Pensions and Dendrograms

I was invited to be on the panel at a Pensions conference yesterday. The event is run by SPS Conferences who run a series of events for pension funds trustee's. It was very nice, if somewhat surprising, to be asked to be on the panel. The event was titled "Investment Strategies for Pension Funds". Most of those attending were either trustees or worked for large defined benefit (final salary) pension schemes who have many multiples of money more under management then the Sun Scheme. E.g. I was on the panel with the head of Pensions at Mersyside Council who have in the region of 15 billion under management.

It was interesting the type of people that these sort of pension funds attract. Which all jolly nice folks, I saw no evidence of any dynamism from either speakers or those attending. I guess that is the personality profile that you really want from your D.B. pension trustee or manager.

Over here in the Defined Contribution world where all the investment risk is on the member, our remit is to set default, ensure good governance and make the life of our investment and scheme managers a misery if they don't shape up. Its a very different role.

The day did reinforce my now deep held belief that Defined Contribution (money purchase) schemes of any sort are inappropriate pension vehicles for most workers. The investment risk is on the individual. They can't manage the risk because they don't know enough. The industry is not geared up to give good quality affordable advice and few trust the financial advice industry, so they do nothing, take whatever the default is.

My fellow panel member made the very good point that many of his members were manual/blue collar workers and they had no clue about pensions. For them some type of final salary scheme was right. It is what D.B. was defined for. It was not designed to de-risk the future of M.P. and company executives.

There is a desperate need to be able to provide pensions which offload the investment risk to those who know how to take it (pension providers, investment banks) and let the member just concentrate on putting enough money in and this need to be wider than the public services.