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Trust me, I’m an expert

Contrast this with what Alan Rubenstein, Chief Executive of the Pension Protection Fund (PPF) had to say in June this year,  “When the PPF was formed in 2005, UK pension schemes had an average deficit recovery plan length of 8.1 years with 75% within 10 years.  You would hope that, 10 years on, there would only be one-quarter of schemes in deficit.  But, in fact, the average recovery length is now 8.5 years, and you have to go up to 11 years to capture 75% of schemes.”

In fact, according to PPF Purple Book, the estimated s179 aggregate balance (assets less liabilities) of all schemes in the PPF’s universe had declined from a small surplus in 2003 to a deficit of over £270 billion by June 2015.  This is despite an estimated £250 billion of deficit contributions being pumped into pension schemes over the decade.

Faced with this evidence, do trustees truly believe that the asset allocation, liability management, plan design and implementation skills at investment consultants have added value in the last ten years?  No doubt the investment consultants will argue that they are not accountable for this outcome but that the responsibility rests with the trustees.  However, trustees at schemes with significant deficits, must consider whether the advice they have received has been a factor in creating the position they now find themselves in.  If they believe that the advice has been a contributor, then they should seriously challenge the idea that appointing their current adviser as fiduciary manager will suddenly change their fortunes.  Instead they should look to the wider market to establish where the appropriate experience may lie.

However, not all pension funds have faired badly over the decade, and there are examples of effective advice by investment consultants.  Clearly, in these circumstances it would be reasonable for the trustees to continue with the ‘trusted relationship’, have confidence in the skills of the consultant firm and delegate more responsibility to them, although the findings of the PPF suggest this may be at a minority of schemes!


Is there a problem with investment consultants and actuaries already working with pension funds taking on additional responsibility as fiduciary managers?

The head of European distribution of one of the fiduciary management firms does not think so.  In a recent interview with IPE he said “a fiduciary mandate relied on a long term relationship, requiring a company trusted by pension trustees.  If you think from the investment consulting universe, aspects you’re buying from fiduciary management are those skills that exist in the investment consultant industry – for example, asset allocation decisions, decisions around liability management, plan design and implementation.”

If this were true and these skills do exist, then the trusted relationship would indeed be good reason to stay with the same provider.  The question is what proof is there that the statement is worth accepting or indeed what evidence is there to the contrary?


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14th December 2015