Yesterday’s Transparency Symposium, organised by Family Agethangelou , delivered a series of insights on the Purpose of Pensions. The DWP were in attendance, I guess the political message was simple, we want pensions to meet people’s expectations of later life. That means a clear view of liabilities and a clear run for asset growth.
The day helped my understanding of both – thanks to this man
A Clear view of liabilities
Managing those expectations is critical to fulfilling the purpose of pensions. So far we have painted retirement as a Shangri-La with Rob Bryden round every corner. The truth can be tougher.
Today we will see the Conservative Manifesto which will focus on the big ticket items;- who pays to keep pensioners warm, in health and who provides them with care if they are unable to look after themselves. I will deal with these morbid subjects in another blog, it was the elephant in the Pension Insurance room (thanks PIC and thanks Agethangelous)
A future conference should focus on the liabilities we will hear more about in the next three weeks.
A clear run for asset growth
There are two things that can drive transparency, Government intervention and competition. We will wait till the Summer to hear how the FCA will drive competition in asset management.
Much to my relief we have finally seen some competition to the hegemony of the fund and platform industry. It has come from an American fund management group – Vanguard
I had started the day writing this letter.
Vanguard’s D2C platform, a game changer for transparency?
The arrival of the Vanguard Direct to Consumer (D2C) platform has profound implications for transparency in the pricing of retail investment products (including DC workplace pensions).
Anyone with a head for numbers can see that there’s a pricing miss-match between workplace pensions, typically delivered at 0.5%pa and the same funds on retail investment platforms – delivered at at-least double the price.
Since the persistency with which investors hold funds in ISAs, matches the duration of their retirement savings accounts, there is no obvious explanation for the disparity. The arrival of Vanguard with an all-in price of around 0.3% for investment management and administration has the impact of the child who pointed out that the Emperor was wearing no clothes!
Detractors will point out Vanguard D2C offers no choice, no advice and no active management. They are already labelling it a “vanilla” product, (as if all we should buy is Tutti-Frutti).
I am glad that consumers now have the choice of paying less for less, especially if they can’t see much value in paying more. Having a benchmark price for the plain product allows us to assess the value for the expensive product with some idea of the money it’s costing!
I say “some” for it is not until we know the hidden “transaction” costs of the vanilla and tutti-frutti approaches, that we can really understand “value for money” in an investment product.
But the launch of Vanguard D2C is a big step on the road to fund transparency; a game-changer perhaps!
If we are to pay for the big ticket items, we will need assets. Vanguard have given assets a clear run to grow. It is not always so easy to find transparency.
The room heard yesterday that the Australian Super system, that manages some AusD 1.2tr of assets has had some $600bn of savings go missing. This is the money estimated to have been syphoned out of the system to pay the costs of the Pension Industry.
Jon Spain, a veteran actuary closed the meeting by asking – movingly – whether those who set occupational pensions up in the 50s and 60s – ever envisaged our having a pensions industry.
Vanguard’s bold move is a step away from the pensions industry to a simpler world where money is invested with limited intermediation, limited cost with the aim of maximising the amount of capital available to pay the big bills of tomorrow.