For years we have been reliably informed that members of pension schemes want investment choice and the pension industry has spent a lot of time and money providing that choice. Throughout that time, we have wondered if this was strictly true. Our experience was that most people stayed within the default fund, including its lifestyle strategies, and the number of employees accessing the broader range was comparatively low.
This behaviour was not necessarily a good or a bad thing and supported the focus of Trustees and Independent Governance Committees on default funds. However, one of the key trends triggered by the pandemic has been interest in pension investment fund performance and the broader range.
It is not unusual to see the employees of our clients move from the typical 95% of members in the default fund to a situation where 30% to 40% make active investment decisions. Some will be taking advice but we suspect a significant number are getting involved as they look to replicate the behaviours of the Gamestop generation or to ride the wave of the next bull market.
How does this trend sit with the current direction of travel for the guardians of our pension schemes? The method of travel appears to be water based; a Government keen to see consolidation into fewer pension ‘super tankers’ and providers, both new and existing, celebrate their growth of assests under management (AUM) as the key measure of success.
We can understand the attraction of the tanker metaphor; secure, dependable and will be around for a long term. However, as we saw with the Evergiven tanker in the Suez Canal, they are not easy to turn around and we wonder if there is a mismatch between their size and the demands of the new class of nimble, engaged pension investor.
To bring this concern alive one of our corporate clients has their pension managed by a reputable tanker with strong likelihood of becoming ‘super’ in the next few years. It is a good plan, not the most modern in their portfolio (but we will leave that for another article) but with low core charges, broad investment choices and ever improving digital tools.
With this scheme over 30% of the assets are now managed by fund managers outside the in house range and the core administration charge looks conspicuously expensive to those members for whom it is delivering a payment collection service and some digital tools. The combination of charges also makes the cumulative charge look expensive to a well-researched DIY or advised investor.
So this is a callout to the captains of the super tankers to move some of the gaze from the ever growing default funds and think of the active investor or I worry they will leak more and more members who are looking for both investment choice and value for money.