“Glass half-full please!”

cheers 1

what do you think?

Glass half empty

Imagine you are heading the motor industry’s trade body and you put out a statement telling the public that small cars are unsafe. It would be true in as much as tanks rarely come off worse in road crashes, but it would be pretty tough on small cars and their manufacturers.

This week, the PLSA put out a statement that was supposed to tell us that pension schemes with weak covenants weren’t safe. This is not what the public is hearing, they are hearing that defined benefit pension schemes aren’t safe, in fact they are hearing that giving your money to someone else for 40 or more years, isn’t a safe thing to do.

What the PLSA has done, amounts to a public relations disaster, that it did it to promote a solution which has no obvious advantages will make it a commercial disaster, the PLSA have alienated still further a large part of its membership. If I had a weak pension covenant , I would not be weakening it further sponsoring such talk.

Glass half full

I don’t sponsor a DB scheme but I know if I did,  I would want my scheme to actively invest in making Britain more competitive, more productive and more secure.

The current DB regulatory regime, with its emphasis on integrated risk management, encourages a depressing downward spiral that encourages closure. Schemes have generally closed to new members, for future accrual to existing members and soon many will cease to invest, handing over their obligations to insurers or the PPF, the PLSA hope to jump the queue and accelerate the process.

This is not what the  employers who I do business with want, nor is it want ordinary people want, the Labour party – who seem rather more in touch with ordinary people – want something quite different.

What do ordinary people want?

I am reading a very well written paper by the Canadian Public Pension Leadership Council. It was published earlier this year and is called “The Pensions that People Want”, it is the result of a national survey. I don’t know how different Canadians are from the British but I suspect “not much”. These are the key findings of the survey.

The survey results give rise to a number of key findings:

    1. The features of pension and retirement income programs that are valued by respondents coincide with features of defined benefit (DB) plans and, within limits, respondents are prepared to pay more to improve the quality of their pension/ retirement savings plans.
    2. There is a great deal of variation among respondents in terms of the confidence they have in meeting their targets for retirement income and retirement age, with members of workplace pension plans and especially members of DB plans being more confident than others.
  • Canadians are finding ways to deal with inadequate retirement savings, including retiring later and working after retirement.
  • There is broad agreement among respondents that maintaining living standards in retirement is a key objective, but this objective is interpreted broadly to include income to deal with various contingencies over and above the regular consumption of goods and services.
  • The results cast doubt on retirement savings solutions based on individual choice of investments as they reveal little time is spent on retirement planning and self-assessed knowledge of retirement savings products is limited, as is confidence in managing retirement savings.





This is pretty much my view of the world and – if we take off our professional hats, I doubt that many of us really could argue against these findings.

Half full or half empty

We have a simple choice in this country, either we take the PLSA’s view which leads to the ultimate closure of the plans people want, or we take another view, perhaps the Labour Party view, which is looking for ways to keep DB plans open, perhaps on a different promise going forward, but with the emphasis on investment for the future.

It strikes me reading the Canadian study that younger people favour the Labour Party approach while older people favour locking everything down and pulling up the draw-bridge.

The young people I deal with – and I was with a room full of them yesterday morning (Share Action), consider pensions a matter of investment while the older people with whom I was with yesterday evening (CSFI) consider pensions a matter of banking and insurance. We need to keep the elderly comfortable but we need to invest for the future.

I believe we can do this using the kind of pension structures the Labour Party are advocating, and I work with much cleverer people than me , who can show that such structures are resilient and sustainable.

I am against the nihilistic determinism of the PLSA whose messages play well to the lucky few but offer no hope to those who come behind.

I am a man with his glass half full and I intend to fill that glass before too long. I do not support the PLSA, I do support the Labour Party’s pension policies and I intend to tell everyone I see in Manchester next week just that.

As for the Canadian study, wouldn’t it be good if we could run such a thing here?

Henry cheers


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , , , , , . Bookmark the permalink.

6 Responses to “Glass half-full please!”

  1. George Kirrin says:

    The glass isn’t half-full, Henry.

    It’s cracked and leaking if this is the best some of our thought leaders (some of whom no doubt prefer the perks of working for or with very large institutions) can lead with.

  2. Con Keating says:

    The latest missive on DB consolidation repeats the same lies and misrepresentations of earlier papers in the series. It does not address any of the criticisms levelled at those papers and that analysis. In any other prefession, the authors of such a paper, and those who authorised its publication, would be sanctioned for bringing that profession into disrepute. There is no reason why the PLSA should be any different.

  3. henry tapper says:

    There is a strong case for the PLSA to answer. It is not just the profession but the advisability of saving for retirement using pension plans – that is under threat.

  4. Derek Benstead says:

    What is the definition of a successful DB scheme? I think many in the industry would say it is one closed to accrual and invested in bonds, LDI or annuities, so there is high probability the benefits are paid regardless of the financial strength of the employer.

    I disagree with this definition of success. A successful scheme is on which is open to new entrants and offers to current and future generations the benefits of being in a DB scheme which previous generations have enjoyed.

    Investing in bonds etc provides benefits at very high cost to the employer. The consequence of closing to accrual and buying low risk / low return investments is a very high cost to the employer, which reduces the money available to spend on contributions for current employees. So not only do current and future employees not get access to DB, their DC contributions are lower than they should be.

    Intergenerational fairness would be restored were DB schemes open to new entrants. The problem to be solved is not the avoidance of risk at any cost (a no risk pension is no pension) but a balanced judgement of cost, benefit and risk which keeps DB schemes open for future generations, providing sufficient benefits for members at an affordable cost to the members and employers.

    The problems of pension schemes are nothing to do with their size, and “superfunds” will do nothing to help.

  5. George Kirrin says:

    The PLSA’s DB Task Force report 3.0 assumes that investments, rather than follow the FAB Index asset allocation, will follow the PPF’s strategic asset allocation, or at least a rounded version:

    Cash and bonds 60% [PPF actually say it’s 58, not 60, with a range of 53-70]
    Alternatives 20% [PPF say it’s 22.5 with a range of 15-27.5]
    Equities 10% [PPF say it’s 7, with a range of 3-12]
    Hybrid assets 10% [PPF say it’s 12.5, with a range of 0-15]

    “Cash and bonds” include corporate bonds and annuities, and even emerging market debt. PPF do not specify a gilt % within that total, but the Dr J.E. Woods paper Henry highlighted last Christmas suggested the PPF’s original thinking (which seems to me to have moved on a bit since 2008) was to have a geared portfolio of long-dated gilts and index-linked gilts in the proportions of active, deferred and pensioner liabilities. Using the 2016 Purple Book proportions would mean 60% index-linked gilts (to match 24% active and 36% deferred liabilities), 100% long-dated gilts (to cover the active, deferred and the 40% pensioner liabilities) and 60% collateral gearing.

    “Alternatives” include property, private equity and other markets, hedge funds, etc..

    “Equities” are listed securities only.

    “Hybrids” are illiquid assets with hedging characteristics, whatever that means. Examples cited by the PPF include long-term leases with RPI/CPI increases.

  6. kevin james says:

    The elephants in the room are the cost to the private sector taxpayer to support public sector DB pensions. If that cost were removed and made available to employers supporting DB pension in the form oh I don’t know maybe some sort of tax relief on dividends or less tongue in check paying the PPF levy………
    And the opened ended cost to the employer. Lets be imaginative.
    The mortality question- radical thought. How about limiting pensions in payment to 20 years or zero escalation.
    As Henry comments there are some very clever people out there – they just do not seem to working for the masses.

Leave a Reply