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National Partnership Manager at NOW: Pensions, Neill Ferguson's presents From default to design: why good governance matters at Reward Live - A practical guide to Auto Enrolment on the 11th of July 2013.
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Smarter. Simpler. Better.www.nowpensions.com
From default to design:why good governance matters
Niall Ferguson | 4 July 2013
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• NOW: Pensions is a UK multi-employer Trust
• Supported by ATP, Denmark’s leading pension provider
• Low cost operating model
• ATP investment team
• Equiniti Paymaster administrator to 2.9m UK workers
4.7m members
C 160,000 employers
45 years
+7.95% p.a. (average) for the last 5 years*
c£74bn FUM
* Back tested data for the UK based on ATP’s investment strategy and NOW: Pensions’ implementation strategy to 30 Sept 2012
Our achievements
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• Costs met by members
• No Trustee Board
• Wide range of funds
• Undefined Governance framework
• Costs met by employer
• Trustee Board set up by employer
• Funds selected by Trustees
• Defined Governance framework
Multi-Employer Trust– Best of both worldsGPP Trust DC
• Cost options are your choice
• Trustee Board in place
• No fund selection required
• Defined Governance framework
4 Smarter. Simpler. Better. 4
Design of Default Investment Funds matterPensions Institute Findings
• 90–97% of members will be enrolled into default
funds for Auto Enrolment therefore funds need to be
‘fit for purpose’
• Wide variety of default funds available to members
• Some have very high equity content
• Therefore enormous range of expected outcomes on
model and wide range of associated volatility
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The results, displayed in the chart, show there is a huge lack of understanding about investments and finance amongst the population shown by the high “No” responses
10%5%
Yes
No
Don’t Know
85%
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We surveyed consumers to ask if they would be able to rank the riskiness of assets (bonds, cash, commodities and equities) from very risky to least risky
Does your workforce understand pensions?
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Do members make good investment managers ?
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What’s the most you would bet on the toss of a coin, if you stood to win £1,000?
£450 £100£200
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Even professional investors end up chasing the market
Source: FTSE, Investment Management Association and AllianceBernstein
FTSE All Share IndexNet Retail Flows into UK Equity and Property Collective Mutual Funds £bn
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It is important to focus on the right issues
• When do I want to retire?
• What do I want to do when I retire?
• Do I need to make contributions in excess of the minimum?
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Advantages of
investment solution?
one
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Why do other providers offer a range of funds?
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Contract Based DC = Insurance Company has full responsibility …and is conflicted
Trust Based DC = Scheme Trustee Board has full responsibility
…and is nervous
Master Trusts = Independent Trustee Boards have responsibility
• They may be nervous about press reaction
• Their wider distribution strategy may compromise their ability not to offer choice
• Distancing themselves from a conventional approach may be too difficult
But…
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• They may be nervous about press reaction
• Their wider distribution strategy may compromise their ability not to offer choice
• Distancing themselves from a conventional approach may be too difficult
Our Master Trust• Knowledgeable and independent Trustee Board takes full responsibility
for investment solution
• New Proposition, so no blind spots created by considering legacy issues/ existing proposition
• No unwelcome pressure from other sources influencing our decisions
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Guided investment solutionGrowth phase
Rates Credit
Equities Inflation
Commodities
25%(+/- 10%)
10%(+/- 10%)
20%(+/- 10%)
10%(+/- 10%)
35%(+/- 15%)
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• They may be nervous about press reaction
• Their wider distribution strategy may compromise their ability not to offer choice
• Distancing themselves from a conventional approach may be too difficult
Growth PhasePerformance & Protection
Protecting the Buying Power of your Pension Fund
Protecting your Tax Free Cash Entitlement
Annuity Rates
Fund Values
10 years 8 years 6 years 4 years 2 years Retirement0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Managed Diversified Growth Fund Retirement Protection Fund Cash Protection Fund
Return Target: Cash + 3%
Return Target: Annuity Prices
Return Target: Cash
Guided investment solutionGlidepath phase
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Charges matterPensions Institute Findings
• Caveat Venditor Report found that members face
vastly different retirement lifestyles depending on
the scheme into which they are auto enrolled
• Some employees can end up paying multiple times
the annual charge available to them if they enrol into
poor quality schemes with TERs of c3%
• Opaque charging structures cause severe detriment
to members in the long-run
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• They may be nervous about press reaction
• Their wider distribution strategy may compromise their ability not to offer choice
• Distancing themselves from a conventional approach may be too difficultTwo explicit elements to our charges
Simple charging structure for allProviding a better pension for employees