Nicholas Lyons, Chair of Phoenix Group (owners of Standard Life) has his offices on one side of Paternoster Square, the London Stock Exchange is on the other. Nick Lyons nudged me to read this story this morning on Linked in
The connections between Phoenix , Standard Life and the London Stock Exchange reminded me of this news story late last year.
The LSE don’t just run a DB staff for their staff, they run one for members of Refinitiv’s pension scheme (formerly Thompson Reuters). But all parties related to the buy-out (which actually happened in May 2023 considered it “strategic”
Georgina Wallis, DB Pensions Director at London Stock Exchange Group, said: “This step is another significant milestone in the Group’s long-term pension strategy. We are delighted to have achieved this result for the Scheme which was a product of the collective efforts of the Trustee, LSEG, their advisers and Standard Life.”
Let’s be clear about this, the “risk transfer” of solvent pension schemes to insurers , currently involves the sale of growth assets such as listed equities, in exchange for less risky assets – typically corporate bonds with a smidgeon of infrastructure.
We can argue about the rights and wrongs of the buy-in to a pension scheme of an annuity , but we cannot argue about its impact on the stock market. It has a negative impact.
Every one of these buy-outs and buy-ins reduces the potential of what Nick Lyons calls “Britain’s largest store of liquid wealth” to invest through the London Stock Exchange in UK listed equities.
Redington’s Mohamed Fazal, who was investment adviser to the scheme is quoted as saying
We’ve been working with the trustee to establish a clear set of objectives and a robust investment strategy and framework since 2017. For LSEGPS, this meant carefully restructuring the portfolio with a particular focus on reducing risk opportunistically and unlocking liquidity in preparation for buy-in.
Here then is a seemingly intractable problem. We want our pension schemes to release sponsors from obligations that inhibit growth but in so doing we destroy the opportunity for those pension schemes to create growth in the economy and generate surplus that can improve pensions and indeed corporate cashflows.
Many companies are now reporting pension schemes as an asset on their balance sheet – so long as the scheme has not matched its assets and liabilities by selling both to an insurer.
Harriet Agnew , writing on Julia Hoggett’s creation of the CMIT reminds us of the political dimension
Yet with little room for higher public spending, a Labour government’s plan for economic growth would largely hinge on encouraging private investment. While Labour might give more weight to different aspects of the reforms, it could be bolder than the Conservatives in areas such as pensions, said two City advisers who have met the party’s business team.
It has promised a full “review of the pensions landscape” to identify ways to boost returns and increase investment in the UK.
I thoroughly agree with what the CMIT is doing and hope that it will influence the “review of the pensions landscape” but for pensions to be able to invest in the UK and so boost returns, it cannot simply de-risk.
We must find ways for schemes to get smarter about de-risking, allowing unwanted risk to be insured (by the likes of Standard Life) while running on a long-term investment strategy for younger members of schemes. Those familiar with the flex and fix proposals for DC assets will be familiar with the concept.
I don’t doubt that Standard Life, which is forging ahead as a workplace pension provider, will find ways to invest more of our money in UK listed equities. But in delivering its pension strategy for our corporate DB stock, it needs to guard against killing the goose that lays the golden eggs.
As for the London Stock Exchange, perhaps it will consider alternatives to swapping out its growth assets “opportunistically”. Perhaps it could show a lead by encouraging its remaining pension scheme the freedom to run on , in the spirit of the Capital Markets Industry Taskforce!
