This is the text of a linked in post published yesterday
I am shocked to read it. It shakes my confidence in the PPF as a potential consolidator and I wonder whether the PPF has properly considered either the Mansion House reforms or the recent correspondence between TPR and the DWP and HMT.
TPR has owned up to the mistaken direction it has taken and its new CEO is determined to have a new mindset.
It’s time that the PPF came in line rather than peddling yesterday’s solutions to imaginary problems.
Is it just me or was it not so long ago that most pension funds (bar the largest) were being encouraged to implement investment strategies to reach full funding, with the ultimate objective being to target buy out of their liabilities with an insurer.
An entire ecosystem told trustees how they would help them reach that “gold standard” of buy-out through the use of fantastic strategies like LDI, private credit and other contractual income strategies.
And then, without any exaggeration,
gilt yields rose overnight and a significant majority of the pension fund universe reached full funding and buy out affordability.
What happened next?
Pension funds stayed the course and followed through with their original plan.
Of course not.
Why would we do anything as sensible as following the advice of our professional advisers?
Let’s not leave Vegas just yet but instead let us strive for a bit more. Sponsors – we can give you more money through surplus refunds and members we will help you counter the 5% inflation cap despite our own long term inflation assumption suggesting that inflation will not be consistently above 5% p.a.
What behavioural bias is on display here?
Overconfidence bias?
Curiouser and curiouser.
PS: I’m not against DB running on, my point is a) that we are shifting the goal posts so let’s pause and reflect on the goals that were set and b) also reflect on how, over the last decade and a bit, many yearned for the good old days of higher gilt yields which would have allowed for derisking on better terms so they could close down risk on the corporate balance sheet.