John Hamilton leaves for Scotland

Here is the blog I wrote on the 24th of January a year ago. It contains the outline of the first and only time I’ve ever heard John Hamilton deliver a talk on pensions. It so influenced me last year that my team still talk about Melton Mowbray moments. This morning I will be listening to John Hamilton for a second time.

He will be speaking at the Londoner Hotel to a group of investment gurus (I don’t count myself as one). That event will be under Chatham House but I hope that John will let me do what I did this time last year and recount his arguments. For now, enjoy the Melton Mowbray speech delivered in a pie factory!

The insurance of an invested pension

John Hamilton and I parted Melton Mowbray , John for the north, me for the south. I had two hours in front of me, he seven – and the prospect of a storm. We had spent much of the day together discussing two key words – insurance and investment.

Let me explain how John sees investment.

As we walked down the road to the pie factory we talked about it. He saw our brisk walk as getting it out and making things happening. Sitting on the sofa and worrying about the consequences of going for a walk was de-risking was opting out of doing anything. Walking was investing in our futures, sitting on the sofa an analogy for wasted years of de-risking,

John  talked about insurance when he spoke to East Midlands PLSA, reminding us that Lloyds of London allowed our forefathers to venture all over the world , trading and investing in products that could be put to use in the UK to invest for the future. Without Lloyds, the venturers would not have had the courage to get things done.

These slides are not about Stagecoach  but about how he and the people he works with look at pensions as an investment backed by the insurance of certainty.

Insurance is a backstop that allows us  to invest. It is the background  to the end itself, the capacity to sit down on the sofa is not the end itself, that is with the next generation. But it’s the comfort that a pension brings, in possession.

Insurance is the backstop to allow us to invest even if we feel we are coming to our end. In John’s head , his children are why he invests and why he needs the insurance of his pension which is getting closer by the day. He needs the next generation to pass on his investment understanding, an understanding he has gained from generations who are now in retirement. Like me, he can see his ending but like me he wants to pass his enthusiasm on.

He has learned from other trustees to act on what he knows and understands. He told the story of the investment manager who claimed to have done well (and deserve a performance fee)  by shrinking the value of assets over one year by 26%. Other managers had lost 28%.

This was not simple thinking, this was reverse correlation and he and his colleagues weren’t so interested. Hitting targets through prudent management, covering pension liabilities with incomes from the assets became the simple thinking of assets. Investment meant having the luxury not just to stay open but to offer more with the excess created.

Excess is the nice problem of investment, a problem that we give ourselves through investment because we have the insurance of doing it over time and collectively. Pensions should create growth for the economy. Pensions are a gift we give ourselves by choosing to participate in a collective scheme.

Sadly, much that was known by previous generations has been lost. The last 20 years have seen schemes having to adopt insurance as the end itself leaving investment behind. The mantra of de-risking has become the reason for pension regulation to a point that we have lost two decades of growth. When pensions drove growth , Frank Field referred to them as an economic miracle but we have exchanged that vision of investment and insurance for what we have today.

John Hamilton sees the selling of equities and gilts to secure future payments with corporate bonds. Pension funds compete with the Government in the sale of gilts pushing yields up as pensions become part of the economic trouble rather than the “miracle”.John Hamilton told us that he couldn’t find a worse way to organise the “end game”.

Against this doom-ridden view of “de-risking” pensions, Hamilton was able to propose an alternative where DB pensions are installed rather than DC pots. This is the world which Local Government Pension Schemes still prosper, where private pension schemes that did not go the LDI route are now prospering and where investment goes hand in hand with the back-stop of insurance – the insurance created by having done this over years.

Investment and insurance are the two drivers of pensions for Hamilton. If we could go back to delivering certainty and valuable pensions to individuals, then we could call pensions economic miracles. I’m not sure that it was John Hamilton or me who brought Frank Field up but as I watched John disappearing on his 7 hour journey into the storm, I thought of Frank and how proud he would have been to hear John’s speech and the help John gave people like me.

I suspect he’d have enjoyed a  Melton Brown pie too.

Simple things- good to eat – Melton pies