LONDON PENSIONS CONFERENCE
19 March 2014
The State of Pensions
Adrian Lamb, Legal Director, Pensions and Head of Trusteeship Services
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London Pensions Conference 2014
Health & safety and housekeeping!
Feedback forms Ask questions
throughout Participate Challenge Enjoy
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9.30 am Introduction - The state of pensionsAdrian Lamb, Blake Lapthorn
10.00 am The future is DC – but can we do better collectively?Kevin Wesbroom
10.30 am Good governance – making a difference John Hamilton, Blake Lapthorn
11.00 am COFFEE BREAK
London Pensions Conference 2014Agenda and timetable
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11.20 am Pensions law – latest developments and evolving principles Nicola Walker, Blake Lapthorn
11.50 pm Fiduciary management for both DB and DC worlds Ed Tomlinson, SEI
12.25 pm 2020 (and 2050) vision – Looking ahead – opportunities, challenges and pitfallsAdrian Lamb, Blake Lapthorn
12.45 pm Questions and open forum
1.00 pm LUNCH!
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Pensions-underdog.co.uk
Why am I here today?
For: Trustees Employers Employees Actuaries? Administrators? Auditors? Lawyers?
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London Pensions Conference 2014
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London Pensions Conference 2014
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London Pensions Conference 2014
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UK Fund deficits up/down/up/down….? Emerging economies volatility Volatile asset values – where to get some value? Auto enrolment – more work but for whose/what benefit? What chance have employees got to understand all that is going on
– new arrangements; DA, DB and DC; investment choices; AMCs, AMDs, etc.
Continued (and increasing?) pressure on covenants Life expectancy??? Retirement – what will this look like in the future (or now)? Outlook for the economy, gilt yields, etc., etc????
Just when you thought things couldn’t get any worse!
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Previous questions
Is there such a thing as a risk free investment? Can I ever know what our liabilities really are? Data, what data? Can I get smarter with my/our investment strategy? What does it take to make DC adequate? What is adequate? Is auto enrolment just a precursor to more tax? Will it work? Can it work? What do we need to do? Can I do anything about this?
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Your Starter for 10
DB? DC? DA? AE? CARE? CDC? CB? AMC? AMD? MEGO?
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Current questions
Can DC deliver - for employers and employees?
What are my liabilities exactly? Or what measure is the most realistic?
Am I/are we doing the best that I/we can? Where can I achieve the most in the time
available? Can I make auto enrolment into a positive rather
than just a headache? How can I improve understanding? The law is evolving – am I up to date with it all? What is the “big picture” here?
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London Pensions Conference 2014
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London Pensions Conference 2014
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London Pensions Conference 2014
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London Pensions Conference 2014
Increasing market share Different definitions Why is it growing? OK for DB but DC? Consultancies have
dominated so far but ….
FM market grows 20% in a year but consultants lose market sharePensions Insight – 19 November 2013
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London Pensions Conference 2014 – Public sector pension reforms
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London Pensions Conference 2014
The make up of your pension Now – BSP = S2P or c-out ops + GPP/AVC, etc. The (short term) future – FRSP + AE (OPS/GPP) + ? More annuities? Less flexibility? Less adequacy? Later retirement?
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London Pensions Conference 2014– the themes
The future shape of pensions, and the impact of the past and present
The emphasis on governance Learning lessons from the law Making better use of the assets for better outcomes Thinking ahead and looking up
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The State of Pensions
Adrian Lamb, Legal Director, Pensions and Head of Trusteeship Services
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Blake Lapthorn Pension Conference 2014
The Future is DCBut can we do better Collectively?Kevin WesbroomSenior Partner, Aon Hewitt
[email protected] 7086 9350
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Blake Lapthorn Pension Conference 2014
I have an Ambition ….
or
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Blake Lapthorn Pension Conference 2014
Increase the amount people receive for their savings
Enable innovation and new products … to give people more certainty … and encourage more risk-sharing
Increase transparency and build trust, confidence and engagement
Ensure the sustainability and stability of the UK pension system
Increase the amount people are saving in pensions
Reinvigoration objectives
23
Better pension outcomesBetter pension outcomes
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Blake Lapthorn Pension Conference 2014
Reinvigoration Workstrands
DB Lite
– We have: CARE, cash balance, longevity adjustment.
– Why no traction? Need new approaches (before 2016!)
DC Plus
– We have: With profits, deferred annuities, targeted or managed DC – Why no traction? Need new approaches
CDC and Scale
– Think Dutch/Danish “If Carlsberg/Heineken made a pensions systems …”
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Blake Lapthorn Pension Conference 2014
DB Lite – the Runners and Riders
Conditional Conditional IndexationIndexation
Optional Optional IndexationIndexation
Core DB Core DB FlFluctuating Pensiouctuating Pensionsns
Flexi AgeFlexi AgeDBDB
ConversionConversionDB to DCDB to DC
NPA tied to NPA tied to SPASPA
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Blake Lapthorn Pension Conference 2014
DC Plus – the Runners and Riders
Money BackMoney BackGuaranteeGuarantee
GuaranteedGuaranteedReturnReturn
SmoothingSmoothingFundFund
Advanced AgeAdvanced AgeGuaranteeGuarantee
Income Income GuaranteeGuarantee
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Blake Lapthorn Pension Conference 2014
Reinvigoration Outcomes?
DB Lite
– Just scrap indexation going forward?
DC Plus
– Not a place for government?– Guarantees are expensive!
Collective DC– Two variations to be introduced
– CDC with guarantees• Dutch model – premium split 2/3 to buy deferred annuity 1/3 to growth assets
and capital. Slow steady build up of benefits that are guaranteed once awarded. Guarantees are expensive!
– CDC without guarantees
– And DC defined along the way!
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Blake Lapthorn Pension Conference 2014
Collective DC (CDC) plans(the ones without guarantees)
The employer pays a fixed contribution rate– In our view employers will not tolerate pension risk
No individual accounts – Investment done by independent trustees, with professional advice
The member gets a DB-like Target pension– Pension paid from the plan, not annuity purchase– Revaluation and indexation to preserve real value– Expected benefit level facilitates retirement planning
We “square the circle” because the Target Pension is not guaranteed– Indexation and revaluation is not guaranteed– Even the basic pension is not guaranteed in extremis– Benefits adjusted to ensure cost stays constant– Plan would have strict rules on how to get back into balance – benefit
adjustments or bonus additions
28
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Blake Lapthorn Pension Conference 2014
Does it work?Aon Hewitt Modelling - Historic outcomes
0%
10%
20%
30%
40%
50%
60%
70%
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Retirement year
Percentage of final pay
DC Gilt[Median = 14%]
DC Lifestyle[Median = 21%]
DC Equity[Median = 27%]
CDC (average in retirement)[Median = 28%]
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Blake Lapthorn Pension Conference 2014
Does it work?Aon Hewitt Modelling - Projected outcomes
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Blake Lapthorn Pension Conference 2014
More helpful for planning?
0%
10%
20%
30%
40%
50%
60%
41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
Age
Pro
ject
ed in
com
e re
plac
emen
t rat
io a
t age
65
DC Lifestyle CDC
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Blake Lapthorn Pension Conference 2014
CDC Issues
Bigger pensions More stability Pensions not
accounts No annuity purchase No member
investment Lower charges Better returns?
DB in waiting “Soft” guarantees Benefit cuts Cross –subsidies Complexity Lack of choice The need for scale Run off schemes
THETHEBADBAD
With Profits Been Here Before? Risk Sharing?
THETHEGOODGOOD
THETHEUGLYUGLY
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Blake Lapthorn Pension Conference 2014
Dealing with the Big Ones …
Look at likelihood and severityPublic tolerance – within limits
Cuts in Benefits
Public disclosure of all financesCDC Website
It’s just with profits - complexity
Regular focused communicationRaised public awarenessCommunicating the uncertain future
Soft Guarantees – communicating with members
Explicit legislative referenceBig Red Button in deed
Employer Concerns of Regulatory Creep
ResolutionIssue
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Blake Lapthorn Pension Conference 2014
Historic modelling - bonuses added
-10%
-5%
0%
5%
10%
15%
20%
1931
1936
1941
1946
1951
1956
1961
1966
1971
1976
1981
1986
1991
1996
2001
2006
2011
Year
Percentage
-10%
-5%
0%
5%
10%
15%
20%
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Blake Lapthorn Pension Conference 2014
Making it Happen Legislation Political consensus More public awareness raising Large, unionised employers? Employers willing to go first? Ready made solutions – provider led master trusts
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Blake Lapthorn Pension Conference 2014
Are we alone?
www.aonhewitt.co.uk/collectivedc www.targetbenefits.ca
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Blake Lapthorn Pension Conference 2014
The Canadian Vision Retirement is still a novel concept for humankind and it continues to evolve.
We have reached a critical point in planning retirement schemes where, in much of the world, individuals can end up receiving a pension for significantly longer than they contributed towards it. This was not the case when existing DB pension plans were originally designed and adopted.
The traditional DB plan has been a 50-year experiment that we have finally begun to understand, while the traditional DC plan is a 30-year experiment that has yet to fully mature and from which we continue to learn
We define a sustainable pension plansustainable pension plan as one that can consistently deliver, through both favourable and adverse circumstances, an appropriate range of benefits within an acceptable range of costs over the long-term. A sustainable approach to pensions will allow a pension plan to adjust both costs and benefits in response to actual experience, with the key objective that adjustments be infrequent and low in magnitude
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Blake Lapthorn Pension Conference 2014
All we are saying …..le mieux est l'ennemi du bien (Voltaire)
CDCCDC
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Blake Lapthorn Pension Conference 2014
The Future is DCBut can we do better Collectively?Kevin WesbroomSenior Partner, Aon Hewitt
[email protected] 7086 9350
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DC Governance – the dawn of a new era or tell me something new?!
John HamiltonPartner
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DC Governance under scrutiny Pension Regulator – Codes of Practice Number 13 (in
force July 2013) and Number 15 (in force September 2013)
OFT Defined contribution workplace market study –September 2013
DWP Consultation Better Workplace Saving – a consultation on charging – October 2013
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The current pension landscape
2.7 m840,000960,000118,0001.4 mTotal active memberships
Unknown1.6 m5 m851,0007.8 mTotal memberships
1,80028,62053050880Open Schemes
2,02037,6901,0503305,530Schemes
DC (workplace contract)
DC (trust)Hybrid –dual section
Hybrid –mixed benefit
DBPrivate sector schemes
Source: The Pension Regulator’s presentation of scheme return data 2013-2014
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Key findings in the Regulator’s 2013-2014 review of scheme return data £30 billion in assets in DC trust-based schemes with 12 or
more members (excluding hybrid schemes with DC members).
DC memberships now account for 30% of workplace pensions memberships (up from 27% last year).
33% of active DC members in trust-based schemes and 67% in contract-based schemes.
The number of trust-based schemes has reduced by 2%. The number of DC trust-based memberships has
increased by 15% over the last year. The number of DC master trust schemes with 12 or more
members has increased by 11%, and membership of such schemes has increased by 22%.
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Triggers of DC governance focus Continued DB closure and replacement by DC Automatic enrolment - an additional 6-9 million
people in DC schemes by 2018 Abolition of short service refunds from DC
occupational pension schemes and “pot follows member”
Increased focus on investor protection – e.g. pensions liberation
Government desire to ease the burden on the welfare state
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The four key ingredients of DC governance
Effective management and oversight
Good administration and communication with members
Effective design and execution of investment strategy
Value for money
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Advantages of good DC governance from the employer’s perspective
Enhanced reputation as an employer of choice
Effective tool in workforce management
Litigation protection
Cost, efficiency and control
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The barriers to good DC governance
Weakness on the buyer side of the market
Complexity of the product
Lack of knowledge from key counterparties –employers, trustees, members
Conflicts of interest
Lack of transparency and complexity of charging
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tPR’s powers - DC trust based schemes Regulator’s objectives
– Protect the benefits of members
– Maximise compliance with Pensions Act 2008
Range of options for dealing with trust based schemes:
– Issue notices and orders– Recover unpaid contributions
– Impose fines where it finds a breach
– Prohibit trustees from acting
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Key risk areas identified by tPR:
Trust based DC governance:
– Trustee knowledge and understanding
– Internal controls
– Fitness and propriety of Trustee board
– Conflict management
– Poor investment governance and decision making
– Poor administration practice
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TPR - steps towards a more robust system of Governance DC regulatory guidance: Governance and
administration of occupational defined contribution trust-based pension schemes (January 2013)
Code of Practice Number 5
Code of Practice Number 13
DC Strategy document
DC compliance and enforcement policy
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Code of Practice Number 5 - in force September 2013
Prepare and maintain a payment schedule Check receipt of contributions by deadline Resolve and, if necessary, report late payments to
the Regulator Reasonable periods for reporting Annual statement to member of total contributions
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Code of Practice Number 5 – in force September 2013 Risk based approach to check contribution amounts
Procedure for requesting payment information from the employer (e.g. pensionable earnings) to enable checking of amounts.
Report non-provision of payment information.
Information to members so that they can check contributions – regularly updated online access is best practice.
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Key areas in Code of Practice 13 Trustee knowledge and understanding
– Know your scheme– Regularly review skills to demonstrate TKU
Internal controls appropriate to a DC scheme– Accurate member data, evaluate regularly– Support employer in understanding responsibilities and processes– Accurate and prompt transactions– Monitor and report contributions– Robust administration system
Investment Governance of conflicts of interest and
advisers/service providers
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What DC Trustees need to be doing
Read Codes and Guidance Arrange training/demonstrations Review scheme and current processes against
quality features Come up with a governance Action Plan Prepare a governance statement Assistance from the Regulator?
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Key recommendations of the OFT Government intervention to introduce minimum
governance standards
Independent Governance Committees
Closer regulation of master trusts – demonstrate value for money to TPR
Commonly defined single charge
Tackle consumer detriment from legacy schemes
More active role for tPR for small trust based schemes
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DWP Consultation on charging A cap on pension charges:
– Option 1: A charge of 1% of funds under management– Option 2: A lower charge of 0.75%– Option 3: A two-tier ‘comply or explain cap
Ban on active member discounts (AMDs)
Ban on consultancy charges to all qualifying DC schemes
Ban on adviser commissions set up prior to the Retail Distribution Review
Now likely to be a delay for ‘at least’ a year – April 2015?
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Dawn of a new age for DC governance??? Reflects good practice
– employers and trustees should already be doing to manage risk
OFT’s recommendations will have significant impact on DC providers
For employers and trust based trustees - the emergence of a value for money principle
Will this lay the seed for future legal claims against trustees and employers?
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Employers actions to manage risk
Contract based DC - consider establishing a governance committee
Review current and legacy arrangements – both investment and administration
Trust based DC:– do your trustees have the resources to do the job?– consider the appointment of an independent
trustee– is another alternative the best option going
forward?
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Any questions?
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DC Governance – the dawn of a new era or tell me something new?!
John HamiltonPartner
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Refreshments10 minutes
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Pensions law – as interpreted by the Court
Nicola WalkerAssociate
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Exercise of Trustee/Employer duties and discretions
IBM: "Imperial" duties of good faith do not compel employer to agree to unreduced deferred pensions
" Hastings-Bass " or the equitable remedy of mistake
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Construction of Scheme Rules
Construction of pension increase rule Employer Deed of adherence also be construed as deed of
amendment? Members The role of the "reasonable reader" in the
construction of pension scheme amendments Employer
Passage of time and lack of evidencenot fatal to the exercise of trustee discretion Employer
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Application of European law and decisions of ECJ
Partner's mandatory retirement at 65 was proportionate means of achieving legitimate aims
Age-related DC pension contributions can be objectively justified
VAT or no VAT
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The Pensions Regulator
Financial Support Directions: Court of Appeal
confirms trustees are "directly affected persons"
Supreme Court confirms no "super-priority" for FSDs
Pension liberation schemes are occupational pension schemes
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Procedural "unprincipled" to go behind actuary's section 75
certification
Employer’s court application to pre-empt Ombudsman claim is not an abuse of process
Pensions Ombudsman can’t assume jurisdiction to set aside third-party funded compromise
Desmond: Northern Irish High Court refuses permission
for judicial review
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Legal Principles
Duties and discretions – Court will not enlarge employer duties and discretionary remedies will not always be granted
Construction – wider practical considerations
Age discrimination tempered by common sense, but VAT is not?
Pensions Regulator – open door but limited value?
Procedure – Fairness and justice prevails of course!
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Future trends? Court will be more practical and purposive in its
construction powers
The Hastings-Bass doctrine will not allow Trustees to easily back track on the exercise of their powers
Pensions Regulator will continue to test the scope of its powers
Ombudsman will continue to stray beyond his powers
Pension litigators will put clients in a position of power!
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Pensions law – as interpreted by the Court
Nicola WalkerAssociate
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1 Footer For Professional Client Use Only – Not for Distribution to Retail Clients © 2013 SEI
Fiduciary Management........
What it is and who it is for?
Ed Tomlinson, Regional Director, SEI Institutional Group
The state of Pensions
conference 2014
2 Footer For Professional Client Use Only – Not for Distribution to Retail Clients
Agenda
• Developments in pension governance regarding investments
• Fiduciary Management for DB schemes
• Master Trust: Can DB experiences improve outcomes for DC trusts
3 Footer For Professional Client Use Only – Not for Distribution to Retail Clients
SEI – Key numbers
1968
300
50 Investing in
over
100 managers
465
£135bn
Founded
Investment
Experts
European
Institutional
clients
Institutional
clients worldwide
Assets Under
Management
As at 30 September 2013
4 Footer For Professional Client Use Only – Not for Distribution to Retail Clients
The past decade – a perfect storm for pension schemes
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0
200
400
600
800
1,000
1,200
1,400
Gilt
yie
ld
MS
CI W
orl
d I
nd
ex (
GB
P)
MSCI
10 YEAR GILTS
Source: Bloomberg
For most pension
arrangements equities are
used to generate returns
Long gilt yields mainly
determine the ‘price’ of the
liability for both DB and DC
5 Footer For Professional Client Use Only – Not for Distribution to Retail Clients
Governance evolutions
• Emergence of Independent Trustees
• Formation of Investment Committees
• Outsourced Investment governance models including:
• DB Fiduciary Management
• DC Master Trust
6 Footer For Professional Client Use Only – Not for Distribution to Retail Clients
Acceptance of Fiduciary Management in the UK
The market has continued to grow at a remarkable
pace, at over 20% every year since 2007.
7 Footer For Professional Client Use Only – Not for Distribution to Retail Clients
Defining Fiduciary Management
This diagram represents services incorporated within SEI’s Fiduciary Management offering. All services shown may not be offered by other Fiduciary Managers
Trustee Board
Actuary Fiduciary Manager Investment Advice + Implementation + Monitoring
Liability
information
Asset Allocation and
Risk Management
Investment
Implementation
Client Service &
Reporting
‘The mandate objective is typically to meet a funding level/liability target
within a prescribed timeframe.’ – KPMG, November 2013
8 Footer For Professional Client Use Only – Not for Distribution to Retail Clients
Trustees decide where their time is best allocated
Strategic
Decisions
Implement Flight plan
Manager Search and
Selection
Manager oversight
Performance
Evaluation /
Rebalancing
9 Footer For Professional Client Use Only – Not for Distribution to Retail Clients
Allocation Change: UK fixed income diversification
Allocation Change: De-risked allocation
Approximate
funding
level
differential:
16%
Allocation Change: Add Global fixed income
Allocation Change: Reduce Index Linked, Increase
High Yield Corporate and Emerging Market Debt
Client case study Actual & Simulated Performance
Currency: GBP Gross of fees and charges. The Legacy Strategy represent simulated performance designed to replicate the Client’s strategy prior to SEI. Does not reflect actual
performance of predecessor investments nor any allocation changes that might have been advised. Past performance is not a Guarantee of Future Performance. As of 30/06/2012..
Implemented: Diversified strategic allocation
Fiduciary Management Legacy strategy
10 Footer For Professional Client Use Only – Not for Distribution to Retail Clients
The benefits of Fiduciary Management for trustees F
un
din
g L
eve
l
Proactive
Cost Lower investment manager fees may enable a budget for Fiduciary
Management. The solution might be cheaper overall.
Governance
Control
Accountability
11 Footer For Professional Client Use Only – Not for Distribution to Retail Clients
SEI Trustees responsible for the bespoke DC solution
SEI DC Solution leverages governance commonly used for
DB schemes to improve member outcomes.
Employer
Employer (& current Trustees)
decide solution for the section
Administration
Communication
& Education
Investment
Manager selection
Investment menu
& Default Strategy Sub-section(s) within
SEI Master Trust
Regular
Reporting
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Reasons why sponsors select a DC Master Trust
• Paternal nature - accepts that members need help
• No desire to internalise the pension governance burden
• Solution for deferred members - alternative to Buy-out
• Reduce ongoing costs without compromising quality
13 Footer For Professional Client Use Only – Not for Distribution to Retail Clients
About SEI’s Institutional Group SEI’s Institutional Group is one of the first and largest global providers of outsourced
fiduciary management investment services. The company began offering these services in
1992 and today acts as a fiduciary manager to more than 450 retirements, non-profit and
healthcare clients in seven different countries. Through a flexible model designed to help
our clients achieve financial goals, we provide asset allocation advice and modelling,
investment management, risk monitoring and stress testing, active liability-focused
investing and integrated goals-based reporting.
About SEI
SEI (NASDAQ:SEIC) is a leading global provider of investment processing, fund
processing, and investment management business outsourcing solutions that help
corporations, financial institutions, financial advisors, and ultra-high-net-worth families
create and manage wealth. As of June 30, 2013, through its subsidiaries and partnerships
in which the company has a significant interest, SEI manages or administers $507 billion in
mutual fund and pooled or separately managed assets, including $204 billion in assets
under management and $303 billion in client assets under administration.
For more information visit: http://www.seic.com/enUK/institutional-investors.htm.
14 Footer For Professional Client Use Only – Not for Distribution to Retail Clients
Important information
This document and its contents are directed only at persons who have been classified by SEI Investments (Europe) Limited as a Professional
Client, or an Eligible Counterparty, for the purposes of the FCA New Conduct of Business Sourcebook.
This information is issued by SEI Investments (Europe) Limited, 4th Floor, Time & Life Building 1 Bruton Street, London W1J 6TL, which is
authorised and regulated by the Financial Services Authority.
No offer of any security is made hereby. Recipients of this information who intend to apply for shares in any SEI Fund are reminded that any such
application may be made solely on the basis of the information contained in the Prospectus.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events,
or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or
any stock in particular, nor should it be construed as a recommendation to purchase or sell a security, including futures contracts.
The value of an investment and any income from it can go down as well as up. Investors may not get back the original amount invested. If the
investment is withdrawn in the early years, it may not return the full amount invested. In addition to the normal risks associated with equity
investing, international investments may involve risk of capital loss from unfavourable fluctuation in currency values, from differences in generally
accepted accounting principles or from economic or political instability in other nations. Narrowly focused investments and smaller companies
typically exhibit higher volatility. Products of companies in which technology funds invest may be subject to severe competition and rapid
obsolescence.
Whilst considerable care has been taken to ensure the information contained within this document is accurate and up-to-date, no warranty is given
as to the accuracy or completeness of any information and no liability is accepted for any errors or omissions in such information or any action
taken on the basis of this information.
Past performance is not a guarantee of future performance.
Investment in the range of SEI's Funds is intended as a long-term investment.
SEI sources data directly from the following vendors: Factset, MSCI Barra, Russell, TOPIX, FTSE, Barclays Capital and BofA Merrill Lynch. Where
appropriate, returns in base currencies are converted to the relevant currency using WM Reuters 4pm Spot rates.
15 Footer For Professional Client Use Only – Not for Distribution to Retail Clients
Important Information on Case Study
Fiduciary Management Case Study
Performance of the SEI Strategy represents an actual client track record, representing an asset allocation implemented through our UCITS Funds with the inclusion of investment strategies as a result of our enhanced advice.
The performance illustrated is reflective of the time period from the client’s first investment with SEI and assumes investment at the beginning of the period indicated and reflects changes in allocations (as applicable).
SEI treats every client individually, therefore these results may not reflect the impact material economic and market factors, within the timescale stated, may have had on SEI's decision making if a different client mandate was being managed. Past performance is not indicative of future performance.
The Legacy Strategy is designed to replicate the client’s portfolio prior to transitioning to SEI. It was created using the client’s prior asset class allocation matched to the closest SEI Fund based on asset type. This does not reflect the actual performance that would have resulted had the client stayed in their original investments and does not incorporate any adjustments to allocations or recommendations that may have been made to the client’s portfolio had they remained with their previous provider.
The legacy portfolio / strategy was weighted in the following manner: 12.85% SEI UK Equity Strategy (X% SEI Quantitative UK Equity Fund and X% SEI Fundamental UK Equity Fund), 2.93% SEI US Large Companies Fund, 2.64% SEI European (ex-UK) Equity Fund, 1.88% SEI Japan Equity Fund, 2.60% SEI Pacific Basin (ex-Japan) Equity Fund, 0.45% SEI Emerging Markets Equity Fund, 1.19% SEI Global Developed Markets Equity Fund, 45.47% SEI UK Credit Fixed Income Fund, 14.21% SEI UK Index Linked Fixed Interest Fund, 4% SEI Global Government Fixed Income Fund, 9.54% SEI UK Property Fund, 2.24% SEI Offshore Opportunity Fund II.
Allowance has been made for deficit repair contribution inflow and benefits payment outflow from the portfolio.
Liability projections and inflation assumptions used with each Strategy are identical.
Master trust Case Study
Projections carried out using SEI’s capital market assumptions and returns (before fees) achieved by funds in the SEI Master Trust over 1 and 3 years to 30 September 2013. Projected membership assumes a salary of £25,000, price and salary inflation of 2.5% pa, a total contribution rate of 5% and a normal retirement age of 65. Annuity change based on the change in the FTSE Over 15 year gilt yield over 1 year to 30 September 2013.
This information is for illustrative purposes only.
Looking ahead to 2020 and 2050
Adrian Lamb, Legal Director, Pensions and Head of Trusteeship Services
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How full (or empty) is my glass?
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London Pensions Conference 2014
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London Pensions Conference 2014
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A = Abandonment Assets? Auto enrolment? Ageing population – and workforce Aches and pains! Ambition – defined or otherwise? Active engagement Annual management charges Actuaries Attitude
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“One Fiscal cliff delayed – but not avoided What is normal? “Zombie companies and individuals” “Extend and pretend” More for less (or at least no more) Eurozone stagnation risk Debt is not coming down QE tapering/ emerging economies BRIC - CIVETS – MINTS – SMARTIES - PIIGS
London Pensions Conference 2014- the economic backdrop
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London Pensions Conference 2014Many children “slower runners than their parents were”
Average household debt doubled in last decade - £54k per household and now stands at a total of
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More bad news if valuation 1st half 2013 Auto enrolment to cope with on top of everything else Total costs on the rise – where can I make savings? Resource shortage so can I stay on top of it all? Can I be confident that I know the true position? Do I have time to look ahead? Do I have time not to?
An Employer’s perspective – a look back at the last 12 months
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More - or at least the same - for less – adviser fees Focus on value (or cost)? Continued trend towards fiduciary management (or FM
lite) Still a wall of money waiting for Buy ins/outs Data and benefit audits TPR expectations and pressure on governance Even less time = even more focus
Trustee’s perspective – a look back at the last 12 months
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Trustees’ circle of interdependencies
Employercovenant Funding
Investment
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Predictions for 2020
Private sector DC world –adequacy a real issue
Public sector still DB Debt and deficit + legacy DB – still
with us AE contributions start to rise State pension age increases
accelerated England still haven’t won the
World Cup
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Predictions for 2050
State pension is safety net, not entitlement for some/all
DC evolves to CDC/other models
Public sector pensions rumble on
Debt and deficit + legacy DB – still with us
AE contributions at minimum 15% combined
State pension age at 75 and rising
England current holders of Football and Rugby World cups and the Ashes and Europe has won the Ryder Cup 15 times in a row
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Reasons to be cheerful?
•Recovery is taking hold – BOE•Latest growth figures encouraging•Car production and sales are up - SMMT•Factory orders strongest since 1985 - CBI•House prices are on the up in most areas?•2013 - 7th warmest year since 1850?
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Things to take away from today
Liabilities - follow the rules but check your data Manage/mitigate all of your risks Good governance is essential and worthwhile – Most DB schemes headed for either buy out or PPF
– but is there an alternative? Master trusts/aggregated schemes? Other efficiencies are also available K.I.S.S.
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Things to take away from todayIMPROVING DC OUTCOMES
Good choice of funds, including default fund Salary sacrifice Annual management charges Save more tomorrow? Governance matters just as much here and with
increasing focus from regulators and government Master trusts/aggregation
It’s in everybody’s interests that it is made to work
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Employer checklist
Employment costs likely to rise AE is not just compliance – engagement may pay
dividends Scrapping DRA adds others pressures but creates
opportunities – can you get more value for the spend?
Contracting out is going – think about it soon More governance needed for all DC Good governance pays off in the end
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Trustees’ checklist
Manage the assets effectively Monitor the covenant effectively and proportionately Manage your costs – savings in time and money are
possible Monitor your time, your governance and your
performance Make sure you know your liabilities Be prepared for any opportunities Good governance pays off in the end
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Looking ahead to 2020 and 2050
Adrian Lamb, Legal Director, Pensions and Head of Trusteeship Services
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