A rose by any other name...
What’s in a name? The search for a new term for ‘pensions’ that might be less off-putting for scheme members is an endeavour without real appeal to those managing pension plans. The predicament is one of coming up with something that is much worse than what we have or that does not convey the required meaning. A synonym appears hard to find
It is a dictum of Alan Pickering, a former chairman of the European Federation for Retirement Provision, that a “pension is a pension is a pension.” In other words, however much we may tinker with its design or nomenclature, a pension is exactly what it says it is; no more and no less.
But is this really true? Would a pension by any other name work as well?
The former head of IBM, Lou Gerstner, notoriously described pensions as ‘old fashioned’ when he switched his employees from a traditional defined benefit pension scheme into a cash balance scheme. Others have felt that the words ‘pension’, ‘pensioen’ and ‘pensjon’ have an old-fashioned ring to them. One manager in the UK pensions industry recently remarked that pensions are “covered in cobwebs and smell of weeds”.
So this month’s Off The Record takes a look at the use of the word ‘pension’ and wonders whether it is time to replace it with another word to describe retirement savings.
If pensions are covered in cobwebs, perhaps this is discouraging people - particularly the young - from joining a pension plan. In the UK, for example, fewer than half of people under the age of 30 are in a pension scheme, far fewer than in the 1950s and 1960s. There are a number of reasons for this, but one of them could be that the word pension is associated with a ‘cradle to grave’ culture of care, where people expect to be looked after in their old age.
Today the young are expected to take personal responsibility for their lives, including saving for their retirement. So perhaps they need a new word to describe these savings.
Using words other than ‘pension’ has not created any problems in countries outside Europe. In the US, the word ‘pension’ is rarely used. The state pension is known as ‘social security’ and the defined contribution type of company pension is called a ‘401k’, a reference to a section of the Internal Revenue Code. In Australia pension pensions funds are known as ‘superannuation’ or ‘super’ funds.
Within Europe, the European Commission decided to dispense with the word pension altogether in its pensions directive, defining occupational pension schemes as ‘Institutions for Occupational Retirement Provision’ or IORPs for short.
In New Zealand the government has called the voluntary, work-based savings scheme it plans to introduce in 2007 the ‘Kiwisaver’. This has been echoed in the UK where the National Pensions Savings Scheme proposed by the Turner Commission has been dubbed provisionally the ‘Britsaver’.
Acronyms are another possibility. A competition run by a UK newspaper to find an alternative name for pensions awarded the prize for the best entry to SMILE - Save Money and Invest for Life’s Enjoyment.
People in the pensions business have come up with some suggestions of their own. Justin Urquhart Stewart of UK asset manager Seven Investment Management has suggested M3 – My Mound of Money. Richard Harwood, pensions expert at UK accountancy group Grant Thornton has suggested ATLAS – Afford To Live After Sixty.
So should the word pension be abandoned? And if so what word or form of words should replace it? We wanted your views.
Many of the pension fund managers, administrators and trustees who responded to our survey seem happy enough with the word pension and see no real benefit in replacing it.
However, there is universal loathing of the European Commission’s substitution of the words pension fund with IORP. One of printable objections is that it sounds like a burp
Opinion is fairly evenly divided about whether the word ‘pension’ sounds old-fashioned. On balance, our respondents think that it does not. There is little support for a change of name. Only one in three think the word ‘pension’ should be replaced by a more modern word. “Only if a good one could be found,” a UK manager cautions.
Some respondents doubt whether the word ‘savings’ would be a suitable replacement. One manager of a Finnish pension funds asks innocently: “Is saving a modern word?”
One reason for retaining the word ‘pension’ is that it is a precise description of a particular form of retirement saving. Most of the managers agree with this suggestion, although some suggest that it is a term that is better understood by professionals than the general public.
A German manager points out that the word ‘pension’ is particularly useful “because it has become a commonly used expression in
lots of countries, the European Commission and other organisations”. Pension, like metro, is pan-European.
There is little enthusiasm for the idea that the problem of people saving too little for their retirement would be resolved if pensions were called something else. Only one in five respondents agree with the suggestion. Most feel that terminology is at the margin rather than the centre of the problem. One UK pension fund manager comments: “It might avoid the initial turn-off but there are other hurdles.”
Similarly, there is little support - one in four respondents - for the idea that re-naming pensions would make them more popular with young people? “Perhaps only for a short period but it will not be a lasting effect,” a German pension fund manager remarks.
Rather more - one in three managers - agree with the suggestion that younger people are generally more interested in saving than in contributing to a pension. “Perhaps they are more in investing than in saving,” the manager of a Finnish pension fund suggests.
Or perhaps the young are more interested in spending than in anything else. The manager of a Spanish pension fund points out that “in Spain the question, mainly for young people, is one of saving or pensions versus consumption. Pensions are appreciated.”
So should pension providers put more emphasis on savings rather than pensions in their marketing? Opinion on this is mixed, with a small majority of respondents in favour of more emphasis on savings in pensions marketing.
The manager of a Swiss pension fund suggests it would do no harm but would also do little good, saying: “I do not think this alone would change the attitude towards retirement savings.”
Others are equally lukewarm. The manager of a UK pension fund says such marketing would only confuse the issue. “A pension usually includes at least some kind of insurance or solidarity factor which saving does not have.”
Calling pensions savings could cause confusion, but calling pension funds Institutions of Retirement Provision has caused outrage. Our managers are united in their abhorrence of the IORP. “What a horrible name and an even worse abbreviation,” one remarks.
“It is too long, unwieldy, bureaucratic and no one will understand what it says on the tin let alone whether it does it. My company most certainly does not manage an institution,” says the manager of a multinational pension fund.
“It is absolutely not clear for people who do not work in this field – that is the majority of people,” a French pension fund manager complains.
The manager of a Swiss pension fund blames the linguistic coyness of the present age. “It’s a pity once again that the ‘politically correct’ are trying to replace a clear word, which means what it is, by a jargonic EU-compatible Brusselian horror like IORP. Who understands this rubbish? Please let’s call a cat a cat.”
So what should pension fund be called, if not a pension fund? There have been some efforts to give pension funds less clumsy names than IORP.
For example, when Barclays in the UK launched a hybrid DB/DC plan in 2003 it called it an ‘after work’ rather than pension scheme.
We asked our pension fund managers to come up with their own suggestions. Among the names they put forward are: Third Age Fund (Switzerland); Post Work Savings Fund (Germany); Leisure Fund (Portugal); and Retirement Benefit (Italy).
Our own suggestions - Freedom Fund, Independence Fund and Liberty Fund - win little approval, however. “If those names do not lead to mis-selling I’ll eat my hat,” one pension fund manager comments.
And the most popular option for a new name was “none at all”. As Alan Pickering says, a pension is a pension is a pension.