Will the PLSA recognise the pension investment agenda has changed?

For a second time in a row, a PLSA  Conference will take place at a time of national debate about the impact of pension investment on the economy. The last Conference in October coincided with the BOE’s purchase period of long dated and index-linked gilts. This Conference will occur as our funding of pension promises appears to be being repurposed.

The noises coming out of the Treasury over the past week and reflected in Nausicaa Delfas’ speech last Monday represent a change of position on the management of pensions.

There will be profound ramifications for trustees, sponsors and  investment consultants.

Con Keating foresees a very different world going forward. It will be interesting to see how far this is recognised at the forthcoming investment conference in Edinburgh.

The new Funding Regulations and DB Code must now be dead. With all of this chatter about enhanced roles for the PPF, the motivation for that legislation has gone in the stroke of a pen. It was that there is harm to scheme members arising from the reduced benefits payable by the PPF.

Amazingly the PPF have never analysed just how large that loss was for the members of schemes which entered the PPF. This was always the central fault with those proposed Regulations and Code.

Consultants’ estimates of the degree of replacement vary from 80% to 95% of the sponsor promise. The more mature the scheme, the smaller the loss suffered by members. Our survey put the difference between PPF benefits at end 2021 and the technical provisions at 12.3%. The current loss to the existing members of the PPF will be smaller than this as its book of ‘business’ is more mature than the market broadly. Schemes within it have been in runoff for as long as 17 years. It is well within the existing surplus of the PPF.

It means that the low dependency, low risk portfolios required under that approach, which would of course be entirely inimical to any growth or productivity agenda, are history.

It also means that schemes will not have to meet the administrative costs of that regime, no small sum in itself, and that sponsors will not be called upon to meet the increased funding costs of that regime. These have been estimated to lie in the range £100 – £200 billion – funds which will now be available for investment in the sponsor business. Of course, whether they will be used for that purpose rather than the payment of dividends and share repurchases is another matter.

Another comment on a recent blog, this time from Jnamdoc is even more graphic

We cannot ever underestimate the damage that TPR deathstar has inflicted to our economy, systematically stripping our pension schemes of an investment mindset and responsibility, and the costs will be borne for some generations.

And the key word here is ‘responsibility’ – each demographics sector (and as a proxy lets assume DB schemes represent the economic interest of the non-working aged) has a responsibility to support and nurture the others. With improved longevity, the pensioner sector is just too large to freeload expecting a risk-free age-wage. All wages – whether working or age-related – need an invested functioning growing economy, in which all can share in the risks and the rewards.

Because of an utter and complete lack of oversight and/or understanding across successive governments, none of them really noticed or challenged the continual and corrosive powergrab of the TPR, and relied upon the actuarial experts. Actuarial experts can bring skills in complex maths and in hindsight analysis. Not about investing.

TPR only produced data that supported their narrow minded funding approaches, and despite the very very considerable power it wielded over Trustees and the professions, and hence over the investment direction and outcomes of c£1.5 – £2trn of Scheme assets, it operated without any remit or consideration to the broader economic impact. They will say, they were only doing their job.

We all know the dangers of the State seeking to choose winners in innovation and technology, but hitherto we have suffered under the worst possible regime – an unelected deathstar of a quango actively sucking all energy out of the economy. Of course until it is extinguished the deathstar will continue to look to blame others for not understanding including targeting trustees for not being “professional” enough to understand the maths modelling, or not having enough buffers to cover the known unknowns induced by TPR’s unique approach to investing.

TPR must step out of trying to offer Trustees investment guidance. Single solution mandated approaches (statism) doesn’t work. Let the market find and invest in the innovation and to deliver the growth we all need. Trustee board need to be filled with business people, not maths modellers doing the bidding of TPR.

I doubt these two voices will be much heard at the PLSA conference, but I will try to represent this point of view where I can.

Just as LDI took over the October Conference, so I expect the Growth Agenda to take over this.

This blog is restricted to a discussion of DB funding, there is an equally important discussion to be had about the repurposing of DC investment. While the funding of DB schemes is likely to be considered “legacy”, DC “is the future”. These characterisations are of course wrong, most of the pensions arising from our DB system are yet to be paid, there is no system yet to pay pensions from DC pots.

In future, we need to think of DC and DB pensions as one –  certainly in terms of  funding, They will differ in the duration of liabilities but  will eventually have  a common purpose. That purpose is the payment of an income for life which gives people dignity in retirement.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Will the PLSA recognise the pension investment agenda has changed?

  1. jnamdoc says:

    Looking forward to the conference, and seeing you in person.
    I keep on with this Henry because investment (in people, education, ideas and products) is the most important thing for all our futures.

    TPR have quashed any challenge and debate in pension funding and policy. Indeed we currently have no coherent integrated pension policy, not least a policy that recognises the relationship between the overall economy, and the timebomb being created by demographic pensions’ apartheid – the young will just not accept the level of taxation we’re layering on them (through future gilt servicing) to pay our pensions. And for we baby-boomers and Gen-X types living off the hope that we can get enough years out of it to enjoy the active early years of retirement before it blows up, is not really passable as a ‘policy’.

    PLSA has often seemed like a facilitator of ‘Policy’, or peddled what the industry has to sell, and often getting sided-tracked on the next consultant dreamed up job creation scheme (and we all know what these are). Let’s hope it takes this opportunity now to champion better pensions for all, through collective and shared investment journeys.

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