We were having a sing song yesterday afternoon and it got “pensionlitical”.

Doh! – it’s dear – DB is dear
Ray – I read it in the Sun
Me – DC! I’m by myself
Fah – how long will drawdown run?

Sew – I need to write a thread
Lah- a means to get me fed
Tea -how long till I am dead

that will bring me back to “don’t know – don’t know”
.

(Repeat until assets exhausted)

[ends] Retirement is a long long way to go – oh woe oh ho  oh no no no no!

As LCP rhymes with Doh-Ray-Me, I’m gifting them this marvelous anthem which I hope will be sung at all future LCP events

The consultant’s dilemma

I was still  singing this song to myself as I considered a Stuart McDonald post on linked in – wondering which LCP he was working at.

This post looks like he’s joined an organization that’s waking up to the possibility that there won’t be much pension consulting to be done unless someone reconsiders the rush to buy out.

On the other hand, here’s   Stuart  introducing  little red riding hood to Steve’s big bad wolf.

D-I- versity

LCP, is asking some important questions here and demonstrating some much needed diversity of thinking.

We have recently experienced the herding of DB scheme strategies through leveraged LDI and the assumption that the herd will now move to buy-out.

Losing £1.5tr of investable assets to the reserves of insurers is , as Steve Hodder is saying, something to think about;-  and not just if it is what pays the consulting bills.

While swapping your scheme assets for an insured promise may look a slam-dunk in terms of member security and balance sheet cleanliness, the swap comes at the expense of member’s expectations of profit- sharing on better than expected valuations. It will also come at the expense of rewarding all the parties to the buy-out , especially the insurer’s shareholders. It is one thing getting a quote for buy-out, it’s another meeting the cost of implementation.

I will not be attending the LCP seminar (tomorrow if you are reading this on Monday) but I think it will be an interesting session (especially if they sing my song). LCP are a great organization and the better for having diversity in their thinking.

Broadening the debate

We really need a proper debate on what happens next to corporate defined benefit pension schemes. We cannot afford to put that debate off as we were doing this time last year with LDI.

We urgently need to recognize the impact of their being such a small pool of insures competing for such a large number of schemes wanting to buy-out and ask what this is doing to pricing.

We need to consider the alternatives to insurance – master trusts and superfunds which can take much of the operational risk and costs out of managing a DB plan.

We need to consider whether master trusts and superfunds can be managed to pay pensions rather than as a means to buy a deferred bulk-annuity.

Because it is unfair and wrong for the risks and rewards of investment in productive finance to be concentrated solely on DC savers.

In the interests of diversity, I hope the debate that appears to be happening within LCP, is happening in other consultancies and that there is push-back against the received idea that we are all in a DB endgame.