There will be many laughing at this headline that tops an interview with our Lord Mayor King.
But when you look at the companies that have assembled to back him up, you notice a few who specialise in delivering VFM to companies
The 696th Lord Mayor made the comments as he prepared to announce a new “employers pension pledge” on Tuesday in his annual Mansion House speech.
Under the pledge, 15 companies have agreed to make a public declaration to focus on net returns rather than costs when picking their defined contribution (DC) pension provider and to request more transparency on private market allocations.
Among the signatories are Tesco, NatWest Group, Standard Chartered, Aviva, Legal and General, Schroders, Samworth Brothers, London Stock Exchange Group, Octopus Group, Phoenix Group and Aberdeen.
This is of course what the Pension Minister has been saying and it’s what this blog has been saying since AgeWage was started 7 years ago.
We need our saving into pensions to pay pensions and I’ve written extensively over the past few days because I am turning up the heat on value – we need more value to get higher lifetime incomes than we get from annuities.
I’m glad that King is turning to employers – even if some of them are City employers with both feet in the game – providers and customers!
Actually there is good reason to get out of the race to the bottom that has happened over the past ten years as workplace saving schemes have fallen in cost but not introduced anything by way of “pensions”.
The result of the price war has been to send savings money to index trackers conforming to the axion that “diversification is a free lunch“. The companies that should be receiving investment – including those companies on Alistair King’s list, have been starved of it – most of all from pensions. Here’s from the FT
The move is the latest part of the government’s attempt to push British pension schemes to invest more in assets to boost UK’s sluggish economy, arguing it would improve investment returns in the process.
Under a voluntary commitment called the Mansion House accord signed in May, 17 of the UK’s largest DC workplace pension providers have pledged to invest at least 5 per cent of their assets in UK private markets by 2030, provided the assets were sufficiently attractive.
King said he wanted UK DC pension providers to invest more like those in Australia which allocate 14 per cent of their assets to private equity and infrastructure, according to think-tank New Financial, compared with 4 per cent for British DC schemes.
I’ve complained that King looked worried at the Chancellor when she spoke at the Mansion House last November
I hope that we see more of the Mayor who posed for the FT for this interview with a more determined look
I have been encouraging employers to think about their duty of care to their employees over pension provision for a number of years now, pointing out the obscene differences in outcome between providers for their employees in default funds during the accumulation phase (consider the 5 year average returns 30 years out from retirement in the Corporate Adviser 2024 survey).
However the 2024 DWP survey of 8,000 employers showed that very few employers change pension provider, and 80% said they didn’t know how to do so.
Even when employers did change pension provider, the expected outcome for employees was only fourth on the list of reasons for the change, after factors such as employer convenience or employer’s cost.
This is probably less significant for smaller employers of whom a significant proportion have chosen to pay minimum auto-enrolment contributions into NEST. It is larger employers, many of whom previously provided DB pension rights, who thought there was a recruitment and retention benefit in maintaining higher contribution rates into DC arrangements that paid particular attention to the AMC. There is now some suggestion that DC pension arrangements themselves now carry a negative recruitment and retention weighting against DB and the prospect of Inheritance Tax is reducing the attractiveness of salary sacrifice or voluntary matched additional contributions.
If employers are now being encouraged to consider the outcome for their employees, they are surely going to have consider alternatives to the massive monolithic DC mastertrusts over which they have no control and with invariable employer contributions (Baker Hughes for example). It is therefore likely employers will find contributions into a whole life CDC arrangement (multi-employer for all but the very largest) will go some way to address the negative assessment of DC. The more agile employers who wish to to regain some element of control of their pension costs will be looking again at DB.
This is interesting. My reading of recent statements from Nest is that they will become a hybrid (DC for employers and DB for pensioners). We cannot go on talking about DC pensions – it’s a big fat lie!
But we have to distinguish DC/CDC from DB because of the accounting standards such as IAS19 and FRS102.
In my experience most employees don’t really think about their pension until they are nearing retirement. Many look on contributions as a tax not a benefit, and would, if given the choice, have a pay rise than an increase in employer pension contributions.
Given all that, it can be no surprise that employer’s typically put their own interests first, e.g. simply seeking lowest cost, rather than seeing a pension as a recruitment retention tool.
In a former role I was blocked from posting about retirement income needs and encouraging staff to consider their contributions in the factory newsletter since, in the words of the FD …
“Why would I want to encourage people to put in more, when them doing so would cost me in matching contributions [they promised to match up to a limit]? and most of the workforce wouldn’t get the PLSA level of income whilst working here, so certainly can’t aspire to it in retirement!
Further more, every time we have mentioned increasing our contributions then the union negotiators have pressed for that to be in basic pay rates instead. They simply don’t value what we do already”
Surely the problem to be solved is lack of contributions, especially from employers, not lack of returns – there are plenty of those to be had from global equities over the last 40 years. And why should employees be asked to take more risk investing in ‘private’ assets while fund managers earn fatter fees, which of course devour returns?