Less complex DC please – SSga | AgeWage: Making your money work as hard as you do

This from State Street’s Barry F.X. Smith, head of State Street Global Asset (SSga) Manager’s Americas Institutional Client Group.

“The defined contribution market continues to expand, both in size and complexity. Plan sponsors and the participants they serve face many challenges as they seek the shared goal of a financially secure retirement.

British savers will be relieved to know that SSga have appointed a new man as its global head of defined contribution.

Back in 2015, SSga’s strap line was “there’s opportunity in complexity”

“Opportunity in complexity”

Saving money for a pension in later life is not getting increasingly complex, it is actually getting much simpler. No more fiddling around with direct debits, or signing long application forms every time you change jobs, most of what we need to do is done for us by auto-enrolment and what we want to do ourselves can be done by flicking a few switches on a provider or employer’s website.

Nor need must investment be complex. Most of us will be in a default fund which invests in shares using index-tracker funds. Granted it gets more complex as we get to spending our money but we can reasonably hope for a default way to spend to re-emerge from the current confusion (see the Sun on Sunday’s unravelling Benpal’s bedlam).

So what are these challenges we face? Barry FX goes on to list them

This includes providing the right investment choices, educational tools and plan features that help participants reach their goals. It will also soon include providing choices that help them manage the income from their savings throughout retirement.

No! This is not what people want.

The NMG research carried out for IGCs did not include educational tools and plan features and it certainly didn’t list choices. The overwhelming response was that people wanted their savings to provide them with a lot of money in retirement, they wanted to know what was going on and to feel their money was in safe hands.

Ramping up the complexity isn’t helping in any way- but it is precisely what asset managers try to do. We are being blinded by science. The science of the pension technicians is making it impossible to see what we are paying, to see where we are investing and even to see what the results of our investments are.

Instead of real performance figures, we are given “education tools” (how patronising) which model likely scenarios using other people’s assumptions, investment strategies and other people’s retirement objectives.

In short, we are not only blinded by these people’s science, but led down the garden path.

“In safe hands”?

We are told we need Dave Ireland (SSga’s new head of global DC).

Dave previously spent a 13-year stint in roles that included senior investment strategist and portfolio manager for the global asset allocation team, where he was actively involved in designing and distributing SSGA’s TDFs.

His linked in profile https://www.linkedin.com/in/david-ireland-cfa-05598a/, tells me he worked at SSga between 2004 and 2016. This was the period when State Street were convicted of numerous felonies in the US, Europe and the UK including stealing money from the Royal Mail and Sainsbury pension funds.

You can read all about it on this blog (and several more).

The reason that State Street was able to rob pension funds blind was that they employed complex FX strategies (no slur intended Barry), which enabled traders to “park up the van” and load pensioners loot into getaway vehicles.

I am sure that Barry FX and Dave were not directly involved in all this but they were both on the premises when this happened. It seems they are back because of the “size and complexity” of the DC market and I don’t like that at all.

What we need is a simpler not a more complex DC market. We don’t need educational tools , we need to know where our money is invested, what we are paying for its management and how our investments are performing. These are simple things.

Less, not more complex; – please

As for our retirement, the research suggests that people want – unsurprisingly – a pension. Nowhere does it say that most people want to “manage their savings”, that is in the SSga rule-book not ours.

People when they retire want money and security and (save for those who enjoy managing money) they do not want to be bothered with the complexity of choice.

I am sure that Dave Ireland will be over here – preaching from the SSga rulebook, dishing out educational tools and inventing increasingly complex plan features to help me with the complexity of my retirement choices. But I won’t be indulging him.

We need to make pensions simpler – not more complex – if SSga were really interested in “the shared goal of a financially secure retirement”, they would not have stolen money from UK and Irish pension funds and they would be helping us to understand what it is they are selling.