The end for small DC trust-based schemes?


My old firm, First Actuarial have published a  timely bulletin to its clients which I’m drawing on here. It gives me the title for this blog and sets out the issues troubling Government in a clear and formal way. Today I will be meeting with some of the architects of this paper with a view to simplifying the proposals by which small DC schemes “self-assess” for value for money. 

Here is the First Actuarial bulletin – my comments follow.

The end of small DC trust-based schemes (or sections)?

First Actuarial are right to pick up on the importance of the DWP’s proposals. They align the DWP with the Treasury’s ambition to use our money to build back Britain after the pandemic in what my partner refers to as PFI 2.0 – (for “Private Finance”, now read “Pension Funding” into illiquid investments with social purpose.

There is a separate debate going on, led by Jo Cumbo in the FT as to whether pension schemes should be funding public projects in a post-pandemic, post-Brexit world. In my opinion, the principles that govern value for money will apply as much for these investments as for conventional investments in publicly quoted equity and bond markets.

But assuming they are seen to provide at least equivalent value (net of all costs), then the fundamental premise of the DWP is right, large schemes have the scale to fund such products and maintain liquidity, they have the scale to afford the expertise to execute the deals at the right price and ensure member value is maintained over time.

The key elements needed to ensure that this strategy happens are

  1. An effective basis of comparison for small DC schemes to decide their fate
  2. An effective means by which large DC schemes can deliver VFM from illiquids
  3. Confidence in the governance so that the weaknesses of PFI 1.0 aren’t repeated.

In 2015, I attended a talk by Nigel Wilson – then and now CEO of L&G which explained how our workplace pensions could be put to work for the public good. At the time I was enthused, for much of the time since, I became skeptical.  Since the publication of the September 2020 consultation “Improving  outcomes for members of DC schemes” I’ve reverted to my former positivity.

Government has skin in the pensions game, the tax-payer subsidizes pension saving and can expect responsible investment from those savings. Is it too much to ask that those who manage our pensions , make our money matter?

Whether “matter” refers to environmental issues, social purpose or the orderly behavior of the organisations into which we invest , responsibility needs to be a major factor in investment decision making.

Which is why the Government’s initiative is even more important for DC schemes, than the headline suggests.

About henry tapper

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