Jo Sharples, speaking on Darren and Nico’s podcast , takes us into the engine room of Aon’s decision making on the default strategy they set for the hundreds of thousands of savers in the Aon mastertrust.
This may sound dry and academic, but it has real world significance to people’s retirement. If Jo and her colleagues get it right, people get a markedly different standard of retirement than if they get it wrong. It is not just savers who rely on Jo and Aon getting it right, it is the trustees of schemes that have transferred their DC assets to Aon and the employers who co-invested with their staff in their staff’s post-work futures.
It is very rare to hear someone at the heart of the decision making process, as Jo is, talking about her and her colleague’s thinking. Happily Jo and Aon have been getting it right of late, as evidenced by the latest edition of the Capa-data GPP and Master Trust survey
You can access the entire report from this link
Aon’s savers have been picking up good returns on their money as a result of the investment performance of its default fund.
Aon have been winning a lot of new business recently, though according to the advisers surveyed, individual consolidation is not driven by performance.
One can only assume that performance matters rather more in institutional consolidation than it does for savers. This may be because individuals have no option but to flock to consolidators who make it easy to combine pensions, it may be that savers have taken to heart the maxim that “past performance is no guide to the future” or it may just be that individual savers do not (yet) get access to information to allow them to decide on “Value” in terms of “performance” rather than price and service.
All of which is a long way of saying that Jo and Aon’s work on defaults is more appreciated by the sophisticated employers and trustees that can afford to do due diligence on workplace pensions than individuals who can’t.
Defaults due a reset.
What Jo Sharples actually says on the default is not new.
She points out that conventional lifestyle strategies are cumbersome and expensive to reset and that target dated funds give trustees and their advisers much greater flexibility and accuracy and are more likely to deliver better outcomes from resets.
This is often said but rarely reviewed. One target dated fund operating as defaults has conspicuously under performed, the structure is not a panacea but looks a better operating table for skilled surgeons. Skilled surgeons can still bodge surgery.
Her discussion about how target dated funds can be used to integrate private market assets into defaults is really helpful as it focusses on the key issues of liquidity and fairness between cohorts at different stages of their saving.
Hard though it is to talk about these things within a podcast , it is important that they are discussed. The lack of changes in some defaults have led to savers being trapped in strategies based on false assumptions (that they will annuitize) and anachronistic market conditions (QE driven interest rates and gilt yields).
The lack of discussion of what is going wrong and right within defaults is a function of an immature market. People have yet to take DC investment sufficiently seriously to start taking decisions based on performance (see the advisor barometer above). Consequently serial under-performers, such as NOW pensions , are not called out.
Having senior people such as Jo Sharples, Elizabeth Fernando at Nest, Paul Bucksey and James Laurence at Smart and Julius Pursail at Cushon, talking about their default strategies and being accountable for what they deliver is critically important to the development of a “value” culture within workplace pensions.
To put it another way, so long as performance is not an issue, default funds will not be managed as Jo Sharples clearly thinks they should be. Many default funds will languish under a “set and forget” strategy that cannot respond to changing markets and innovation in response to new opportunities resulting from growing assets and positive cashflows will be missed.
The cult of the workplace pension CIO?
There is a danger of making the CIO into a “star manager” and that we create a cult that encourages hubris – think Woodford. But the governance structures of workplace pensions are robust and the debate on investment is in need of improvement. Currently it is conducted within the confined of wall gardens such as Mallowstreet , the PLSA groups and conferences, the PMI and the working groups of the IFoA.
It is very rare to hear the investment issues that Jo talks about in this podcast, aired outside these confines. I suspect this is because we are concerned not to give opinion that may be construed as advice by those not considered expert.
The star managers, Smith, Train, Woodford and co are typically male and aggressive. The new breed of workplace CIO – of whom Jo Sharples is an example, are the opposite.
I do not see them aspiring to cult status , but they have things to say that male ears aren’t used to listening to.
I urge you to listen to the first 20 minutes of Jo’s conversation with Darren and Nico to get a taste of how things could be in the future.
I consider a “good future” to be one where discussions on workplace pensions focus on the things that drive good outcomes, well executed investment strategies delivered at well-negotiated costs to consumers.
This more serious debate has to coincide with discussions on the funding of workplace pensions. Right now, many workplace pensions are being well funded but are delivering poor value for their member’s money.
Sorting out the sheep from the goats, means understanding more about which default funds are being properly managed and which aren’t. In Australia this is the debate.