It was good to oversleep and wake up not to the lark (metaphorical here in EC4), but to Alan Rubenstein purring about his Pension Protection Fund.

• Pension Protection Fund figures published yesterday show the lifeboat scheme has £4.1bn surplus and a funding ratio of 116%.
• The Pension Protection Fund now has £23.4bn in assets.
• 10,005 new members entered the PPF in 2015/16, making a total of 225,500 deferred and pensioner members.
• Between 1 April 2015 and 31 March 2016, 47 new schemes were brought into PPF with combined claims of £475.9m compared with £322m in 2014/15.
• Of the £2.4bn total compensation the PPF has paid since it was established in 2005, £616m was paid out in 2015/16.
• Despite this the PPF reckon “We are sufficiently robust to continue to pay compensation to pension scheme members who need it for as long as required”
• The PPF forecasts it will achieve financial self-sufficiency by 2030 in 93 per cent of scenarios.

(thanks to Jo Cumbo’s twitter feed for this)

A benchmark for NEST

By any measure, the PPF is one of Britain’s pension success stories. One of the tasks ahead of new Pension Minister Nick Harrington is to explore the future of NEST. My views on what NEST should and shouldn’t do are set out in my response to its recent call for evidence.

Despite being in la maison du chien for my criticism of NEST’s CIO for fronting the IA Advisory Board, I hope that NEST regard me as one of their fans (I am). I want NEST to be as good as the PPF (it currently isn’t) and here are my suggestions for Nick Harrington, learned from the PPF.

1. NEST needs a target for self-sufficiency, as adopted by the PPF. NEST currently owes the DWP £460m , that debt does not need to crystallise but it shouldn’t be written off (as NOW’s £50m loan from its Danish parent appears to have been). NEST needs a financial plan and a target for getting rid of its debt.
2. The PPF is not dependent on intermediaries. It has brought its fund management in house , is not dependent on third party administration and has keen control on its strategy , costs and execution. The same cannot be said for NEST, which outsources its asset management, funds administration and member record keeping. NEST should consider following the PPF and maybe even merging its investment function with the PPF.
3. The PPF’s reporting is clear , concise and focussed on the job in hand. NEST’s reporting is erratic and without the same focus. The simple measures with which the PPF reports (see above) are consistent and intelligible. NEST needs to develop a reporting structure with the same consistency and clarity.

The future of the PPF

Alan Rubenstien of PPF

Of course the PPF is not competing, it is complimenting. NEST on the other hand is competing for market share and competing hard.

Some industry commentators (Kevin Wesbroom at the fore) have suggested that the PPF should actually compete for the running of failing occupational pension schemes and be allowed to take over the management of the assets and liabilities of an occupational scheme and continue to receive funding from sponsors (and members).

The PPF has not jumped at the chance and there are many actuaries , investment consultants, administrators, lawyers, auditors, custodians etc. who would regard the opening of the PPF’s gates to live schemes as a step too far.

But I think more consideration should be given to this idea.The precedent has been set within the LGPS with the pooling of assets to create greater economies of scale. The inefficiencies of the large network of small DB plans is obvious, there is too much intermediation for the good of sponsor or member and the expensive infrastructure small schemes carry is at risk of breaking the back of scheme solvency.

The future of NEST

Helen Dean- CEO of NEST

With NEST , things are the other way round. While NEST has yet to achieve the efficiencies of the PPF it is trying to sell its way out of its public debt by taking on assets already in the private sector.

I believe that this is a good thing for it to do but not before it has

1. Worked out its financial plan and set firm targets for absolute self-sufficiency (repayment of the debt)
2. Reduced its intermediation by sacking most of its fund managers and bringing some or all of  its administration in-house
3. Found a way to report to the market which is as clear and useful as the PPF.

I expect that there are a few other things it needs to do as well, such as getting rid of the lawyers who threaten me with Ultra Vires nonsense.

NEST could become Britain’s first and greatest collective “decumulator” of DC pots – or – to speak in English – our default way of spending our pension.

I wouldn’t be against that. The PPF has shown that a competently managed State Enterprise can succeed and NEST has all the makings of being the next PPF.

But it needs to be clear in purpose and (like the PPF) sensitive to the environment in which it operates. NEST is not (as is the PPF) one of one. It is one of many and competes for its inflows with some pretty good competition.

NEST’s USP is not that it is a better pension (it’s good but not that good) , it is that it carries the public service obligation (for which it has been given money).

Post April 2017, NEST will compete with the rest of the market . It has the advantage of having had £460m of our money as a loan and will continue to benefit from that money, however, like the PPF, it needs to prove it is worth the public’s money.

Thank goodness for the PPF

It was good to oversleep and good to be reminded of Alan Rubenstein’s good stewardship as I opened my ears!

It is good to have the PPF and it’s good to have NEST. NEST and PPF should be working closer and NEST should be sitting at the PPF’s feet and learning.

There is a strong argument for the two funds sharing services as well as best practice and I have a misty long term vision is to see pooling of assets between the two.

Most importantly , we should celebrate our successes and the PPF is one. If Richard Harrington want encouragement , he should be aware that it’s not just auto-enrolment’s that’s working.