Pension Bee wish “superfunds” well – but “potty pots” aren’t for their savers yet!

Pension Bee put out a statement on proposals to overhaul the UK pension system which make sense of a lot of noise. Here’s what the Queen Bee, Romi Savova is saying,

“For Defined Benefit pensions, the proposals put forward by the Tony Blair Institute seem sensible and a natural evolution of a structure already in place.

There are huge benefits to removing the management of these pension plans from companies and placing them together in a ‘superfund’ – especially for the UK economy. A bonus of using the Pension Protection Fund for this, is that there is some level of security for savers, as well as a strategy for long term investment growth.

However, Defined Contribution pensions are a different story as, unlike Defined Benefit schemes, there is no promise to savers to pay them a pension; the pension income in retirement depends on the investment return. So there is already a huge incentive to seek the best returns for defined contribution schemes. Unfortunately over the last decade or so, the UK has been a poor return environment.

If the change in Defined Benefit investment works to kickstart the UK economy, then Defined Contribution funds will naturally invest here for returns. The Government’s ‘Value For Money’ Framework helps create transparency and comparability across Defined Contribution pensions, but  with this type of pension, where  individuals are responsible for their own retirement pots, it’s not possible to have a mandated investment strategy.”

I contacted Pension Bee to see whether they’d be considering offering access to a “superfund” investment strategy – in current circumstances. The answer was “no”.

For those in think-tanks who think ideology can prevail and sweep all before it, we must remember that people do make choices about their assets and quite often those choices lead to them having their own pots with a provider of their choice. Pension Bee is one such provider.

Saver’s will follow growth and avoid the fallow. The UK has been fallow ground for UK savers for the past twenty years, our quoted stocks have underperformed those in other countries, especially the UK. It will take a lot for savvy British savers to invest in Britain, so long as they consider that investment will cost them in the back pocket.

Speaking directly to the saver

Although the Sun rather confused the issue by conflating the Pet Shop’s Top Dog’s Bowl with Romi’s comments on “potty pots”, the story is clear enough.

Forcing savers to directly invest in a long term growth fund that focusses on UK start-ups is “almost impossible to imagine going right“.

But this is not to say that those who have conviction that such an approach can be made to work , should avoid using the fund within a larger strategy. Indeed , if the CIOs who create and manage the default funds that will in future be measured on value rather than cost, then the challenge is entirely different. They need to worry about whether not getting exposure to this kind of asset is more dangerous than the risks within the fund itself.

That requires some serious analysis of how the fund is invested, what is being syphoned off by intermediaries and what value is being kept for savers. Which is one major advantage that a large and well run workplace pension may have on a SIPP platform like Pension Bee.

But as Romi cannily points out , as soon as it becomes clear that there is value in the approach being put forward , then “potty pots” may become “future growth pots”.

Although Pension Bee have been innovative in creating value from listed investments (see its new impact fund and its fossil-free approach), it is happy to sit and watch how a “superfund” goes.

Just as Pension Bee are happy to watch how the VFM framework goes.

That’s a prudent policy for Pension Bee’s business and its pot-holders. It doesn’t mean that those with the big ideas get on with it – elsewhere!


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Pension Bee wish “superfunds” well – but “potty pots” aren’t for their savers yet!

  1. Julius Pursaill says:

    I think the debate is far more nuanced than this.
    We arguably ought to be investing in a way to deliver a decent standard of living for our members and customers in retirement. Are all our customers/members going to be retiring abroad? I doubt it.
    Investing in a way that helps create robust sustainable societal infrastructure in the country into which people will retire seems to me to be eminently justifiable. Does delivering a pot that might be 20% larger for a retiree who consequently can’t access affordable healthcare, has no access to green spaces, with little or no reliable public transport and whose careers can’t access affordable accommodation really deliver value for money for those members?

  2. henry tapper says:

    I am reporting my correspondence with Pension Bee and its queen – Julius. People in workplace pensions may be defaulted into more ambitious funds and have the benefit of people like you to take care of the snags. I am sure we are agreed that there are many snags with investing into the more obscure areas.

  3. ros altmann says:

    I completely agree with Julius and this is a vital debate that the pensions industry needs to wake up to, rather than just trying to bat it away as if it is bound to devalue pension investments. There is no ex ante proof that any investment will perform well or outperform another, although over the long-term, higher growth economies do better for their citizens than declining ones. Therefore, I do believe there is a very strong case to require all UK pension funds to back British growth and it is a real shame that their past investments in our economy have dwindled to so little. These schemes have received massive amounts of tax relief in the past and each year the Government pays £50billion into everyone’s pensions. In social and economic terms, if fund managers do want to continue to receive these massive amounts of money, perhaps it is right to require them to ensure that a significant proportion of the tax relief is actually invested in the domestic economy – backing small companies, building new infrastructure and social housing which are vital to our future growth.

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