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Pension Funds Online is the essential source for detailed financial and contact data on global pension funds and their advisers.

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  • Identify new funds to manage based on criteria such as asset allocation and AUM
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  • Gain essential insight into the important issues facing pension funds
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The Time for ESG is now

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DC Administration Governance?

For many, exciting fund strategies and investment performances being discussed in swishy city offices will spring to mind - the fun and glamourous side of pensions. But the importance of administration in DC governance is vital, if not quite as exciting.

The PASA Standards were put in place as an outcome based guide to what good administration should look like, and they cover all types of pension scheme. However, there are some challenges and topics which are unique to DC arrangements. PASA feels there is a place, and a need, for additional DC specific administration standards, which could eventually be brought in to the PASA Accreditation process.

Good DC administration is not simply the responsibility of a scheme's administrator. Oversight and governance is at three levels – the administrator/provider, the employer and the trustees. Regular communications and input from the scheme's employer and trustees are required to ensure that processes are holistic and effective, members are engaged, data is good, issues are identified quickly to avoid the dreaded rectification and that reporting is useful and clear - as well as understood by all parties.

We all know DC is on the rise, and there is more choice in terms of the type of arrangements available. Group DC arrangements such as Group Personal Pensions (GPPs) and Master Trusts have led to confusion for some employers in terms of defining responsibilities and rights to access for certain information. What belongs to the employer and what belongs to the trustees – where do the employer's responsibilities end and where do the administrators/trustees' start?

The arrival of automatic enrolment has led to a whole new market of employers appointing a pension provider, often for the first time. Many of these employers will not have a dedicated pensions or reward resource. If employers with established pensions departments are experiencing confusion over where the lines of responsibilities lie, what hope do employers with no experience of pensions and only a desire to do the right thing by their employees have?

Clear, useful and meaningful administration reporting is essential for good DC Governance to all involved. All stakeholders need to understand the content of the reporting and be able to identify what is essential, what is useful, what is a 'nice to have'. More importantly, robust, relevant and meaningful Service Levels (SLAs) need to be agreed. Skilful interpretation of the regular reporting will allow the administrator, employer and trustees to identify any service issues in amongst the detail.

Employers in a group arrangement should be aware providers produce administration reporting at a combined level. Knowledgeable interpretation of this reporting will identify where data is referring to activities across the book of business, rather than data directly relating to the service their employee members are receiving. Trustees are more likely to receive more scheme specific reporting, but is the information they are receiving meaningful and helpful to them in ensuring their members receive good outcomes?

As a first step towards producing DC specific Standards, PASA has invited key individuals from across the industry with wide ranging skill sets and expertise to form the DC Governance Working Group (DCGWG). With Board sponsorship, PASA has brought together people with a rich and diverse perspective who can ensure nothing falls through the gaps. The DCGWG met for the first-time last week (09/11/2017) to discuss the main issues impacting on DC administration, and agree key areas of focus.

The Group agreed six initial areas of focus; Data, Employers, Transitions, Decumulation, Reporting, and Controls and Procedures. The DCGWG is not a talking shop, its task is to produce meaningful standards and guidance for trustees and employers which are applicable across the DC universe. TPR is a welcome observer and is keeping a close eye on the group's findings as they develop. It is anticipated our initial findings will be published in Spring 2018.

Lucy Collett, member of the DC Governance Working Group and Secretary to the PASA Board & Kim Gubler, Deputy Chair of PASA

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The Pensions Dashboard: where are we?

We need to get a grip on retirement saving. People need to know how much they have saved in various pensions during their working life, and where the money actually is now.

Beginning with a government consultation six years ago, the Coalition Government decided on 17 July 2012 that 'pot follows member' was the solution to address the proliferation of small pension pots. The majority of respondents had favoured the alternative 'aggregator' approach, mentioning reasons like lower administrative costs and better protection for individuals.

Enabling legislation for 'pot follows member', an initiative particularly associated with former Pensions Minister Steve Webb, exists in the Pensions Act 2014; but there has been no indication of when - or if - it will be commenced.

Instead, a groundswell of support has since materialised for the pensions dashboard concept, something very like the 'virtual aggregator' preferred by many back in 2012. In Budget 2016, the Government declared it would "ensure the industry designs, funds and launches a pensions dashboard by 2019. This will mean an individual can view all their retirement savings in one place."

The industry swallowed hard and put together a Prototype Project, managed by the ABI with Treasury sponsorship, which demonstrated in May 2017 that the idea was feasible. To retain momentum after the general election in June, industry contributors agreed on a further Project to research consumer needs, engage with the wider industry, refine technical standards and look at how it could be appropriately regulated.

In their report published on 12 October, "Pensions Dashboard Project: Reconnecting people with their pensions", the project group, managed by the ABI and including 16 contributors and the PLSA, set out its recommendations for what should happen next.

The key objective is that consumers should have a right to access information about all of their pensions in one place of their choice in a standardised digital format, through regulated services.

Now "all" is the ideal objective, but Rome wasn't built in a day: there is a general expectation that it might take longer to get trust-based schemes on board than contract-based pensions. An implementation plan and timetable is required. At first, just having all of an individual's pensions listed would be a plus; provided valuations followed in a timely manner.

However, there is a very strong consensus expressed that the DWP must make data about the State Pension available "from day one". Consumers see the State Pension as an anchor

of pensions information and for years to come, it will form the major part of retirement income for most people.

An equally strong consensus formed around compulsion: all pension providers and schemes must make data available. This will require strong Government backing, with legislation and an explicit completion date. Without this, it is unlikely that public sector and trust-based schemes – particularly defined benefit schemes – will contribute as there is no obvious commercial benefit for them, only a cost.

The concept has developed so that multiple pensions dashboards are now envisaged, regulated to ensure consistency, with a governance body to oversee the network, establish and manage data standards, security, and sharing agreements. A non-commercial service, endorsed by the Government, must also be made available in order to build trust and engagement with consumers.

The ball having been lobbed back into the Government's court, it was perhaps encouraging to hear the Pensions Minister declare only a week later that the DWP will take over responsibility for the pensions dashboard "at pace" and "provide a much fuller update in the Spring of next year. There will be absolutely no doubt that the dashboard will happen."

Let us pray.

Ian Neale,Director, Aries Insight.

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Dashboard Ready

Since the government announced the pensions dashboard in 2016, work has been undertaken by the pensions industry to make the concept a reality by 2019.

Although for some, the lack of immediate commercial benefit might temper their enthusiasm for the dashboard concept, its universal appeal to consumers is likely to convince doubters of its overall value.

In terms of its value to consumers, the numbers speak for themselves. More people have more jobs throughout their careers than ever before. Add auto-enrolment into the mix and your average millennial is looking at accumulating a collection of 10-15 different pension pots over their lifetime. The need for those consumers to have access that information quickly and easily is obvious, and it's only going to increase in over time.

So far, the dashboard project has been largely well-received by the industry, with most large pension providers already on board, including Standard Life, Legal & General, Aviva, Prudential and Now Pensions, to name a few.

The first phase of the project, which launched in September 2016, was designed to develop and test the technology that would allow data from multiple sources to be collected and presented to consumers. The scale of the delivery and collaboration of data is vast, with each scheme having its own set of nuances and complexities to be considered.

Carolyn Jones, head of pensions product, Fidelity International, was part of the team selected to work on the prototype project. The prototype was delivered in April 2017 and since then the team has been investigating further what both industry and consumers are looking for from the dashboard.

"There's a consumer view and then there's the industry – for example how are they going to respond, are they going to do this voluntarily?" she said.

The research found that from an industry perspective, including insurers, trustees, public and private sector schemes, most could see value of a dashboard to consumers – and this was significant enough to drive participation.

From a consumer point of view, full coverage, i.e. all schemes participating in the dashboard, will be essential to build trust and offer transparency.

So, wherever you stand on the dashboard concept, with compulsory participation looking likely and the dashboard set to be launched on schedule - preparation is essential.

Stay informed:

  • Find out if and when the dashboard will be made compulsory
  • First provider: Make your data is available early - it looks good to your members and helps build trust
  • Get online: Members will be able to click through to your scheme from the dashboard. Build a post-dashboard landing page and think about the immediate message you want to give them
  • Movers and shakers: Get ready for a high number of low value transfers as people will want to consolidate
  • Right data: Consumers will want to know simple data, such as the amount they will have in retirement or how much can they draw out now – make that data available

Lindsay Sharman

pensions@wilmingtonplc.com

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The economics of populism

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Pension proud

At the PLSA conference in Manchester last month I was challenged by a comment by Martin Fahy, the CEO of ASFA (Association of Superannuation Funds of Australia) the sister organisation of the PLSA.

He reflected on the prominence of the NHS in the opening ceremony of the London Olympics in 2012 and questioned what the pensions industry needs to do to get equal billing next time?

The opening ceremony was an overload of British achievement. The £30 million spectacular, the brainchild of Oscar-winning British director Danny Boyle, included a segment where dozens of skipping nurses and children in pyjamas leaping acrobatically on massive hospital beds, with a large 'NHS' displayed.

It was a celebration of Britain's national health service, which has provided free, taxpayer-funded health care to everyone in the country since its foundation after the Second World War.

But there was nothing about pensions.

Love it or hate it everyone knows about the NHS. They know what it's for, what services it provides and, how to access it.

However, the same can't be said of pensions. Most people know very little about their pension, how it works or the retirement lifestyle it will fund.

What do we need to do to develop our pensions ambition? Our vision must be to ensure our retirement saving provision is the best in the world? Why would we even consider being second best?

Now this won't happen by accident, and it won't happen overnight. It will require a deliberate intention by policy makers, pensions industry determination, employer collaboration, creative engagement of our people but a societal change in the positioning of pensions is possible.

There are two main drivers of change, burning platform and burning ambition. Clearly if there is a burning platform, there is an immediacy to act. With pensions, there is a smouldering platform. Arguably by the time it's burning it's too late to change.

Burning ambition on the other hand needs a rallying cry. Is the prospect of a Zimmer frame flash mob, celebrating our pension prowess, at the opening ceremony of the London Olympics 2040 enough?

Peter Nicholas,Managing Director & CEO

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More change, not less

There have been recent calls from the pensions administration market to be wary and cautious of service provider transitions as they have the potential to result in data loss.

Whilst it is right to highlight some of the problems encountered with this type of service transition, there is a much greater risk that we continue to scare trustees into not undertaking these vitally important market transactions.

One major reason standards in the pensions administration market have not dramatically improved over the long-term, is because the market does not act like any other rational market.

A mixture of inertia, fear and an acceptance of generally low standards means that trustees are too reluctant to change provider, which has driven down standards. The free market, when acting rationally, will inevitably and progressively mean standards improve when buyers move their business from under-performing suppliers, to those that innovate and deliver quality at a lower price.

The shopping habits of millions of people has not changed because the top three supermarkets colluded to agree on marginal improvements – they improved because Amazon invented a wholly better and more convenient way to shop.

Buyers moved their money and the top supermarket monopoly was broken, for the good of consumers. Innovation and improvements occur because businesses want to attract and retain customers.

If it's impossible to do this because trustees are continually told of the perils or problems of changing administrators, then how will this market ever really improve?

What the pensions administration market needs more than anything else, is for it to behave like a rational market.

Service transitions inevitably uncover issues with past service provision, or seek to highlight the unscrupulous behaviour of the incumbent provider – neither of which tend to come as much surprise to the transferring scheme trustees, as a mixture of these reasons tends to be the motivator for the initial decision to change.

Alongside highlighting the risks and issues we also need to clearly articulate the benefits, such as improved member service, thorough data integrity and quality assurance, as well as often bringing online new communication and digital services.

A truth often overlooked is that scheme administration transitions are simply not as complex as they once were five or ten years ago. Project management, data assurance, systems, programming and communications have evolved exponentially.

Yes, transitions involve risk, it would be naive and short-sighted not to acknowledge that, but the real risk for schemes is not taking that leap and continuing to accept poor standards and slow incremental change.

The biggest threat trustees face in terms of a transition, is generally the transferring party. Staying with them and hoping for the best is not going to improve things though and it certainly isn't going to see standards across the market improve.

Trustees should take steps now to protect themselves against the incompetence or uncooperativeness of their current administration through an exit project.

This can be achieved by setting and agreeing a schedule of exit services and for guarantees or penalties to be put in place that provide suitable motivation for a full, timely and comprehensive exit.

The only way to really improve this market is to promote, protect and encourage change.

We can do this by highlighting the success stories and improvements that transitions can bring and by encouraging trustees to take a closer look at the tools and processes that we now use that have dramatically improved the quality and robustness of these processes.

Jenny Monger FPMI,Business Design Manager, Trafalgar House

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Changes are coming

With 8.5million more people now in a workplace pension scheme since its launch in 2012, so far automatic enrolment has been hailed as a resounding success. But April 2018 will see the next phase of its roll out and both employers and employees will be required to increase their minimum contributions – something trustees should prepare members for ahead of time.

The overall minimum contribution will increase from 2% to 5%. Within that, employee contributions are increasing threefold, from 1% to 3%, while employer contributions will go up from 1% to 2%. Further increases are scheduled for April 2019, with an 8% contribution split into 5% from employees and 3% from employers.

While some schemes are already contributing more than the new 5% minimum, many are not, meaning this next phase will impact their members directly. For trustees, the challenge will be not only to communicate the new figures, but also to give members the wider context for the increase, as well as being able to explain the differing contributions for employers and employees, before they appear on payslips in April.

The most straightforward reason for the increase is that at its current level, the minimum contribution is not sufficient to give members adequate savings for retirement. But at the 2017 Pensions and Lifetime Savings Association conference in October, Chris Curry, director of the Pensions Policy Institute, told delegates that pinpointing a single answer to how auto-enrolment and the debate around contributions fits into the wider financial landscape is difficult.

He said: "Nearly every response to our consultation suggested there might need to be an increase in minimum contributions, there was no consensus at all about what the right level should be, how it should be implemented, when it should be implemented, or who should bear the burden of doing that."

In addition to identifying the key messages, considering how to communicate that message to members is equally important. Engagement is the key word and trustees must ensure the information they share is clear and concise, avoiding jargon and focusing on the information members actually want to receive.

Ruston Smith, chair of Tesco Pension Trustees, told delegates at the PLSA conference: "The objective is to see how we can improve engagement to create more personal ownership so people can make more informed choices."

Smith highlighted the fact that members often receive financial information from a variety of sources, meaning pensions information is difficult to decipher, even for the most well-informed. He mooted the idea of a cohesive statement style across the industry in the future to make it easier for scheme members to understand the information they receive.

"There's been some phenomenal work done, but bring it back to the person who has all those statements coming to them; and we're all trying to keep it simple using different words. We have to think more holistically about engagement."

Trustees should also consider the limited time members have to digest and understand new information. People are distracted with multiple priorities, meaning communication about auto-enrolment needs to be short and relevant.

Whatever approach trustees choose, getting the right message across to scheme members in the right way is essential for a smooth transition in April when the increase takes effect.

Jamie Jenkins, head of pensions strategy at Standard Life, told PLSA delegates: "It's an astonishing feat so far, but the job is only half done and we are counting on employers over the next couple of years to get contributions not just in, but up."

Written by Lindsay Sharman

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Enhancing decision making through cyclicality and dynamic asset allocation

When I think back to my university education in the 90's, the lectures that really stood out for me were those on time-series analysis and understanding how economies and financial markets move up and down.

As a student, keen to learn the ways and wherefores of investing, it was almost an epiphany moment – the realisation that if, as an investor, I could better understand how markets fluctuate, I would be far more equipped to make better investment decisions.

For the past two decades, I have stood by that learning and spent most of my career on building, applying and improving models of economies and financial markets.

Education is cyclical

Fast forward to 2017 and I've just returned from an INQUIRE Europe Conference in Switzerland. There, one of the interesting papers that was presented concluded that the vast majority of so called 'anomalies' that have been reported in the literature, actually cannot be replicated.

This finding is close to my heart, as it confirms what I have learned over the years: when trying to understand how markets fluctuate, it is essential to apply a sound and strict set of methodologies and techniques to prevent finding unreliable or spurious results.

Such a methodology is also needed to distinguish between the two views that I was presented with as a student. Firstly, that markets and economies move in completely unpredictable ways, that they are fully random without any underlying structure. The second is that there actually is some underlying structure to be found, while recognizing that the world remains a highly uncertain place. So, education and focus on topics at a given time can be cyclical.

Cyclicality as a stylized fact

My personal conclusion, fortunately supported by many others, is that the second view of the world is the most realistic one: if one looks carefully there is indeed some structure to be found.

Such structures are typically referred to as 'stylized facts'. Stylized facts are characterisations of how markets and economies move up and down which most people agree upon to describe reality.

One important type of stylized fact that is found, is cyclicality. Cyclicality comes in different forms, the simplest example of which is the change in seasons from Spring, Summer, Autumn to Winter, 'seasonality'. This is a mechanism which everyone is familiar with that repeats itself and impacts the economy as the seasons change.

Business cycles – a more complex example – are about medium term alternating patterns in overall economic activity, driven by structural and behavioural forces. But when thinking about cyclicality, a word of warning is in place – while cyclicality may indicate an average way of how markets and economies tend to fluctuate, it does not offer a crystal ball and also under the cyclicality assumption the future is still highly uncertain.

Stronger together

How can we use our understanding of cyclicality to enhance investment decision making? Well, if conditions change over time and contain some information about how the future might unfold, than a logical consequence is to start thinking about how this information could be used for dynamically changing an asset allocation over time.

Models that manage to capture cyclicality in a realistic way can provide relevant information to those with an asset allocation expertise.

The (almost) epiphany moment at university has served me well (so far), but if we are able to build better dynamic asset allocation strategies by using cyclicality, investors will make even better decisions and people will be more likely to achieve their goals. And for any investor, that is the ultimate aim.

Hens Steehouwer, Head of Research at Ortec Finance

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