The appendix

Nobody knows exactly why we have an appendix, but removing it isn’t harmful. Appendicitis typically starts with a pain in the middle of your tummy (abdomen) that may come and go. (NHS inform).

I feel much the same about most DC trust boards. We have DC trusts because occupational pension schemes are governed by trust law, but just what DC trustees do remains a mystery to most of their members and – I suspect – to the Pensions Regulator.

Once a year , they are required the chair is required to write a statement telling us what is being done to get us value for money, ensure our money is managed with due regard to Environmental, Social and Governance considerations.  But with the exception of exceptional trustees (Rene Poisson at JP Morgan springs to mind), hardly anyone could name the people who act as fiduciaries for their money.

Like the appendix to the large intestine, DC trusts are legacy items that in time will wither away, their passing unlamented as their removal  painless.

The action is elsewhere

My investigation into the location of the appendix also brings up interesting parallels.

It’s connected to the large intestine, where stools (faeces) are formed

No one is saying that the appendix produces faeces, but it’s proximity to the large intestine suggests that it might once have power over the output of our tummy.

If DC trustees could give their members advice, they might still stop people taking crappy decisions.

If DC trustees were allowed by their sponsors to offer help in spending money, they might be more than pension’s equivalent of  “a small, thin pouch about 5-10cm (2-4 inches) long”.

But the action is elsewhere.

People who want a pension from their DC pension scheme can no longer get one from the scheme, they have to buy an annuity.

Instead of bringing retiring members together and offering them the opportunity to pool mortality, DC trustees have given up on what they call “decumulation” altogether.

As for helping members understand their value for money, DC trustees are paralysed by the “risk” that if they told members how they’d actually done, some members might not be happy and blame the sponsor or even the trustees for not doing their job properly.

And while trustees “embrace” in principle, the idea of ESG, only a handful have actively changed their default fund to ensure members get its benefit. Indeed many trustees still talk of ESG as a risk rather than a means of risk reduction.

The action is elsewhere

Inept and out of touch

Inept and out of touch, most DC trustees have little to do but turn up at trade shows and sit through worthy presentations by consultants and fund managers selling them services that they purchase to get further invites and (if they are lucky) a golf day or two.

The actual decision making within our large DC schemes is being taken by the manufacturers – the fund managers and the providers of investment admin and communication platforms that the trustees meekly purchase and oversee.

So as I contemplate responding to the Pensions Regulator’s latest consultation on DC trustees, I wonder whether to tell them what I think , or what the pensions industry wants them to think?

To tell tPR what I think would risk the wrath not just of the trustees, but of all the mouths that suck at the trustees underbelly.

To tell tPR what the industry want tPR to hear , would provide me with a cosy job and perhaps a few DC trust position of mine own. I could feather my retirement nest by being paid for being at best ineffective and at worst inept.

What would you choose if you were 57 ?

Reform or removal?

IMHO, 95% of DC trusts are useless and the 5% that are useful are multi-employer. Occasionally DC trustees go bad, like appendices, and have to be cut out and replaced by firms like Dalriada and Pi who specialise in recovery work – sadly usually at the member’s expense.

The concept of an occupational DC scheme for the staff of a single employer is an anachronism. It’s a hangover from a time when DB schemes really were part of the company’s ecosystem and not a risk to be managed out. DC trusts have long since lost any meaning and – save for rare schemes like HSBC’s staff scheme- have demonstrated zero appetite to evolve to the changing needs of today’s member.

So I thoroughly support the process of consolidation that is seeing employers participating in multi-employer occupational DC trustees or just hand things over to insurers with fiduciary management coming from IGCs.

I don’t see much point in the Pensions Regulator’s consultation other than it informs on action that is happening elsewhere (the much more cogent work going on in DWP and at the FCA). The Pensions Regulator should stick to the task of facilitating consolidation , removing (not reforming) DC trusts.