This month the influential Marathon Club sent out a press release calling for debate around the threats posed to defined benefit pension schemes by accounting standards and IAS 19 in particular. The organisation, which represents roughly £170bn in assets under management (depending on where the markets are) claims that IAS 19 encourages a sort-term approach to alleviating volatility while discouraging the long-term decisions required when running a pension fund which will be expecting to pay out benefits over many decades from now.
Of course, all this is nothing new. Many astute commentators have been pointing this out for years in these very pages. And while it is right that respected lobbying outfits like this attempt to keep up the pressure, I have to admit to becoming sceptical as to whether the accountants are willing to change.
This issue of Global Pensions sees a fascinating interview with the OECD who provide us with an overview on how various countries are managing to manage pensions provision through the global economic downturn. Edward Whitehouse, head of pension policy analysis in the social policy division at the OECD, seems to have some strong views on the viability of pension fund lifeboats, though I would suggest that those who needed rescuing by them feel slightly differently.
It was interesting to note that according to Whitehouse, the Australian pension system, so long held up as a model of all things good in pensions, had taken one of the biggest knocks, financially speaking, of all.
However, perhaps the Aussie super funds should take heart from this month’s interview with the world’s biggest pension fund the GPIF. When discussing the investment rollercoaster ride it has travelled on, it took a view which acknowledged that it had made a lot of money due to investment markets and had then lost a lot of money due to the economic meltdown. Its view was to be relaxed and take a very long-term perspective.
But despite taking a battering in the investment markets the Australian super funds still remain firm favourites globally when policy makers look to re-adjust their retirement provisions. This was highlighted to me last month when I attended a seminar at the Brookings Institute in Washington DC, where some very serious thought was given to what the US could learn from other pension systems, most notably the Australian system.
One audience member pointed out that the calling of the savings vehicles superannuation funds was a stroke of genius. Mainly because now most people simply call them “super funds” or refer to their pensions savings as “super”.
This is great marketing when you compare it to say the UK’s soon to be implemented “personal accounts” which sound pretty vanilla. Personal accounts don’t really promise anything but to be fair do highlight the move from a collective system, which could help smooth out volatile investment returns, to an every person for themselves approach.
The US 401(k) probably only serves to remind people of tax and perhaps remind savers of the complexity and algebra behind so many investment vehicles. The sort of black box which people put money into and then when they retire hope to get something out of. This is a shame because in the case of default funds, these savings vehicles are really not that complex and the fact they are all marked to market means savers always know exactly where they stand on any given day.
