News reached us at the end of January that Cushon and Nest are in a joint search for asset management partners to develop new forestry investment strategies to address climate change pressures.
We would also like to enjoy a planet where we maintain biodiversity and contain climate change so that all our retirements are pleasant (including those of our children).
Since the investment beliefs of those who run the investments of our workplace pensions are aligned around these broad aims, it makes sense for them to pool their resources in achieving them. They sign up to the same codes of conduct, invest in funds that pool their resources and aim to co-operate in maximising the value of their member’s money.
Between them they have £26m of our money and we are entrusting them to make it work as hard as we do (or harder in my case!). The split is around 24.5/1.5 in favor of Nest so many will see Cushon as riding on Nest’s coat-tails, but would be wrong. Cushon are in a hurry to switch from investing in carbon credits to real assets where the impact on capturing carbon is better measured. We should applaud Nest for giving them this helping hand while welcoming the boost in buying power that Cushon bring to the joint venture.
Although they compete for the contributions of participating employers and the consolidation of other occupational schemes, they collectively aspire to the economies of scale that would allow them the investment freedom of defined benefit schemes like the LGPS and – away from these shores – the DC Superannuation schemes of Australia.
Gregg McClymont has spoken feelingly about the social impact that can be achieved through economies of scale and he works for IFS, an Australian manager of socially useful investments set up by pension funds to allow them to gain that scale more quickly.
You can here Gregg speaking to former colleagues at People’s Pension on episode #5 of this series of podcasts
The Cushon/Nest tie up is perhaps the first instance of such a thing happening in the commercial master trust sector, I hope it will not be the last.
Further areas to collaborate
I hope that such collaboration is confined to investments. Master trusts have started (in a limited way) to work together to reduce the cost to them and to members of small pots. Currently small pots are acting like Japanese Knotweed, strangling the capacity of master trusts to invest in innovation (such as better investment product) and tying down resources through the payment of unnecessary levies and the maintenance of reserves to meet the future administration of small-pot claims.
A very few master trusts are collaborating and they don’t include Nest which hasn’t the IT functionality to manage bulk transfers- so is missing out on trials on member exchange. It also excludes People’s Pension which is mired in a dispute over protected minimum retirement ages – meaning that the two biggest master trusts by assets and members are not collaborating. Let’s hope that this will change and that Nest (now it has ditched Atos) gets on with building the capacity to collaborate.
2. Collective pensions
The Government hopes that master trusts will embrace CDC but judging by their no-show at a CDC event I’m going to tomorrow, most of the commercial master trusts are showing no interest in moving in the direction of Royal Mail.
But commercial master trusts are valued not just by the scale of assets they manage but by the length with which they manage them. As average pot sizes increase and demand from employers and members for “pensions from their workplace pensions” moves a notch up from the current whisper, I expect master trusts to get interested in ways of keeping money flying out the door when savers get to wanting to spend their money.
In a competitive and commercial market, master trusts need a way to retain their customers for as long as the customers are around. A collective pension arrangement does that but it can only work with scale and there is currently not enough money owned by people who are of an age and disposition to buy a pension to make CDC viable to individual master trusts.
Nest is closest to scale in terms of members but assets per member, even for older members is pitifully small. Frankly Nest and People’s and Smart and Cushon and Now and the insurers need to think of ways to set up a collective pension between them, one where each profits from introducing members to the pool and where members profit from the collaboration of the various trusts
Creating a collaborative eco-system
Whether it be with investments, or pot consolidation or in setting up a collective system of paying pensions, the master trusts need to collaborate more. They need to compete for new money and they need to make the most of the money that comes their way, they need to hold it for longer and ultimately they need to fulfill their function as pension schemes .
This is the vision that I hold to be the key to a successful future. It is of course the vision of the Pension Plowman, lolling on a grassy knoll above Malvern looking down on a “field of folk” working harmoniously to a common good.
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