Don’t de-risk too early – says Aon!

I nearly fell off my sofa on Lady Lucy!! While all I’ve been hearing from Aon’s fiduciary unit is the importance of locking down the pension scheme through Liability Driven Investment – fully implemented by Aon, here is the American behemoth exhorting us not to de-risk my pension too early!

Surely not!

The call comes in an article in an obscure rag called the Actuarial Post that I read so I can pass the day with my colleagues. Here it is.

Aon are telling us that

“While the concept of a good outcome is generally recognised across the pension industry, no clear definition of it currently exists and which can therefore be incorporated into investment strategies. With the diverse nature of defined contribution (DC) scheme members only increasing, greater clarity is needed to aid targeting a sustainable level of retirement saving”.

You get the picture – Mr Money isn’t going to be copying and pasting this breakthrough into the Money Page of the Sun.

And here is the bit that got me falling off the sofa…it’s Chris Inman, head of DC advisory giving the advice

“We believe that an individualised glidepath can be constructed for each DC saver that targets a sustainable level of retirement saving using risk-rated building blocks. Key to that, is not only a clear definition of what a good outcome looks like but also avoiding the common mistake present in traditional DC lifestyling – which is de-risking too early and missing out on growth opportunities.”


I imagine team meetings between Sion Cole and Chris are fun; Sion demanding the bondisation of pension funds and Chris demanding clients hold out for growth opportunities.

Ah – I hear avid actuaries sighing, Henry – you’re an idiot. Chris is talking of individual risk (DC) and Sion is talking of corporate risk (DB).

Well I’ll play the daft wee laddie for a while and point out that both consultants are talking about “pensions”.

I rather agree with Chris.

If we learned anything from the public’s reaction to pension freedoms , it was that they were heartily sick of being de-risked (into annuities) too early. Pension freedoms should have meant the freedom to invest in growth assets rather than lock into gilts and bonds (that backs an annuity) 30 or 40 years before the final pension payment might be paid.

If we are to have to go it alone – in individual DC plans – it makes sense for us to have our own glidepath, and for that glidepath to have a 30 or 40 year time horizon (unless we are predicting our own demise earlier.

If those clever people at Aon have found a way for me to DIY my own glidepath, I’ll be knocking at the Cheese Grater’s front door on Monday morning.

However, I suspect that the glidepath I construct for myself will be rather simpler than the one Aon has in mind for me. Reading the article I come to this difficult passage

“An individualised approach allows members to ‘bank’ returns they have accumulated while continuing to participate in market growth when required”.

Those of us who have been knocking around a bit – will remember “DC banking”, a concept pioneered by LCP who had a black-box algorithm that kept you in equities till you’d hit a return target and then squirrelled your savings into gilts to make sure you had no nasty surprised down the line (sequential risk stuff).

The algorithm was fiendishly complicated and the black box kept breaking down – to the point where everyone agreed that there was more risk in the black box than in staying in equities.

It is in the DNA of investment consultants to over-complicate investment solutions- so my money is on the Aon black box going the way of black boxes before it. Ordinary people are no more likely to understand the Aon algorithm as they are to understand the article in the Actuarial post.

I rather agree with Chris in principal – but I don’t think we’ll be doing business.

A man I could do business with.

Apart from Chris Inman and Sion Cole, there is a third “thought leader” at Aon  and he is a man I could do business with. Step forward old “Big- Hair” himself – Kevin Wesbroom.

While Chris and Sion, champion DC and DB “solutions” that ultimately get you into bonds, Kevin has an entirely different mindset. He does not seem to see a pension plan as finite – ending in death (as Chris does) or buy-out (as Sion does). Very oddly, Kevin champions the idea of collective pension schemes that stay open for generation after generation after generation of savers.

Kevin is that curious beast, a pension consultant who actually wants people to get scheme pensions (rather than annuities, synthetic annuities or bought out pensions).

Like Chris – he sees no advantage in de-risking early but I suspect Kevin sees no advantage in de-risking at all – at least if the collective pension scheme is staying.

I’m sorry Sion, I’m not de-risking early with you!

I’m sorry Chris, I’m not de-risking late!

I’m taking a walk on the wild side with Kevin – I’m staying in growth assets and when I did, my CDC scheme can inherit them for generations to come!

Sion – Chris – Kevin – pictorial evidence that de-risking precipitates hair loss.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Don’t de-risk too early – says Aon!

  1. Derek Benstead says:

    More evidence: I don’t think buying bonds at negative real yields is a good idea and I have hair.

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