In its submission to the consultation on the DWP Pensions Investment Review: Unlocking the UK pensions market for growth, AMNT has reiterated that it warmly welcomes any initiatives designed to increase pension adequacy and the wellbeing of pension scheme members. But noting that this consultation is pitched as an “opportunity to drive reform in our pension schemes to deliver better outcomes for future pensioners”, the key thrust, which is to drastically reduce the number of schemes in the market, is not convincingly shown to be able to achieve this.
Indeed, there is a real concern about herding amongst a smaller group of very large schemes and that the interests of the pension saver will be a secondary concern to reducing employer cost and increasing margins in these circumstances.
AMNT also argues that moving the dial from cost to value will be difficult in the short term if small schemes see themselves with a short timescale to run, and larger schemes will have less commercial imperative given a forced market of consolidation and are, at best, likely to “herd”.
“Whilst the VFM proposals were concerned with consolidating schemes not providing good value (cost and/or otherwise) for members, these proposals will see the closure of all smaller schemes, regardless of the value they provide to members. With the recent indefinite postponement of phase 2 this is now the only review under way, which means that this alone has to bear the weight as the vehicle for improving member outcomes.
“It is therefore particularly disappointing that issues of adequacy and responsible investing are missed”, said Maggie Rodger.
“And whilst we share the concern for member outcomes the government’s other major priority is greater pension scheme investment in UK productive capital and sustainability projects. We point out that the long time horizon in multi-employer CDC investment would allow for a lower liquidity requirement and would be better placed to respond to the government’s priority.
“Therefore the priority should be that if and when VFM or size considerations begin to push DC schemes into consolidating into another scheme, they must have the option of transferring into a multi-employer CDC scheme. It is not in savers’ interests to move from a poorly performing scheme to one that will give them a slightly bigger pension when there is the possibility of transferring to one that could give them a substantially larger one,” she continued.
In addition, AMNT is concerned that these proposals may stifle innovation in the wider pensions market and not just DC. While we await the first multi-employer CDC scheme, it is difficult to see how the creation and expansion of CDC, (or any other innovative ways to provide better pensions more effectively than the DC and decumulation model) will be able to operate in a market which is discouraging smaller schemes from considering wider options instead of just moving to a mega DC scheme. Not to encourage this will work against savers’ best interests as, for example, the modelling for CDC has shown outcomes in the range of 30% to 50% better than DC and annuity.
“Arguably therefore, the attempt to make small improvement to savers’ outcomes through this consolidation is missing the opportunity to encourage the wider adoption of CDC.
“The omission of CDC from the discussion may also be missing the opportunity to achieve the desired economic goals”, Rodger concluded.
Finally, AMNT is concerned that the governance of large DC schemes rarely includes member representation. The loss is not about channels of communication, but goes back to the reason for MNTs inception. They have a personal stake in the good governance and good outcomes of the scheme and do not have other business considerations taking precedence over the interests of members.
Size is not a barrier to this - a member trustee can also be a well-trained trustee and the Australian model for trustees of their “supers” ( and a number of UK multi-employer schemes) shows that this can be done. AMNT therefore urges that if there is to be major change in the market that the government recognise that member nominated trustees should be an essential part of good governance in the new order.
AMNT warmly welcomes any initiatives that are designed to increase pension adequacy and the wellbeing of pension scheme members. Whilst our chief concern is for member outcomes in pensions we cannot fail to be aware that the government’s other major priority is greater pension scheme investment in UK productive capital and sustainability projects. We fear that these proposals do not definitely achieve either purpose. It is also disappointing that issues of adequacy and responsible investing are missing from this consultation and their inclusion in phase 2 of the review has been indefinitely postponed. We point out that the long time horizon in multi-employer CDC investment would be better placed to respond to the government’s priorities.”
Maggie Rodger, Co-chair, AMNT
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Notes to Editors:
The Association of Member Nominated Trustees was established in September 2010 to bring together member-nominated trustees, directors and representatives of public and private sector pension schemes to give trustees a collective voice, to provide mutual support and information exchange and to campaign on matters of concern. Our members are from pension funds with collective assets of approximately £1-trillion. In addition our membership is focussed on speaking on behalf of pension scheme members, because being a scheme member is a requirement for becoming an MNT and has a particular part to play in scheme governance.
