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Pensions are stuck in the mud

Free from capital buffers, forward-looking tontines have an investment advantage over traditional pensions....

Pensions are stuck in the mud

Underlying asset performance is critical to your pension. However, short-term thinking is proving to be a major barrier to securing stronger returns over the long term. Often, short-termism is forced upon pension funds because insurance-backed schemes have potentially large liabilities that need to be funded. Sitting back and betting the bank on slow-burner strategies is simply not an option when there are sizeable capital buffers to be maintained.

Insufficient diversification
For types of pension that are more able to be in it for the long haul, such as defined contribution (DC) schemes, charge-limits have discouraged them from diversifying into potentially lucrative, but expensive, structural plays such as infrastructure and private equity. The result has been that DC pension funds have allocated the overwhelming majority of their assets (over 80 per cent in the UK) to liquid, listed markets.

With the current focus of governments switching to multi-trillion dollar upgrades of existing infrastructure and the transition to sustainable energy, there is now a political imperative for pension funds to help drive the "great economic reset” by channelling a greater proportion of capital into structural themes.

Wider scope
In the UK, for example, the government has complemented its flag-waving rhetoric with some tangible measures to widen the scope of investable assets and materially help drive the economy forward. These include loosening the 0.75 per cent fee cap that otherwise pushed DC schemes away from the more expensive investment classes.

Tontine Trust welcomes any move to broaden the opportunity set for pension funds, believing that these institutions play a vital role in helping global growth to remain both balanced and strong, which will in turn drive higher returns for pension investors.

Tontines have greater investment freedom
Company CEO Dean McClelland commented: “With our MyTontine pension, we already have a major advantage in that we don’t need to take high investment risk because our unique ‘tontine credits’ do all the heavy lifting in terms of generating a high and rising income for our customers. And because we are not insurance-backed and have no added liabilities to service, we are already free to take significant asset exposure to long-term themes such as infrastructure. So by starting a pension with us, you’ll be doing your bit to help drive meaningful long-term growth and with it secure greater personal benefits down the line.”

You can learn more in the Financial Times article here.



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