An innovative combination of cutting-edge technology and sector-wide collaboration is needed to tackle the serious problems facing the pension industry
By Stuart Breyer, chief executive of mallowstreet
The immediate impact of Brexit has been to usher in an era of uncertainty. Pension fund liabilities have been pushed up by approximately £89 billion since the vote to leave the EU, driven by falling gilt yields.
This has been painful for defined benefit (DB) pension funds in the short term, while the long-term impacts won’t be known for several years. And as a backdrop, collective corporate DB pension liabilities have soared since 2012, with the aggregate deficit of the PPF 7800 Index now standing at £384 billion.
Today’s stakeholders face incredible disruption. There are long-standing problems around how assets are invested and how people can feel empowered by their pension has become even more complex.
We have reached a fork in the road. We are facing two potential scenarios in the pensions industry – imagine the world of pensions in 20 years’ time.
Scenario 1: The industry tackled the crisis head-on. The effective use of technology and collaboration allowed for individuals to work together to generate new ideas that were swiftly implemented. We live in a world where members’ retirement plans are secure.
Scenario 2: The industry didn’t move fast enough, didn’t collaborate, didn’t harness the advances in technology and muddled on. We live in a world where those reaching retirement do not have enough to live on, DB pension funds are running out of money and defined contribution (DC) plans failed to deliver. State coffers are empty.
At mallowstreet, we are working to achieve scenario 1, helping to solve the pensions and savings crisis by creating a centre of excellence for education.
We believe no one person has the right answer to this incredible challenge, but by bringing the industry together, the answers will start to surface.
Collaboration: the way forward
Collaborating with some of the pension industry’s thought leaders in the space of one afternoon, mallowstreet harnessed 500 years’ experience and produced a report on the pension industry’s response to the government’s introduction of the lifetime ISA (LISA). What could be possible with more time and industry-wide participation?
We have the ability to combine advances in big data and divergent thinking in a way that helps analyse and identify detail previously not possible.
It is technology and collaboration with an innovative approach that hold the key to finding the answer
Technology eliminates the immediate constraints of geography and time. For example, while on the ground in Nairobi, the World Bank can use mallowstreet.com to tap in immediately and ask the UK market for ideas on best practice, and receive valuable insights from an engaged audience.
Regardless of what approach people adopt to the challenges we face, the industry is set for further change. By 2025, it is highly likely there will be a consolidation of the larger asset managers as they attempt to achieve scale in an environment of increasing regulation and falling fees. Simultaneously, there will be a rise in the number of smaller boutique managers, who offer alternative and more off-piste investment opportunities that promise higher real returns.
Everyone has a part to play in the solution and there is much that needs to be fixed – corporate DB pension deficits, unfunded public sector plans, early childhood financial education, member engagement and creating a DC system that works for everyone. And it is technology and collaboration with an innovative approach that hold the key to finding the answer.
We have one chance. Which piece can you help with? What role are you going to be able to play in helping to solve the pensions and savings crisis?