Money managers under the microscope
The Nick Clegg of the pension world…
Emerging resplendent from the shadows of more illustrious peers after long years spent relevant only to a modest group of those in the know; attributes not only pertinent to the ascendant LibDem leader but also to Defined Contribution pensions, known as DC.
It’s no wonder their popularity is growing: DC funds are cheaper for sponsors — albeit riskier for employees , who have done a great job of pretending these schemes which pay out based on investment returns will provide them with the kind of plush retirement the old guard of final salary schemes seemed to promise.
Nick Clegg’s performance on the first TV debate has allowed people to him in a fresh light, and the same seems to be happening to DC. Last month consultant Towers Watson said that most FTSE 100 DC pension funds have turned to the kind of fund management styles which aim to generate the most returns. It also estimated that DC pension assets reached 42 percent of total global pension assets in 2009 compared with 32 percent a decade earlier.
Now, size is the one thing that gets you attention in this industry and fund managers will be paying lots more attention to the changing needs of DC schemes. In fact, one already has.
State Street Global Advisors expects to see the volume of business from UK DC funds at least double in the next five years, according to Kanesh Lakhani, the executive responsible for the UK asset management business of the U.S. financial group.
Given that the list of companies ditching final salary schemes for DC is growing — Aviva took the plunge this week — Lakhani may well be right.
Of course, like the LibDem renaissance, DC’s moment may turn out just to be that: a moment. But somehow I doubt it. I have lost count of the times sombre actuaries informed me that the last nail has been hammered into the final salary pension’s coffin.
Unlike Nick Clegg, the fate of DC schemes is not going to depend on the performance delivered during weekly TV debates; it rests on something much more solid. The lure cost cutting will drive every sponsor to weigh the cut-price charms of DC. All is set: a new star is born.