I say this almost reluctantly as a pensions and investment journalist, but I believe it is high time we as an industry stop focusing on short-term scheme deficits and liabilities.
I use the term ‘reluctantly’ because during my six years writing about pensions I have written several articles on liabilities and deficits which, barring one or two instances, have steadily been on the up. Whether it’s FTSE 100, FTSE 350, the Purple Book, or one of the many consultants’ regular funding updates, deficits are everywhere and reported on everywhere – it’s an easy story.
But all this does is to serve as scaremongering for those running pension funds, particularly lay trustees and smaller schemes whose governance budgets are not up there with the big players. Sure, the fact that FTSE 100 scheme deficits might have hit £43bn – as recently reported by Lane Clark & Peacock’s latest Accounting for Pensions report – is interesting, especially as the headline figures are not insignificant, but there is no need to dwell on it.
Keeping an eye on deficits is of course important and does give an indication as to the scheme’s health, particularly with The Pensions Regulator and Accounting Standards Board applying the pressure, but a pension scheme’s investment strategy and portfolio is for the long term and should be viewed as such. Short-term fluctuation in markets and volatility are to be expected, but should not be emphasised, as seems to be customary in the financial sector.
Did we not learn anything from Professor John Kay’s review published last year? Kay concluded short-termism was an underlying problem in the UK equity market and restoring relationships built on long-term trust and confidence, as well as realigning incentives across the investment chain, was a much-needed shift in the culture of the UK market.
Kay recommended several things in his review: an investor forum to encourage engagement by investors with UK companies; to apply fiduciary standards more widely within the investment chain; for company directors, asset managers and asset holders to adopt ‘good practice statements’; and to relate directors’ remuneration to long-term sustainable business performance and asset managers’ remuneration.
There is much still to develop from the report and implementation of one, let alone all Kay’s suggestions will take time. In the nearer term however, while I can’t go as far as to promise that I will never write about deficits again, hopefully astute scheme trustees and their advisers know enough to leave short-term tactical decisions to their fund managers and instead focus on the bigger picture.
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