Pensions Oldie runs a small(ish) DB scheme. He will not go on much anonymity if he names those act for him! But here is his response which is either an argument for consolidation of a cry of pain from someone committed to paying pensions to his members. This is his comment on my post of Haldane’s “Field of Dreams” speech
We were acting on investment advice which we tended not to challenge (except in respect of LDI which we only narrowly escaped by stalling trustee decision making).
Achieved investment returns (total scheme)
2025 2024
1 year to 31st March 3.1% 13.8%
5 years to 31st March 8.4% p.a. 6.3% p.a.
10 years to 31st March 6.8% p.a. 7.2% p.a.(2026 figures awaited)
Although advised these long term returns were about 3% p.a. more than an “Example DGF”. Also because of the open accrual cash flow positive nature of a relatively immature scheme, we have bought more assets when the market prices are depressed. (cue: First Actuarial chart). The result is the size of our surplus gives us sufficient freedom to exercise the Trustee’s fiduciary duty to our Members and also to the sponsor as we think appropriate without having a regulator directing us towards goals we think are inappropriate.
As noted above we have moved to a CDI approach and thanks to Derek Scott and Bobby Riddaway the Trustees now have the confidence to challenge investment advisors. We now seek to minimise the significance of market value movements and decision timing and to concentrate on opportunities and not on risks.
However we find asset managers do not tend to match our goals and tend to only offer products that seek to meet their goals and not ours. For example maximising management charges by linking them to value of assets under management even for distribution funds and by discouraging the direct holding of assets such as gilts and investment trusts. by smaller pension funds.
When Size does matter.
If you are running an asset manager, you have two ways of making money. Either you manage large amounts of money at small margin or you run small amounts of money at high margin.
Here value for money can be managed (as Chris Sier did and ClearGlass and Iain Clacher do), But the measurement of VFM for the smaller scheme such as Oldie’s is an expensive business and to do much with the information is tough – you don’t have much leverage.
The Field of Dreams is very big
There is much pointing at small schemes (whether DB – like Oldies’s) or SEI’s (see SEI’s recent VFM podcast. It is possible to achieve a lot by being nimble and trading the fund to maximise short-term returns. SEI’s Steve Charlton told Nico and Darren’s audience that he hadn’t used his own LTAF as the time wasn’t right. I’m not sure if the time will ever be right when you are looking to keep top of the pops in the CA tables.
The big schemes against which smaller schemes measure themselves are not bothered. They are in the Field of Dreams. Look at Nest and LGPS as the DC and DB examples. They are in the Field of Dreams and dreaming of delivering 50 or 100 years ahead. They have no fences excluding them, they will not be shut down for underperformance (USS is regularly under-performing).
But when you are small, relative to your peers and in absolute terms, you have to accept that you will be ignored and ultimately forced to consolidate or sell up. For mastertrusts there is a market, for DB schemes there are insurers and superfunds keen to absorb your assets and liabilities.
It is a horrible truth, but small schemes are not allowed in the Field of Dreams unless taken there by their consolidators.
Thanks for considering my comment.
When considering the investment returns noted above, it is important to note that as a fully open and growing DB scheme we are considering an investment time horizon of over 60 years. For management purposes we have set a long term discount rate, not varied by temporary changes in market pricing (such as gilt yields) of just under 6% p.a. when considering our future cash flow projections and when considering investment opportunities using a decomposition analysis of comparative yields.
As the current funding level is extremely strong with the current statutory valuation methods apparently reporting we have over twice as many assets as we need to meet the benefits, we are able to share (a small) part of the surplus between the Members through (generous) discretionary benefits and the Employer through a reduced funding rate / partial contribution holiday. In this way we seek to retain the fund and the past, present and future contributions for the benefit of the Members and the Employer.
We consider it is a primary Trustee duty to use the Scheme assets for the beneficiaries of the Trust and resist any leakage to any third party, particularly an insurance company or commercial consolidator.
We have in the past considered selective buy-ins as an investment decision but at the time LDI was being proposed by consultants we calculated that if we bought in at that time (which was the so called “liability” in LDI) we would be gifting more than 40% of the assets transferred to insurance company profits. We have identified similar issues with LTAFs, where entry and exit prices are determined by managers, or managers acting in unison (like the insurance company pricing model).
We are seeking to minimise investment risk by seeking to engineer continued positive cash flows for the next x years (with no asset sales required) even with a zero employer contribution but continuing benefit accrual and an extending benefit horizon. In this way we are attempting to maintain the situation where the Scheme has effectively no employer covenant risk and no funding risk.
We do consider the interests of the Members and the Employer are best served by remaining independent and considering “proximity” issues in our investment decisions as part of our fiduciary duty. This is best served by remaining “small” and responsive to the particular circumstances of our Members and the Employer.
The members seem to appreciate this as we have minimal voluntary transfers out even by those who might be tempted by a large cash pot (deferred Members receive the same discretionary revaluations as the active members and we encourage money purchase AVC contributions for pension commencement lump sums with AVC contributions being commenced at an increasingly early age).
Do you consider your scheme is in the Field of Dreams?
“USS is regularly under-performing” I decided long ago that USS was badly run and seized a chance to retire early in the expectation that it would cope in future not by making my terms worse but by making the terms for younger people less attractive. Apart from replacing my RPI-linking by CPI-linking that’s just what happened.
I can remember younger colleagues rolling their eyes as I explained to them how shoddily it was run. Weel they ken noo.
Andy Haldane is a thoughtful and interesting commentator but here he seems to make the assumption of classical economics that investment creates savings whereas the reality from the insights of Keynes and Joan Robinson is the reverse. Investment creates savings. Warren Mosler explains.
https://youtu.be/phnqEBEtQEI?si=7vDZLYTKtQLO9MFY
I think Mr McIntyre intended to say in his comment above that the assumption of classical economics is savings come before investment and create it.
Andy Haldane, however, argues that markets frequently suffer from structural failures.
In his current work with the British Chambers of Commerce, he notes the UK has trillions in savings that the markets are failing to allocate enough to domestic businesses.
He believes the state must actively intervene—such as altering pension tax rules—to force capital into productive local investment.
Keynesian (and MMT) arguments, at least at a macro level, are that new investment spending creates the income that pays for consumption and the balance is new savings, so savings can be the result of investment, not its prerequisite.
Andy Haldane is on record, however, as saying MMT is “not modern, not monetary, and not a theory”.
It can all become tautological if we slide between identity and cause.
Keynes explicitly treated savings and investment as equal ex post by definition, while also arguing that this does not tell you which one drives the other ex ante.
I side with Mr Haldane on this.
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