The investment value of pensions isn’t “workplace” – the estate’s much bigger!

We are blind to the numbers if we think that we can rebalance the annuity by creating an accord of master trusts. This excellent work by Corporate Adviser is important to read if you have an interest in pensions and how they can reflate the economy.

I take one chart of many in this document. It shows which providers really hold our wealth and despite the noise about “trusts” , the reality is that most wealth is held in descending order with Aviva, then Scottish Widows, Legal and General, Aegon and then Standard Life. They all held more than £50bn at the end of last year.

At times this year funds have gone up and then down. Nest have declared themselves above Nest but then the world’s equities and bonds fell on Trump’s Liberation. Right now the S&P 500 where most of this DC growth money is invested is back where it was before the little mini-crisis and these provider numbers will be back where they are. So much for a crisis.

We need to think of investing as long term and beyond tomorrow

We have got to stop going into funks about markets fluctuating. We have to think of our futures through investment and not de-risking and we need to attract money back from abroad to fund British enterprise and we should not be confining the conversation to master trusts . We need to change our focus pension wise.

What has actually happened without the home bias that the Accord attends, is that the S&P 500 has been more important than the FTSE 100 by a long way and any sense that we are investing our British pension in Britain is mistaken.

Nest’s default invests 2p in the pound in quoted UK equities. So the Chancellor is right to change the mindset of trustees but more importantly she must change the mindsets of insurers for whom most of their revenues come from outside the occupational pensions we call “master trusts”.

Look down the table to find providers who don’t provide master trusts (Hargreaves and insurer Royal London), look at Fidelity and ask how many of the smaller trusts sit on insurance company platforms investing in insurance background.

The investment of our insurance platforms is with the big passive players, BlackRock, LGIM, Vanguard and State Street, these are using insurance company structures to invest in pooled funds which entirely bypass the decision making of the trustees of occupational schemes and indeed use the asset gatherers (GPPs and the smaller master trusts) to ship money to markets that do not benefit the UK economy.

We need to be on the same side- Britain’s side

The FT argues that the Chancellor is picking a needless fight over “pension mandates” as if there is a lot of human intervention in the selection of pooled funds getting exposure to public markets.

This is to ignore the vast majority of pension money which is with insurers but is not even listed on Corporate advisers tables, these are the assets sitting on the platforms (such as the large bank and pharma own company DC plans and on third party administration but on insurance DC plans. If you want a brief look at the importance of this money to insurer, look at the adviser chart above and notice the £70bn fall in assets stated by LGIM from 2021 and 2022. That is the amount of money in unbundled funds at LGIM in 2021, it will like be much higher today.

The question we need answered is what does this Accord take into account. Are the insurers going to take into account all their assets or just their assets in bundled DC master trusts? Is anyone asking questions of the insurers about the composition of the funds that form defaults of GPP or the defaults of occupational plans which are run on insurance platforms in pooled funds? Are the trustees of large occupational DC plans going to start revisiting the defaults they have placed or is this going to be one of those “no one takes responsibilities” jobs where responsibility falls between trustees, asset and fund managers and IGCs?

The answer to the problems that Rachel Reeves wants to get to grips with don’t stop at the 17 organisations that are promising action on some portions of their portfolio of platforms, pooled funds and bundled plans and  occupational (now mainly master) trusts.

What’s not to like about the Accord and where it takes us?

The real answer is not one of compliance with the Accord but with a root grass commitment to getting Britain working again. The insurance companies and their asset and fund managers are complaining to the FT that they do not have the assets to invest into. Let me offer them the attitude of the Icelandic Chancellor who has contributed to an excellent article on investing in power for the UK using British and his own Icelandic pension schemes.

Speaking exclusively to FT Adviser, Daði Már Kristófersson, who came into the position last year following the election of the Coalition Government, said the country’s transformation over the past few years has created a compelling case for investment.

The real triumph for Reeves will not be encouraging pension funds to invest but in transforming the country into one that wants to be invested in.

I will write more about Iceland soon but for now you can read about their attitude which any politician or pension executive should!

The kind of attitude we should have in Britain