Con Keating on the PLSA’s case for consolidation


A discussion of the PLSA DB taskforce paper: “The case for consolidation”

As Iain Clacher and I will be addressing the detail of this paper in our response to the DWP DB Green Paper, this note addresses only issues arising from Ashok Gupta’s presentation of the paper at the PLSA Investment Conference, his Foreword to, and the Executive Summary of the paper.

In the spirit of transparency, I will begin by declaring that Schumacher’s “Small is Beautiful” had a profound influence upon my thinking and worldview with its publication early in my career. That was a time when the uncertainties of the world did seem almost insurmountable, but perhaps that was just a product of my youth and inexperience. Having re-read it recently, it has withstood the ravages of time rather well. For those who have never read it, some quotations will illustrate some of its relevant thoughts:

“Any intelligent fool can make things bigger, more complex, and … It takes a touch of genius — and a lot of courage to move in the opposite direction.” and

Even today, we are generally told that gigantic organizations are inescapably necessary; but when we look closely we can notice that as soon as great size has been created there is often a strenuous attempt to attain smallness within bigness.” and

You do not make non-viable people viable by putting large numbers of them into one huge community, and you do not make viable people non-viable by splitting a large community into a number of smaller, more intimate, more coherent and more manageable groups. 

The foreword opens with the observation that “Our research informed the clear conclusion in our Interim Report: the system isn’t fit for the future.”, but does not observe that this conclusion was widely contested at the time. The future for this report, is not one where DB pensions are widely offered, but one in which they are run down and not offered to employees; this is a programme for nuclear decommissioning, not constructive creation.

It then tells us that schemes holding 42% of all benefits of schemes in deficit “have just a 50:50 chance of having them paid in full” and subsequently refers to schemes “limping along for the next 20 to 30 yearsposing high risk to employees hard-earned benefits. Let’s unpack this: half of schemes failing over 30 years – that is an annual rate of sponsor insolvency of 1.36%. These must indeed be true basket cases, when the overall corporate population insolvency rate is around 0.4% and that is heavily distorted by the high failure rates of recently created firms (which don’t have DB schemes). It is higher, as both the Regulator and PPF have noted, than their projections. These schemes are by and large closed to new members and future accrual; they are in run-off. Pensions get paid and this means that the total amounts of pensions payable decline over time – for a fairly typical scheme, the liabilities 30 years from now are just 18% of those prevailing today. Moreover, as time passes more and more of the membership are pensioners in payment. Schemes that closed ten years or more ago will have only pensioners in payment thirty years from now, and of course the risk to these pensioners in payment exists only for the members of those schemes which are still using RPI rather than the PPF’s CPI for indexation. The illustration below shows the amount of pension at risk as a proportion of today’s total benefits projected.

This is small and rapidly declining; it gives the lie to the many assertions that the risk is huge, imminent and that doing nothing is not an option.



We are to believe that pension regulation is “operating precisely as Parliament intended”. That is not my recollection, and would not be supported by any reading of Hansard – for example: Parliament was told that the cost of the PPF levy would be £300 million annually, a number it has usually exceeded by a factor of two or more.

The paper drives relentlessly towards their consolidation and superfund model, when there is a far simpler way in which to manage the risk that the study is concerned by: increase the PPF compensation to full benefits.

Many others have already pointed to the absence of a cost benefit analysis and the puzzle of how sponsors might feasibly find the funds to pay the entry costs of superfunds, but those and many other issues can wait for the full response to the DWP DB Green Paper.

As for this report, I am left with the overwhelming impression that it is consultant quality, and that the iron first law of consultancy applies: there can be no solution that we are not part of.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Con Keating on the PLSA’s case for consolidation

  1. ancientllm says:

    I have not had chance to study Ashok Gupta’s presentation of the paper at the PLSA Investment Conference. However, what I have seen makes me believe that the best thing that can happen as far as our pensions are concerned is that the PLSA and Ashok Gupta are quietly dissolved and forgotten about!



  2. john mather says:

    The National Health Service model makes your argument by example. However there are examples of excellence (achieved other than by chance) and we might analyse why they produce the results that they do. I am less convinced by arguments suggesting that all schemes should sack active managers, innovative structuring (e.g.Edward Thorp) substituting trackers using special pleadings examples based on fraudsters activities extrapolated into a general lynch mob approach to criticism of fellow professionals

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