Now: Pensions revealed poor performance over three years when compared to the other 24 defaults in the Corporate Adviser Master Trust Defaults report. Its default returned 2.4 per cent annualised in the three years to 31.3.18, making a cumulative return of just 7 per cent over three years, in a period when the average default, measured by the CAPA Index, returned 23 per cent.
Now: Pensions says that its performance was very good in 2017, a year in which it returned 11 per cent, but that would seem to suggest it delivered a negative return in the 24 other months within the three-year period. Its 5-year figures are considerably better, at 7.1 per cent annualised, but this performance includes a one-off payment into the fund following the sale of half of Now: Pensions Ltd to its parent ATP, the size of which it will not reveal. This renders its five-year figures redundant for the purposes of considering the skill of the manager or the quality of the strategy. Its default fund is 200+ per cent geared, it invests in derivatives through a risk parity strategy aiming for a risk profile of 60/40 equity bonds but has not replicated the returns of a 60/40 equity bond fund.
So how confident are consultants that it will deliver what it aims to in the future? Of eight consultants in the debate, all said they have concerns over the Now: Pensions proposition.
JLT Employee Benefits head of DC investment consulting Maria Nazarova-Doyle said: “I am concerned that Now: Pensions does not have an alternative to the default. So if members do not like the performance of it, they can’t go anywhere else.”
Willis Towers Watson senior investment consultant Chris Smith agreed: “My biggest concern about their pensions is not the performance. It has been shocking, and there could be very good reasons for that. My biggest problem is that the members do not have a choice, which is shocking.”
Mercer solutions leader, DC & individual wealth Philip Parkinson said: “The timeframe is very short still, and if things had been different would we have been saying how Now had got it so right and the other master trusts had got it so wrong? One of the concerns is how untested all of the strategies are. It is easy to make eyecatching statements about it being 200 per cent geared, and the use of derivatives, but it is early days.”
Hymans Robertson head of DC design and provider evaluation Jesal Mistry said: “My view is that the best thing that can happen to Now: Pensions is they get bought by a master trust that is committed to the market and has got a good strong governance board.”
Delegates debated whether the trustees of Now: Pensions should be more vocal or critical publicly than they have been to date.
“They may be being so already. They may have more strength if they do it quietly,” said Smith.
Vertical integration
Mistry pointed out that Now’s trustees are constrained in what they can do with regard to asset management as it is done by the scheme’s parent ATP. He said: “Now: Pensions operates in a vertically integrated structure, so how are its trustees challenging the provider? I don’t think they are challenging this provider enough around asset management.”
But JP Morgan Asset Management executive director, UK DC Annabel Tonry said: “We need to avoid getting into a situation where we simply say open architecture achieves better returns and closed architecture is worse. If you look at target date fund returns for example, Morningstar did a big piece of research that showed that closed architecture firms marginally outperformed. The real issue is the governance.”
Barnett Waddingham associate Esther Hawley was concerned that performance rather than governance would become the top priority. She said: “If we focus too much on performance there is a risk we are going to end up with herding. What we need to be looking at is the governance structure, how well set up and well run these schemes are. Perhaps the performance is a sign of a not very well set up governance structure. So these numbers are a warning sign, not necessarily a problem in itself. If a fund has underperformed, but it had a good strategy, was thoughtfully designed with good reasons and was well run, then you have to accept that one didn’t perform as well as the other ones.”
