The last month has seen a flurry of reports, studies, consultations and discussion papers published. Con Keating takes a look
In the past two months an unprecedented number of reports, studies, discussion papers and consultations have been published. Pensions and a host of related topics have been the subject of policy and regulatory scrutiny, and widespread discussion.
We have seen the first editions of two new annual reports. One is from the European Securities and Markets Authority on the performance of retail investment funds. The other is from the European Insurance and Occupational Pensions Authority on pension fund performance. They will doubtless take their place alongside such classics as the Pension Protection Fund's Purple Book.
Fund management costs and charges have become a recurrent disclosure theme. While there were no real surprises in these reports, it was shocking to see just 20% of the total 10-year return of a fund accruing to its investors.
The Organisation for Economic Co-operation and Development's (OECD) biennial Pensions Outlook was accompanied by a massive study - Financial Incentives and Retirement Savings. The outlook also contains a chapter on pensions costs in the accumulation phase. However, the most illuminating OECD publication is entitled Design of Pension Arrangements to Mitigate Longevity Risk. This contains the results of an international survey of scheme designs and a classification of them, together with a description of their risk-sharing arrangements. From this, it appears that there really is no such thing as a new pension scheme design, and indeed, very many that are flawed in important aspects but continue to function adequately.
Since the introduction of Freedom and Choice, there have been recurrent calls for ‘innovation' in scheme decumulation and other than a few tontine variations, very little in response. It seems that a market in longevity will remain elusive, and perhaps should.
The Financial Conduct Authority has not been idle; it has consultations on illiquid assets, and patient capital. This is part of the most recent move in a greater political agenda to mould financial markets to the investment ambitions of the bureaucracy. The most telling question concerns the specialised funds, such as European long-term investment funds, created in earlier efforts: "Why do you think the specialised funds have not being used in significant volumes?"
The Department of Work and Pensions also has two consultations underway. One on collective defined contribution schemes and the other on defined benefit scheme consolidation or ‘superfunds'. It is evident that the subject is not whether these arrangements should be introduced, but rather how. Indeed, The Pensions Regulator has already published guidance on its role in superfunds.
We should not take all of this ‘openness' as being all pervasive in government. The release of the statement on pension credit cuts when it would be overshadowed by Brexit votes and the sight of Beefeaters on picket lines are proof of that. The stated motivating concern for such stingy treatment is one of fiscal probity and sustainability.
On this note, the International Monetary Fund has chipped in with The Future of Saving: The Role of Pension System Design in an Aging World. The scope is well described by: "Building on previous studies that highlighted the fiscal consequences of aging, this analysis focuses on the interplay between public and private saving, as well as the role of pension system attributes (coverage of the elderly, benefits, and the type of funding) in shaping savings profiles across countries in the coming decade."
If all of this seems a little haphazard and confused, perhaps the forthcoming Royal Society discussion meeting on pensions - How should pension liabilities be valued? Risk aversion and demographic uncertainty - will lift some of the fog.
Con Keating is head of research at Brighton Rock Group
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Companies could be overstating their pension liabilities by up to £60bn due to their life expectancy assumptions, according to XPS Pensions Group.
Defined benefit (DB) schemes that provide GMPs must revisit and, where necessary, top-up historic cash equivalent transfer values (CETVs) that have been calculated on an unequal basis, a landmark court judgment said last week.
Regulators must act now to impose some "proper regulation" to stop another defined benefit (DB) transfer advice disaster, saysTim Sargisson.
Opportunities for defined benefit (DB) schemes to pursue investment approaches that help repair the UK’s economy cannot stand in the way of improving member outcomes, Aegon says.