I listened this morning to a VFM podcast that really matters – 20 minutes too long but full of insight
John Greenwood talks about what workplace pensions have actually done in terms of pot size, actually do in helping you take decisions when they’re need and actually done in reducing carbon emissions.
“For the DC investor , the DC pot size is the ultimate indicator of value for money and the help given to people taking decisions at retirement”.
It is now becoming clear that over the period of auto-enrolment there are winners and losers. We know that Now’s synthetic strategy, L&G MAF and BlackRock’s LifePath strategies haven’t worked while simpler high equity strategies such as National Pension Trust’s and Aon’s have. There will come a time when people will read about this work in the Mail and the Sun and start asking why they were either losers and winners. This is known in the pensions industry as “accountability” and in the wider world as “the shit hitting the fan”.
Thames Water
At a recent DG conference on “innovation”, a spokesperson for USS told his audience that USS were not a particularly engaged membership. I was a “devil” at the event and asked whether his inbox hadn’t got a few mails in it about “Thames Water”. There was some murmuring from the audience and some shuffling of the panellists seats, but answer came there none.
I know that there are members of USS who are concerned that their pension scheme has a 20% stake in Thames Water (via its parent Kemble) and are pissed off that good money – what they see as their money – has been lost as the value of that stake has trended to zero £.
This point is picked up in today’s FT who have been speaking to USS’ member’s union and got the following statement
“We have asked (USS) about the original decision-making process [to invest in Thames Water] but they won’t tell us anything except that the decision went through their normal checks process,” said a spokesperson for UCU, the University and College Union, which represents USS members. “We will continue to push on this . . . but I suspect we will get the same defensive sidestepping response.”
Indeed the FT did get an evasive and sidestepping response from the USS executive who passed the buck.
Its decision to invest in Thames Water had been consistent with its fiduciary, commercial, legal and regulatory responsibilities, USS said, adding that decisions relating to the scheme’s investments were “reserved for the trustee”.
“We recognise that stakeholders, like members and employers, will have an interest and questions and — when able and where appropriate — we have provided updates to that end.”
It would be simpler to accept that the scheme which has already written its investment in Thames Wager down from £956m to £364m in the past year, will write the rest off, as its Canadian peer – Omers -has. The impact would of losing £1bn in the process would be around 1.3% of the Scheme’s capital base. It’s a big hit and members are right to ask what USS was thinking when it invested in 2017 and 2019, but these things happen.
The FT article may come as a wake up call to many DC and DB investors. The USS investors are primarily cushioned from the shock of asset write offs by the scheme’s guarantees, it is not clear how much of the DC section of the scheme will be impacted (it tends to use the same assets as the DB section) – here the member will not be protected.
But when we hand over our money through payroll to an USS or Nest or NOW or L&G or any other workplace pension provider we put our trust in their trustees and pension executives to use skill, judgement and due diligence to make good decisions. We also accept that sometimes they will get things wrong and cross though members of USS should be , that the scheme’s CIO selected Thames to the Trustees and the Trustees accepted that recommendation – this was a mistake – not a scam.
Accountability
We pay for our money to be managed and we expect to get value for that money. We want the bells and whistles – like easy to access fund values and help turning pots to pensions, but for the bulk of our working lives, we simply want to know that our money is working as hard as we are.
Lazy decision making (and investing in Thames was lazy) should be called out. So should good decision making. I mentioned yesterday Eye-Bio and Kate Bingham’s eye watering returns for investors
I would like to hear from pension schemes about their successes as well as from journalists about their failures. I would like to hear why L&G’s MAF has underperformed and why NPT topped the performance (and the carbon footprint) charts.
We talk about engagement but not accountability. To me, the way to get engagement is through accountability. John Greenwood is an independent journalist, so is Jo Cumbo, both are mindful that they work in a commercial environment where they need an ongoing relationship with those they talk about but both are prepared to call out good and bad practice where it is evident. This critically important work needs to be translated into Government in such a way that we know whether we are getting value for money, through the independent assessment of a nationally accepted value for money framework.
That framework must be based on outcomes and on customer satisfaction. Thanks to John Greenwood and Jo Cumbo for making sure that accountability for decisions is kept to the front of our minds!