Well done! You survived the worst month of the year. February may seem like a rerun of January but take heart: the days are lengthening and it will soon be light before 7am. Despite the gloom, the last month has been productive for me – as illustrated below. If any of these spark an idea for a project we could work on together, please get in touch.
New challenges for master trusts
The UK’s 37 master trusts may have breathed a sigh of relief when they received regulatory authorisation. But it would be a mistake to become too relaxed. Annual returns submitted to the regulator could turn into a mini-authorisation review. The regulator will want to continue to build on its understanding of how master trusts operate, with greater focus on their systems and processes. Read more about this and how, over the longer term, the regulator is likely to take steps to encourage further consolidation here.
Why Johnson should worry about loss aversion
Learning about behavioural economics – or why humans often don’t make rational financial decisions – is one of the best parts of being a pension journalist. Reading Richard H. Thaler’s book Misbehaving, I was struck how politicians also need to be mindful of these universal traits. You can read more about why Johnson needs to worry about voters’ loss aversion as he gets Brexit done here. Another observation from Thaler should give further pause for thought: we’re more likely to get things wrong when they are tasks we undertake infrequently. It’s why we are bad at retirement planning and often choose the wrong person to marry. Leaving the European Union obviously falls into this category…!
Keeping everyone happy
Almost two years after the deadline for the pooling of the assets of members of the local government pension scheme and the benefits of greater scale are starting to be felt, such as lower fees and a more professional approach to investment. But it remains a challenging task – the partner funds must be happy with the investment options. Local authorities have different goals and need to be included in the process to ensure the pooled vehicle matches their investment requirements. You can read more about the process Border-to-Coast used to develop its multi-asset credit fund to match their partner funds needs here.
The hidden DC dilemma
Pooling the LGPS has underlined the advantages of scale in pension schemes and efforts to consolidate private sector defined benefit schemes are being stepped up with the launch of commercial consolidators. There is much to improve. Of the 5,436 schemes included in the Pension Protection Fund’s 2019 Purple Book, around 36% have fewer than 100 members. But the issue is even more extreme for defined contribution schemes. There are 31,910 occupational schemes with two or more DC members, of which 29,900 are micro schemes – which means they have 2-11 members. It’s not only master trusts which need greater scale; these smaller DC schemes also need to be consolidated to give better value to members.