Benjie Fraser on the advent of super trusts
What's the difference between super-sizing and super trusts? Not much, says JP Morgan's Benjie Fraser.
Both super-sizing and super trusts point to a critical path for the UK pensions industry to join the 'global zeitgeist' and consolidate both defined benefit arrangements and defined contribution plans into relevant supertrusts authorised by the regulator. About 70 of these supertrusts would do it.
But hold that thought - could, just could, the onset of the National Employment Savings Trust (NEST) be the forerunner of lots of industry-based NESTS? Or NESTlings? (yes, you heard that word 'NESTlings' here first on this blog!)
So how do you gain efficiencies in both the private and public sectors by super-sizing into super trusts? In two obvious areas - scale will deliver purchasing power and attract a new generation of independent chairs and trustees from outside the pensions industry. (Corporate captains with previous board experience at FTSE 100 companies apply here.)
Why? Well, scale puts these super trusts at the centre of a society increasingly preoccupied with the quality of retirement income. Scale allows them to protect their members' interests from the vagaries of long-term government interference (think tax). It also allows them to be equal partners in government initiatives such as large-scale infrastructure projects like the London to Birmingham high-speed rail link.
At the moment, the sub-scale nature of many UK pension plans means the take-up in this specific project is likely to come from the Canadian and Australian pension plans. And that's because they have the scale.
For those of you who have followed the debate sparked by UK public pension funds and the National Association of Pension Funds at its recent conference in Edinburgh, perhaps a new world is starting to take shape. For many pensions systems in Europe and Australia, the move to fewer and fewer but stronger and stronger super trusts has long been a way of life.
So back to my original question: what is the difference between super-sizing and super trusts? Something called the launch of NEST, you might say.
Benjie Fraser is Global Pensions Executive at JP Morgan's Worldwide Securities Services business