NAPF chair Ruston Smith urges the pensions industry to learn lessons from team GB and use the theory of marginal gains to create value for money
The theme of this year’s NAPF Investment conference in Edinburgh, was ‘living longer, investing smarter’. Hardly surprising given the majority of the developing world, and the UK in particular, is faced with the twin issues of an ageing population, and a lack of ‘saving for retirement’ culture.
Ruston Smith, chair of the NAPF, was there to set the stage. He spoke about last year’s event where he met Chris Hoy, the team GB cycling legend who led the team to spectacular victories at the London Olympics in 2012.
Smith told delegates that Hoy gave him two pieces of advice. The first was the best investment to make when buying a road bike. He didn’t share this tidbit with us, but he did share the second, which was the value of marginal gain.
He argued that marginal gain, the idea that small improvements can achieve real success in a competitive field, can play a key role in helping the pensions industry face up to the challenges of an ageing population who aren’t saving enough.
Essentially, marginal gain, as applied to pensions, is all about making money go further.
We are a powerful group, but with power comes responsibility”
Unsurprisingly, in one sense, this comes down to the topical issue of charges, and Smith pointed to NAPF research to demonstrate this.
“We’ve found some material differences in base fees, for active global equity mandates, ranging from 45-90 basis points, but where there’s no apparent difference in the proposition. For active real estate mandates the differences were even greater, where the range was between 32 and 200 basis points. “
He continued, “And when you think about how the difference in fees can compound over the years we can perhaps create major rather than marginal gains.”
Of course, it’s not just about charges and investors should be looking for the best net returns, not just the lowest costs.
Net returns and outcomes really matter because they influence the quality of life that those saving for retirement will be really able to afford”
Smith pointed to examples such as the PIP as evidence of products that can help pension funds get not just the lowest costs but also the best value for money.
He also urged pension schemes to work to together to drive product innovation to meet the growing needs of a population where the number over over-100s is set to reach 150,000 in the next 30 years.
“The pension funds in this room have combined assets of around £450bn and are responsible for the financial wellbeing of around 13 million people. So we are a powerful group, but with power comes responsibility. And that’s the responsibility and opportunity we all have to identify the solutions around how we can invest smarter for those retiring, both today and tomorrow.”
Such innovation is sorely needed ahead of the regulations set to come in April 6th such as ‘freedom and choice’ and the charge cap.
As Smith told the NAPF audience: “Net returns and outcomes really matter because they influence the quality of life that those saving for retirement will be really able to afford.”