Taking back control of our retirement savings.

This is where we live

Pensions have long been seen to have an image problem. Ever since I started selling s226 policies in the early eighties I have heard them described as a rip-off. When you look behind that complaint you get to the frustration. The concern people have is that pension providers don’t tell them what they’re buying, what they’re paying  and what they’re getting later on.

Over the past 10 years that has changed. Thanks to campaigners like Chris Sier, we know how much we are paying for the products our workplace pensions invest in and we even know how efficient those products are, in managing their costs. Ruston Smith and others are pioneering statements that tell people in clear language what they’re buying. The pension dashboard will tell people the outcome of all this saving.

This move to greater transparency in the declaration of costs and charges has led to enhanced value for savers as the unwanted risks of poor cost management are taken off the table.

Maintaining a focus on those costs is an important task, it may not result in the big wins of the past 10 years but we must avoid the risk of thinking of the transparency revolution as one and done.  It is important that fiduciaries remain on top of their suppliers, especially as the ambition of those managers increases.

Increased ambition

The logical conclusion of a focus on costs and charges is to seek out low cost strategies that minimize the drag of trading costs. This has led to a move away from active management and a concentration of investment in the funds of the large index managers, BlackRock, State Street, LGIM and in the retail space – Vanguard.

At one stage, all that fiduciaries and self-investors asked for was the market return. But climate change has changed that. Organizations such as Make my Money Matter have amplified the noise made by Share Action, Minerva, Pirc and other consultancies, that the funds we invest in have responsibilities to improve the governance of the assets they invest in , to ensure money is invested with an eye to the sustainability of the planet and most pertinently to this blog, with a positive impact on the society in which investors live.

This is where we live

Inevitably, expanding the scope of the trackers remit to include these factors, incurs costs. These costs have been described as a “greenium”, with “green” being short hand for investing with purpose. Measuring the excess cost of investing for purpose should be a separate item on the templates used to measure costs and charges. But in the popular imagination, it is not the greenium’s cost that matters, but it’s impact.

There is considerable latent power in their collective will as has been explored by organizations such as Quietroom and Ignition House.

I listened to Ignition House’s Janette Weir talking of research conducted for the DWP on the inclusion of a cost number on a simpler pension statement. What people were telling her was that simply telling them the price was not enough, they wanted to know what they were getting for the money they were paying.

This of course is a challenge when you have the limited space of a single sheet of A4 paper, but digital statements allow people to find out a lot about how their money is invested. Here’s another Quietroom video which explains what Johnson and Sunak are getting at.

The fiduciary duty

It looks very likely that the Government will coerce the chairs of trustees of our large workplace pensions and the CEO of the insurers and platform managers who operate contract-based workplace plans. I heard yesterday from about one Chair who has already got his invite to No 10 for a little chat.

Trustees and platform managers will rightly argue that it is their duty to maximise the pensions of those saving with them and many will  further argue that the ambition of the Government for an investment big bang is none of their business. Here they will go wrong, the people whose money they manage live in the UK and so do their families, pensions are not separate from our lives, they are part of our financial security and (as the second video shows) they already play a major part in financing the roads, hospitals and services we use.

The Government knows this and is siezing the agenda here by challenging those who invest the workplace pensions we invest into, to pay a greenium and invest  to help Britain build back from the recent setback of the pandemic (amongst other things). This is a populist message that plays to the same people who get territorial about taking back control.

We should not underestimate the power the Government’s message could have. We are shortly to see the might of the Conservative political machine at the Tory Party Conference. I fully expect the speeches of Johnson and Sunak to reference the “investment big bang” and the challenge to the trustees, investment officers and advisers of our large pension schemes.

Trustees and CIOs need to be very careful about pushing back on this agenda as savers are only just waking up to their being investors. I suspect that most of these savers will be prepared to pay a greenium and see the total cost and charges of their workplace pensions rise, if they can see the value their investments are creating, both for them and for their society.

This will create a new challenge for trustees and platform managers. If the popular imagination is fired by an understanding that their money does matter, those who do not show they are participating in this investment big bang, risk not just being on a collision path with Government but with their members.

Brexit taught us that the latent power of those who do not normally voice their opinions, can bring about systemic change. The last time we saw such political intervention was over the pension freedoms. This intervention – from both the Prime Minister and his Chancellor, is as fundamental.

This  initiative  has major implications for the way default funds are managed. It is not pushing back on costs and charges, it is demanding more value from the money invested – cost containment is secondary and to be managed by those with the skills to negotiate.

The shift to value in the value for money equation will dominate the agenda over the next decade. I suspect that what the Productive Finance Group are saying today, will be of critical importance to us all – for we all have skin in this game.

Ending on a positive note, this is the chance for pensions to redeem their public reputation, let’s not mess it up.

This is where we live


About henry tapper

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