68% of us think that we’re better than average drivers, which means that at least 18% of us are mistaken. And does it come as a surprise that of that 68%, 61 out of every 100 are male?
While I love numbers, as they enable us to get a feel for magnitude or quickly indicate how things are going, it’s all too easy to be blinded by them. It’s important that we use a degree of common sense and ask sensible questions as to what lies behind the numbers we see, and whether or not they’re giving us the information we need in order that we can give them their proper place. This is true for pensions transparency and governance as much as anywhere else.
Let’s look at a recent trustee meeting between someone who we’ll call ‘you’ (the trustee of a defined benefit pension scheme, although the lessons highlighted could equally apply to defined contribution arrangements) and someone else who we’ll call ‘your adviser’. The meeting begins in earnest with a review of asset and funding performance…
Casually imply causation from correlation
Having recently changed one of your investment managers your adviser tells you that investment performance has improved – that your assets have subsequently increased by £2.0m over the following three months; and that the funding position of the Scheme has also increased over the period – up 1%. But is this the full picture?
Initially your adviser neglected to mention that of the £2.0m increase approximately half related to a deficit reduction contribution payment, leaving an actual return on assets of £1.0m, only marginally ahead of the return that would have been achieved had you remained invested with the previous manager and actually less than the return on the market as a whole. On further questioning it also transpires that the reason for the estimated improvement in the funding position was down to a reduction in the value placed on the liabilities (owing to an increase in gilt yields). So perhaps not as good as the headlines indicated.
Exaggerate the importance of a possible change
Aside from the fact that the improved funding position has been provided as part of the asset update, and is therefore only a mechanistic estimate, more importantly what would it mean in any event? Is it worth getting excited about?
In this case, were the improvement to be maintained come the next formal valuation date, all it would do is remove the final two months deficit reduction contribution payments currently required in eight years time. So perhaps not worth getting too animated about.
Define your definitions
Moving onto administration your adviser reports that, pleasingly, over the past three months 98% of all retirements, which is “where efforts should be focused”, were processed within SLA (the agreed time frame). This seems like a good result. Or is it?
Firstly, there have been a number of problems in processing transfer value and ongoing pension payments. However, as these are not strictly defined as ‘retirements’ they have been excluded from the 98% figure. Secondly, it transpires that the retirement process actually consists of several steps, each with its own SLA. So while many of the retirements processed took much longer from start to finish than anyone would have liked, most of the steps were completed ‘within SLA’ and have been reported as such.
So all in all…
…a good meeting? A better investment manager, an improved funding position, and excellent administration. Or at least that’s the interpretation your adviser would have you take away.
Whilst we deserve, and let’s not forget in the main receive, information about our pension schemes presented in a fair and balanced way, let’s make sure that we’re asking the right questions and looking behind the numbers, rather than simply accepting what we’re told without question. In that way, you’ll help ensure that your members get the service they deserve, and the employers who sponsor our pension schemes the value they warrant.
And on the subject of simply accepting what we’re told, how many people believed those car driving statistics at the top of this article?
Matthew Masters is a Charity Trustee and until recently a Director of JLT. If you want to link in – Matthew’s profile is here