New comment on the post “Little future for “Your tomorrow” at Lloyds Bank”

Author: PensionsOldie 

Comment:

The Scottish Widows instance raises important issues about the relationship between the pension provider and its parent or sponsoring company (particularly those in financial services):

1.      How much investment freedom do the trustees of a mastertrust really have?

a.      What options do trustees really have if they believe investing in the parent companies investment products would not be in the interests of their Members?

b.      This may become particularly significant in the choice of a default accumulation product, because like an annuity, this may become an irreversible decision from the Member’s point of view.

c.      Could there be reputational damage to the sponsor and its other financial products from Trustees’ decisions?

d.      Similarly could the mastertrust become significantly less attractive (particularly in third-party employer selection decisions) and indeed suffer significant transfers out from adverse press, social media, advisor selection processes considering the sponsor’s prospects.

2.      Master trusts and other DC products are now finding themselves subject to increased Government interference and cost loadings in the way that DB pensions suffered in the 1980s and 1990s and which was a major contributory factor to the demise of employer sponsored DB.  Are employers seeking to further distance themselves from the outcome for their employees being adversely affected by disassociating themselves from the pension product?

a.      While the addition of mandatory spouse’s pensions or Minimum Rate revaluations in DC products may not be immediately on the Government mind at present, the direction of investment policy and the increased and costly regulatory reporting requirements such as Implementation Statements, TFCD reports, dashboard connections are already in place.

3.      Could Scottish Widows be considering reopening their DB Scheme?

a.      The Trustees of any DB scheme are statutorily required to consult with the employer on their investment policy (as reported in the Statement of Investment Principles).  This will give the employer an involvement in the investment decision of their pension provider.

b.      The existing assets of the DB scheme can be investment to achieve long term returns and not to be invested to meet even a run out end game.

c.      New contributions (both employer and employee) can be invested to generate surpluses which in turn reduce the employer’s future employment costs in a “balance of cost” arrangement.

d.   The Regulation problem with DB pension schemes could be largely be regarded as being in the past, but currently regulatory pressures are mainly affecting DC arrangements

Cracknell – Your Tomorrow

Reynolds- SWMT