirit in his employment as he is in his deportment.

Last year, Nico did an interview  in which he stated

The government’s role is to ensure there’s a market for social services in the widest possible sense, where the private sector won’t act. In many cases it is right for government to build socially beneficial projects such as hospitals and schools – or even wind turbine and hydro schemes.

He was talking specifically about DC pensions and the barriers that people who run DC pensions have in investing in this kind of long-term infrastructure.

I would rate regulation, cost and pension administration as the most important barriers, but they create a vicious cycle which is hard to break. Regulation hints at offering liquidity but doesn’t enforce it, current admin is built around daily valuations and trading, but because it went in the direction of daily trading, not because it had to. Illiquid assets are simply more expensive and the charge cap makes investing in them harder.

Ironically, Government policy is working at odds with its social purpose. Nico can smile about it, as only consummately clever people can. Let’s hope that Nico can do something about it – with his new found freedom.


Doing something about these contradictions

So far, those DC providers who have expressed an interest in investing with a social purpose have only done so with their shareholder’s money. Legal & General have gone the furthest and Dr Nigel Wilson’s Basis for Beveridge 2.0 presentation (here), is a taster of what an insurance company could do with a DC default fund

 

The full title of the presentation is Auto-Enrolment; the basis for Beveridge 2.0. By linking the ideas that Nico Aspinall (and others) have been talking of for years,to auto-enrolment, Wilson is laying down a challenge both to Government and to the pension providers.

NEST and People’s Pensions both have around £700m in their default funds, both can expect that to exceed £1bn by the end of this year. L&G may have taken even more into its default over the past three years.

The point is that – even with the very low contribution rates we are currently seeing, assets under auto-enrolment are already mounting up.

The vision of Nico Aspinall, Share Action, Nigel Wilson is based on a common social purpose

  • In investment terms to harnass the “illiquidy premium” available to those who can tie up their money for decades
  • In terms of engagement– to put people in touch with the assets their pension owns
  • In terms of public finance – to ensure that we reduce the strain on the tax-payer in funding  public infrastucture
  • In terms of reputation – in restoring confidence in pensions as “doing something good”

Of course there are obstacles -Nico laid them out well. But we should not let technical problems we have created for ourselves, stand in the way of the long-term purpose of auto-enrolment and workplace pensions. All four of the items listed above can be achieved if there is the will to do so.

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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1 Response to Putting the world to rights – in a snazzy waistcoat!

  1. Phil castle says:

    I like the sound of all this:
    • In investment terms to harness the “illiquidity premium” available to those who can tie up their money for decades
    • In terms of engagement- to put people in touch with the assets their pension owns
    • In terms of public finance – to ensure that we reduce the strain on the tax-payer in funding public infrastructure
    • In terms of reputation – in restoring confidence in pensions as “doing something good”
    We started to not only get our clients to complete a risk profile questionnaire (we use Distribution Technologies, both Finmetrica etc are another option), but we also issue our clients with an Ethics and SRI questionnaire in a similar format which gets them thinking about what their money actually DOES to or for the world. As a result a good 80% of our clients opt for an element of SRI or Ethical based funds even at the most light green stage as with the Vanguard SRI funds.
    I challenged NEST 2 years ago as to why their ethical and SRI default offering along with their Sharia compliance could best be described as wishy washy as any consumer who opted for one of those would actually end up with a portfolio which didn’t then match their appropriate asset allocation as there was no use of corporate bonds, gilts or commercial property to provide a balanced portfolio.

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