Mel Stride is having a go at Rachel. Mel is well known to pension people. He was DWP Minister when Guy Opperman was Pension Minister and he’s stayed on to be shadow chancellor of exchequer.
This is what he has to tell the FT
“Pension funds must be free to make investment decisions based on what’s best for savers.” He added: “The suggestion they should be compelled to invest in what the Labour government wants them to, even if this means leaving their members worse off, is very concerning.”
Big deal.
His criticism of Reeves is weak and his position as a Conservative shadow minister is equally weak. The FT give him air, I will call him for his politically driven remarks which are unbased. If anyone is desperate, it is Mel Stride.
Now to the arguments for a shift to more ambitious investments
Firstly. let’s consider the DC choices offered to savers. With one or two exceptions (Now! being the most famous) DC pensions allow people to invest where they chose to. What Stride is suggesting is that Trustees choose a default fund for savers not wanting to choose (98% of Nest’s 13m savers), a default based not on the future but the past.
On that basis, we should assume Britain is non-investable. Yes British investments have been poor performers (in general) but Brits are not so down on the place than Stride and his Trustees.
Are we to criticise Trustees of these workplace schemes for the returns they would have got had they continued investing the majority of the money overseas?
Are we to compare the returns that would have been achieved by investing in publicly quoted assets when money has been invested in private assets?
Right now, most DC schemes are invested in low engagement passive funds costing a few bps. Whether commercial master trusts and GPPs or the few remaining sponsor specific occupational schemes, the price that is coming out of saver’s pots is the main determinator of “value for money”. Put another way “value is the same however you invest, all that matters is what you pay for management“.
I have argued for several years that we need to determine value by what has been achieved. Alternative strategies can only be measured by discovering what they would have delivered if employed instead of the low cost passive approach generally adopted.
I don’t see much of this historic work going on by the pension industry nor analysis of what the future may be. If we port across the view of TPR’s employer covenant team I see no reason to invest in UK equities, the view is negative.
Mel Stride and the protesting trustees can’t start having a go at Rachel Reeves (and Torsten Bill) for pressing them to return to the kind of strategies that made pensions successful last century. They need to explain why they consider the employers who contribute to UK pensions do not have the covenant to support investment.
Starving UK companies of funds from the flood of new money that has arrived because of auto-enrolment is cuckoo. Almost of all of those companies would welcome public or private financing from the pension schemes into which their staff’s money is invested.
If the schemes invested in are not sufficiently sized then they have no business arguing against investing ambitiously, they should just pack it in and allow a bigger more capable to do the job.
Mel Stride when at the DWP presided over Opperman , Trott and other pension ministers who demanded better VFM through consolidation. The failure of these ministers (and their boss Mel Stride) has led to billions being invested now in overseas equities which are doing savers no good. We are at risk from the wild fluctuations in currencies. The annuity rates and DB valuations are looking rosy right now but we are on the brink in a fall of interest rates, gilt yields and corporate bonds in the UK that will see the full tide recede for us to see the fundamental inadequacy of mark to market valuations.
Rather than complaining about short term valuations , (boosted by low trading costs from indexed funds) , we should be looking at fundamental valuations – as Nest are doing with IVF and as an increasing number of commercial master trusts will as they strive towards sustainable size (£25bn according to the Government).
I will end by reminding readers that the recent run of success of the FTSE100 is not an argument I am using against Stride and Trustees.
But it reminds us that there is nothing inherently the worse about UK economics. If we are to revert to the entrepreneurial mindset that drives our small, medium and large businesses, then we should take a view on investing in our economics and society.
I am very pleased to hear that Oliver Tapper (formerly of AgeWage) is soon to commence at Better Society Capital. It is clearly in the blood. Here’s CEO Stephen Muers, preferable to me than Mel Stride.
