UK - Speakers at a recent Society of Pension Consultants conference in the UK aired hard truths, arguing for a rise in the retirement age, urging creative blends of pensions schemes and lambasting fund professionals for overly relying on benchmarks.
At a minimum, retirement age in the UK will have to rise, said Adair Turner, chair of the Pensions Commission. Secondly, although DB schemes may soon be extinct in the private sector, employers do not necessarily have to rush to the other extreme.
“One contribution business can therefore make to solving our social problem ... is to avoid either/or decisions and to think flexibly,” Turner noted. “We can have average salary based DB, not final salary. Or hybrid schemes.”
Pension fund managers will also have to employ different strategies, including using hedge funds, swaps, convertibles and derivatives to achieve adequate returns for their clients and compensate for duration gaps in bond portfolios, said Alan Rubenstein, a managing director at Morgan Stanley and head of the firm’s European pensions group.
Meanwhile, Sir John Banham, chairman of Whitbread, argued that corporations balance the benefits pension funds bring in enticing, motivating and retaining employees with the risks brought to shareholders with shortfalls. As such, Whitbread has wound up its DB scheme for new employees in favour of a voluntary DC scheme.
Given “legitimate” investor expectations of an 8% annual return on pension investments, versus the FTSE 100 index return of 1.5% per annum over seven years, managers’ reliance on index tracking, and, by extension, pensions consultants’ advice to use those managers, have been “lamentable,” Sir John said.
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