As 2008 draws to a close, the ever-faithful respondents to
the Trusty 30 survey have taken the time to review changes in the economic climate throughout the year.
- The cut in VAT, the fall in inflation, the fall in interest rates – which has been the most beneficial for your scheme?
All our respondents were in agreement that the drop in inflation had helped their schemes’ coffers the most. The VAT decrease won’t affect the respondents in local government pension schemes since they can recover it anyway, but the drop in inflation will help to lower liabilities for all schemes.
One trustee explained further: “The fall in inflation may mean that salary growth ceases to impact on liabilities in the same way. As a quasi-public sector scheme, we are heavily impacted by this issue.” - All businesses are under pressure to cut costs. Have you looked into renegotiating any fees you pay?
Fifty percent said they were preparing to ask their consultants and advisers for lower fees. Of the 25% who said they would possibly renegotiate later, one said he intended to bring it up at the next board meeting, another said they were questioning their advisers when the contracts come up for renewal, and a third said the board had agreed to think twice before seeking external advice.
One respondent felt that there was little point in attempting to negotiate. He said: “While investment fees will decline as fund values dip, it is unlikely that investment consultants will reduce fees as they will argue their services are more important than ever.” - John Belgrove, investment consultant at Hewitt, said that 2008 had seen the widest margin of pension fund performance on record. Does this spell the end of the trustee model as we know it?
While some were baffled as to what would replace the trustee model if it ceased to be, others appreciated that the ongoing pressures were starting to wear on the patience of both hard-working trustees and their employers.
“It will require trustee bodies and employers to work more closely on determining acceptable risk strategies that will satisfy trustees, without placing too much downside risk on the employer and sponsor,” said one.
Another confessed that the poor results of 2008 could
dissuade future employers from setting up a trustee-run scheme. “This doesn’t mark the end of the trustee model, but it is another nail in the coffin. I just cannot see why any employer would necessarily choose a trust-based route in the future were the option to choose available.”
One respondent said the fallout from 2008 should inspire trustees to up their game. “The trustee model should be revitalised and renewed. The poor performance of funds is linked to a failure of governance,” he said.
He continued: “We have been let down by our fund managers, our investment advisers and other so-called professionals. They told us to trust them, they were the experts and that our money was safe in their hands. Yet they allowed thieves and fraudsters to steal and defraud the companies we invested in, while gaining fat fees and commissions for themselves. Never again.” - How was 2008 for you?
The responses ranged from “busy” to the rather blunt “pretty crap”, but it’s fair to say there was a distinctive theme of pessimism about this year. One trustee appears to have suffered a particularly torrid 12 months, revealing 2008 to be: “An incredibly difficult year, with two of the schemes I am involved with showing major increases in deficits. For one scheme at least it has meant revisiting the employer covenant and considering whether the current recovery plan needs to be formally revised.”
Another said that while the year started off well, it “descended into the most unstable environment ever witnessed for businesses, the economy and consumers alike”.
Investment decisions are also up for scrutiny, given that asset classes which were supposedly lowly correlated appeared to suffer equally. The vast differences between the performance of individual asset managers was also highlighted as an unwelcome surprise.
There was one cheerful note, however, with one trustee stating: “From a personal point of view, it has actually been good fun managing expectations and stakeholders.” He must be a glass half-full kind of guy.
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