Good communication is essential in the pension fund business, according to a panel of leading figures in the European pensions industry. Panellists at the third annual IPE Awards in Amsterdam agreed that communication with plan members was an important part of the job of a pension fund manager. And with pensions high on the political agenda, communication with politicians and government was vital.
Guenther Schiendl, head of investments at Austria’s APK-Pensionskasse, spoke for many when he said: “It is the job of the pension funds industry to think about communication.” This view won strong support from Adrian Cunningham, company secretary of the ASBL-MEP European Parliament pension scheme, who said that pensions funds must not be shy of communicating with their members. “We should learn the lesson that we shouldn’t be afraid to talk to our members more.”
The pension fund industry must also learn to communicate with politicians, panellists said. Otherwise pension funds could become the political footballs of governments. Karel Stroobants, the former head of the Belgian pension fund association, put it bluntly: “You have to inform them, brief them, teach them. If you don’t, you’re a sitting duck for them.”
Eric Lambert, head of performance consultancy at the WM Company, said that if the pensions industry failed to brief politicians effectively the future of some types of private sector pension plans would be threatened. “I’m always struck by the gap between what politicians say in terms of supporting, and perhaps even needing, a strong private sector of pensions provision and how difficult they make it for that to happen.”
Lambert said that one of the problems was that politicians’ own schemes were so generous, with large pay-outs after a relatively short working life. “I really don’t think they understand the normal length of time that someone has to be in a company scheme to accrue a decent benefit.”
Cunningham agreed that pensions and politics did not mix and suggested that non-political bodies should be given the task of dealing with pension issues. “Politicians of all parties are bad for pension funds. I think the need to look forward is very difficult for them.
“In all countries we need to come to a political agreement about what we want from our pension funds. People are living longer, and older people are more likely to vote. It’s called the grey vote and politicians will have to listen to that.”
The panel also considered the lessons of the bear market of the past three years. Had the experience changed pension funds’ attitudes towards investing in equities? Lambert felt that the lessons of the bull market were more important: “I think there is a real sense that the boom disguised the true cost of pension funds.” However, he said that there was no evidence of a wholesale withdrawal from equities.
Similarly, there was some scepticism about the ‘new’ appetite for absolute rather than relative returns. Stroobants said: “The one thing I learned when I started was the need to make money. Then I was told I had to beat something like an index. Now we are talking again about absolute returns.”
Lambert also dismissed the idea that relative returns were now worthless. “The concept of relative returns is of course correct, but not necessarily relative to the market index. It might be relative to liabilities.”
Schiendl suggested that what pension funds should really be aiming for was ‘targeted’ rather than absolute returns. “Pension funds have to work bringing down expectations down to concrete figures.”
The way forward, he said, was to set up “clear and defined expectations and then act according to them. We need a clear idea if what we have to achieve year by year – it’s about composing a picture.”
He advocated moving away from the idea of buying and holding investments, prompted partly by annual balance sheet concerns. “For a long time pension fund management has been seen as asset management. Now we are both asset managers and risk managers at the same time.”
Pension fund panellists gave consultants a relatively smooth ride. The suggestion that consultants are “best listened to and then best ignored” was good fun but bad economics, they agreed. “It is a matter of getting value for money,” said Paul Kelly, a former consultant turned pension fund manager at Vodafone. “You need to have experts and consultants are experts.
“We tend to use consultants to validate our own ideas. We might have an idea for investment design or strategy and we will kick that around internally , and then we’ll ask pension consultant are we doing anything here that is illegal or not good practice.”
Finally panellists were asked the $64,000 question: “What is the biggest mistake a pension fund can make?” This produced a wide variety of responses. For Stroobants, the worst mistake is to switch strategies. “Once you have a strategy don’t change it.” For Lambert, it is “not putting enough effort into strategic asset allocation”. For Schiendl it is “not taking enough responsibility for the money people want you take responsibility for.” And for Cunningham and Kelly the worst mistake is “following fashion”.

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