The ugly end to pensions as social enterprise?

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The scrap between the insurers and the pension consolidators as to scavenging rights over what’s left of corporate DB, intensifies.

The insurers are pissed that there business plans are dented by upwardly mobile super funds that don’t play by the rules. The superfunds behave like Olivia Coleman at last night’s oscars, flicking the insurers two fingers – knowing they’re winning (you can watch her acceptance speech at the bottom)

I’m with Mike Harrison, who I suspect hasn’t much time for supermarkets of any description.

Mike’s point is that you are buying into people’s lives – or at least the  financing of people’s later lives, something that is little considered when insurer’s and superfund’s business plans are being constructed on a  spreadsheet.


I’m a Zurich pensioner.

Ironically I am a pensioner of Zurich Insurance (formerly Eagle Star) so you might think I’ve been bought out. I haven’t. Zurich were my employer and their pension schemes still pays me. I have a huge affection for Zurich and don’t want to be bought out and paid either by a superfund or an insurer.

The business of being a Zurich pensioner includes the right to become a member nominated trustee, I get perks such as cheap lawn mowers (they really should be bulk purchasing viagra). I’m in a club with all my old muckers. This is a social enterprise that has and is working and it would not be the same if I was bought out.


I know my trustees and my sponsor

The chair of trustees is someone I worked for, he was the man who put the blue into soap powder, he is a kind , witty businessman who I trust.

There are other trustees who I know, I also know the Zurich management, in particular Jim Sykes – the UK CEO who I worked with when I was head of sales for the Zurich pension platform.

These kind of things don’t count for much when you are running numbers through a spreadsheet but they are the intangible benefits of having your own pension scheme.

Like Mike Harrison says, I wouldn’t swap my shop for a Waitrose or a Lidl.


Pensions as social enterprise

This may sound romantic, but who says romance is dead. I do see the provision of pensions as part of the social purpose of being an employer. Every employer which pays more into staff pensions than the statutory minima is showing a social purpose which should be applauded.

Employers that set up and have maintained pension schemes for staff do not get the credit they deserve. Indeed the senior managers of those schemes now have the Government hysterically demonising them for playing fast and loose with pension promises.

I re-read last night Long Finance’s brilliant study “A primer on the Risk Structure and Contractual Accrual of DB Pensions”. Download here

This paper talks of a contract between sponsor and staff member to provide a pension, with the promise underwritten by a Contractual Accrual Rate – an implicit rate of return needed to achieve the payment of pensions in full.

This simple formulation is all that is needed to understand the nature of the employer’s promise, if the internal rate of return is no met, the employer underwrites the shortfall and if it overshoots, there is scope either for lower levels of sponsorship or higher levels of benefit. That is within the control of the employer.


Will the concept of a social contract between employer and staff survive

Is this contract to be sold on to insurers or super funds? We will have to wait and see. It seems likely that consolidation to one or other will continue and the number of small schemes will diminish.

Despite the incredulity of the financial economists, organisations as varied as Royal Mail , Local Authorities, the NHS and Zurich Insurance continue to pay their former staff pensions.  With the exception of Zurich , all the above mentioned have found a way to continue to offer staff pension accrual. In the case of Royal Mail – the covenant is a DC one, though the benefit is a loosely defined scheme pension.

Unfashionable as the concept of a social contract is , it persists. DC schemes should be aware that the expectation of staff of what their workplace pension provides – is typically a pension. Ray Chinn, speaking recently at a DG conference went further

“When we ask our (NEST) members what they expect at retirement, they say ‘you’re the Government pension scheme, we expect a Government pension’ ‘.

The idea of a company pension scheme is far from dead. It is a social construct that will survive the current scrap between insurers and super funds.

As Mike Harrison points out, pensioners are not loo rolls to be bought and sold. Pensions cannot be traded as if they were financial instruments.

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About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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