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Pension saving is too expensive. According to a report from the Royal Society of Arts, up to 40 per cent of pension savings disappear in fees and costs under the UK’s current system of private pension provision.
Personal accounts, the national scheme to be rolled out in the UK from 2012, are designed to tackle this problem. People will be automatically enrolled into the scheme, removing the marketing and selling costs that have helped make personal pensions so expensive.
It seems the discussions on the European Commission’s much reviled draft directive on alternative investment fund managers are taking place after the event rather than before, as is usually the case with EU legislation.
The Financial Services Authority, the UK regulator, is focusing on this one topic in its asset management conference tomorrow. This follows last week’s debate, held in London’s Guildhall, between Poul Nyrup Rasmussen, self-styled “bogeyman” of alternative investment managers, and Lord Myners, the UK’s City Minister.
Where is financial innovation coming from in these days of (slightly) chastened banks? Look no further than index providers. The profit to be made from joining the index game has tempted Thomson Reuters to throw its hat into the ring, as we reported in FTfm yesterday.
Now S&P has announced an intriguing new securities lending index series, designed to measure the average cost of borrowing US equities. What does it portend when an activity like securities lending gets its own index? S&P says it is bringing transparency to opaque over-the-counter transactions, and providing both lenders and borrowers with a means of hedging (against rate increases that would decrease revenue streams or against costs, respectively). The indices can also be used to speculate on the direction of markets, S&P points out.
The ingenuity of index providers knows no bounds. What next? An index of bank bonuses or CEO pay perhaps? Tracking those might be worthwhile!
Was coming in to record a video for FTfm last week the kiss of death for Jamie MacLeod, former chief executive of Skandia Investment Group?
Mr MacLeod’s sudden departure from SIG was announced today (Thursday September 10), with Nils Bolmstrand being drafted in to take his place. There is much speculation about the change of personnel, but no official information.
According to the press release, Mr MacLeod’s parting comment was: “It has been a great journey in building a £50bn assets under management business and I really hope the company continues on this successful journey.”
Describing himself in previous interview with FTfm as “more of a business leader than a manager”, perhaps Mr MacLeod feels in need of a new challenge. It will be interesting to see where he turns up next.
A press release from the TUC caught my eye this morning. Headed Taxpayers spending twice as much on private sector fat cat pensions than on public sector pensions, it contributes to the debate about the affordability or otherwise of public sector pensions in the UK.
Publicising a new pamphlet, Decent pensions for all, the TUC says taxpayers are spending £2.50 subsiding pensions for the richest 1 per cent for every pound spent on paying pensions to retired public sector workers.
There is a chart in a new report from the World Economic Forum that should give anyone designing a pension plan pause for thought. It shows what a lottery defined contribution pensions can be, with Japan a particularly good example.
Based on certain assumptions, the chart (on page 48 of the report) shows a hypthetical Japanese worker retiring just before 1990 would have enjoyed retirement income equivalent to 60 per cent of earnings after contributing 5 per cent a year for 40 years investing in a 60/40 combination of domestic equities and bonds. But the unlucky one retiring 10 years later would have had to survive on 10 per cent.
Legal & General Investment Management has commended the investment consultation paper from the Personal Accounts Delivery Authority to trustees of defined contribution pension schemes. It offers a level of insight “unparalleled in terms of quality and depth” and has the advantage of being free, says Ian Richards, head of DC strategy at LGIM.
Personal accounts will become the benchmark by which other DC schemes will be measured, he says.
It is encouraging to see life companies, which have dominated the DC market in the UK, taking an interest in Pada’s paper. There is much work to be done on designing default funds that have potential to offer reasonable return without high volatility and on the way retirement income is delivered.
Some life companies have already started down this path, but judging by a recent meeting I had with Scottish Life, have yet to work out how to communicate the benefits of their products effectively.
I was hopelessly confused by the presentation by two gents from Scottish Life, who wanted to tell me about their clever pension plans supposed to resolve the governance problems of contract-based DC plans, where no-one is looking after the interests of the members of the scheme.
The plans have some modern features, including a risk-profiling tool, multi-asset portfolios, rebalancing, and a lifestyle overlay that starts working 15 years before retirement. But they are designed to appeal to independent financial advisers rather than scheme members, and it shows.
Too many bells and whistles, I concluded, and some features that just seemed odd, such as moving the fund entirely into cash if a member wants to buy an annuity at retirement rather than draw an income from investments. Where is the protection against annuity rates moving to a member’s disadvantage in that? The aim is to maximise the real value of the pension pot at retirement, was the answer. I was none the wiser.
Maybe when IFAs have to be paid fees for their advice rather than taking commission from life companies, it will be what customers need that takes priority. Having to measure up to the personal accounts benchmark should also force a rethink.
Various fund managers have owned up to being a bit pathetic when it came to challenging powerful banking figures. They have been roundly castigated by the likes of Lord Myners and Hector Sants for their failure to act as responsible owners, and cannot expect to escape notice in Sir David Walker’s review of corporate governance in the banking industry when that is published later this week.
No doubt they could and should have been a bit less accommodating of banks’ plans for world domination, but in the end there is limit to the sanction they can apply. Passive trackers, which probably hold the biggest stakes, cannot threaten to sell, and active managers rarely hold large enough stakes to make selling much of an issue for a company.
Enforced holidays are not unusual in the current climate as companies seek to cut costs by encouarging staff to take extra holiday for little or no pay.
But the chief investment officer of an asset management firm visiting the FT revealed his enforced holiday, coming up soon, was due to a policy put in place to guard against rogue traders. It was instigated in response to Société Générale’s €4.9bn trading loss at the hands of trader Jérôme Kerviel, revealed in January 2008.
Mr Kerviel did not go on holiday much, apparently, having had four days off in the eight months before the problems were discovered. He was asked to take a break in December 2007 but declined to do so. He had to be at work to maintain his deception about the large trades he was making. Failing to demand he take time off was seen in retrospect as a mistake.
The FT reported at the time that most investment banks require traders to take at least two consecutive weeks’ holiday a year, which limits the scope for concealing their positions.
Asset managers have followed their lead, it seems, with this group, Baring Asset Management, imposing a minimum eight day break. Workaholics are not allowed to indulge their addiction.
How common is such a policy in the asset management world I wonder?