In defence of small pension schemes

I went to bed worrying about this statement and woke up with it still rattling round my brain.

 “A lot of employers are fed up with their pensions and want to see the back of them, they want to see their pension fund going to a good home.”

The remark’s from Ed Truell- he of Disruptive Capital and several ventures into pensions , typically via his venture capital vehicles. It was published in an FT piece entitled “UK’s first pension consolidation fund targets £500bn in assets” (the title says it all).

Who is standing up for small pension schemes?

It seems that everyone has it in for the trustees and advisers of small pension schemes. The DWP White Paper (which I haven’t yet read) Apparantly says that the Government will take steps to encourage consolidation. The PLSA have come out violently in favour of “superfunds” and Ed Truell and Alan Rubenstein’s new venture will no doubt compete with the insurers and the PPF, for what’s left of Frank Field’s “great economic miracle”- our 5600 DB pension schemes.

I work with one of the few consultancies interested in advising these small schemes and I declare an interest. My firm’s future is tied up with making sure these schemes are appropriately funded, governed and administered. No doubt, when our scheme actuaries enter into strategic discussions with trustees and our employer consultants talk with their sponsors, we will be putting this new superfund forward as an option.

But I wonder how many of our clients will respond well to being described as “fed up with their pensions” and how many really want to “see the back of them”.

A tradition of care

There is a tradition of care in many small manufacturing companies, many charities, NGOs , many schools, many research institutions  and service organisations of looking after staff. This is rather glibly referred to as “paternalism” – which implies the notion of “noblesse oblige”.

When you live the life of Alan and Ed, the rather less lofty ambitions of organisations like those that are our clients are easily dismissed. To run a business, or a charity or an NGO with the view of perpetuating a “good thing” is an ambition in itself and many of our clients see it as their social purpose to perpetuate a tradition of paying people in today’s wages and in deferred pay – that is explicitly referred to as a “pension”.

Some of our clients, I would like to think most of our clients, are keen to continue this tradition and are not that interested in getting someone else to pay these pensions for them. Far from being sick of pensions, many of our clients are whole-heartedly behind their pension scheme and they use firms such as ours to ensure those schemes remain affordable, well governed and well administered.

A proper function of any organisation is to look after its staff.

Here is Alan Rubenstein voicing his view of what our client’s want.

“We know that many businesses are constrained by their pension liabilities and need to find a more affordable way to fulfil their promises to pension scheme members,”

He’s right, times move on, many of the managers of our clients are no longer in the pension scheme and they consider the interests of pensioners and deferred members pretty low down the stakeholder pecking order.

It is easy to demote the rights of people who are no longer working in an organisation, or no longer of strategic importance to its executive.

But they have in law certain rights that mean the promises made to them must be kept and should a company not meet the funding obligations to these people, the Pensions Regulator has the right to demand the organisation put its pension scheme into the PPF and enter administration.

This is not a pleasant process as it means people can lose their jobs and part of their pension (quite a large part if you are well pensioned). Nonetheless, the Pension Protection Fund does provide a safety net and many small schemes cherish its security.

I did not hear Alan Rubenstein insinuating that small schemes were running inefficiently when he was at the PPF and I have yet to see any concrete evidence that employers could fulfil their pension obligations more efficiently through a superfund.

Many of our clients already participate in superfunds and find their participation in last man standing DB master trusts , extremely problematic. They are locked in by section 75 and have little control of their pension bills, they have no participation in the super trust and take the pain without credit from their staff.  Many current superfunds are making our clients miserable too!

Superfunds are unlikely to wave a magic wand that will ease the pain. Taking the patient out of a loved environment, a cottage hospital and putting the patient in some general hospital – may sound more efficient to the accountants, but it may not make the patient any better.

The proper function of any organisation is to look after its staff.

We should not assume that big is better – any more than assume that “small is beautiful”. Trustees should consider each scheme on its merits.

Someone has to stand up for small schemes

Putting aside all the arguments about grandfathering scheme liabilities, small schemes play a valuable part in the economic life of the country. Many are well run and many, given the right economic tail-winds, will return to solvency.

Pandering to the lowest common denominator with language like Ed Truell’s is likely to put the backs up many Trustees who are doing their level best to pay the pensions they promise – under their own steam.

Many employers see no conflict between meeting their pension obligations and managing their businesses as usual. They may not operate as venture capitalists would like to them, but they operate as they want to.

Infact, many or our clients see venture capitalists, investment bankers and fund managers as the people who have put them and their pension schemes in the state they are in today.

First Actuarial stand up for these good people, we do not object to more options being laid before our clients, but we object to the insinuation that they are sick of their pensions; our clients are just not like that.


About henry tapper

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

11 Responses to In defence of small pension schemes

  1. alan chaplin says:

    Agree henry. Disappointing that a new pension company launches without boasting about how the product ie pension they provide is better than the existing ones.

    On a separate point I don’t understand their proposition yet. I get the offer to the employer I.e. hand over pension for less than buyout cost. But I don’t see why any trustee would allow sponsor to leave without the security buy out provides. The price will presumably be above the fill funding level on funding assumptions and any employer exploring this option clearly demonstrates they have the cash available so trustees would just ask for that directly??

  2. Colin Meech says:

    As per usual your government is to blame. You should turn your fire on them. Small funds are inefficient. Its why the Netherlands and Australia require pension funds who are inefficient to merge. This is in the interests of members and sponsors. The White Paper appears to offer opportunities for City Sharks to benefit from consolidation. No surprise there as they fund your party along with the Russian oligarchs of course.

  3. Con Keating says:

    Can anyone offer me any evidence that small funds, whatever they might be, are inefficient?

  4. Brad Ford says:

    I think Ed Truell is right. No sane employer would set up a DB scheme today. Many with legacy schemes feel that the interests of the myriad of third parties involved in managing them are diametrically opposed to their own. Sponsors want rid of their ongoing expense while the third parties want to prolong their work and fees in managing these risks for as long as possible.

  5. henry tapper says:

    That Brad is a very well presented “alternative view”. I like it for that – but it is not the case at First Actuarial. We will put forward the case for consolidation , the case for buy-out and the case for keeping a scheme going – and we will let our clients work out what is best!

  6. Brad Ford says:

    Thank you Henry. While I admire your faith in a tradition of care (which undoubtedly motivates many trustees and advisers), for too many organisations their DB pension scheme is the biggest risk on their risk register and if not a permanent existential threat, a brake on their investment capacity and a costly and irritating distraction from their primary purpose/s. It’s seen by many boards as a “problem to be solved”. I may be cynical but I simply can’t help but see this as being at odds with their scheme advisors whose own existence depends upon it being an ongoing problem.

  7. Kevin Wesbroom says:

    Oh dear – first time I’ve seen your naked self interests showing so blatantly Henry. Your halo must be slipping. 😏

Leave a Reply