I thought my third book on pension management, Pension Revolution, published by Wiley in 2007, would be my last.
So what happened? Why has publisher Wiley just released book four, The Future of Pension Management this month?
It happened because I was a speaker at the CFA Institute’s 2015 Annual Conference in Frankfurt last April, where Wiley put the third book on display in its sales booth.
Curiosity got the better of me.
I decided to watch and see whether anyone would actually buy this ageing relic. To my surprise, there were buyers!
This got me thinking. A lot of things had happened in the pensions world since 2007, some foreseen in the book three, some not.
The time was right for a thorough review and recalibration of the challenges facing the global pension, governance, and investing sectors.
And so the idea of book four was born.
As the subtitle indicates, the book calls for action on three fronts.
Pension design
On the pension design front, the traditional DB (defined benefit) and DC (defined contribution) formulas are converging into hybrids with names such a “defined ambition” (DA) and “target benefit” (TB).
The Netherlands and Australia offer good examples.
The former country is transforming its traditional DB plans into DA plans, while the latter is transforming its traditional DC plans into TB plans.
At the same time, workplace pension coverage is expanding.
The United Kingdom is leading the way with its National Employment Savings Trust (NEST) initiative, while the United States and Canada are now busy designing their own expansion initiatives.
Pension governance
On the pension governance front, the process of reconciling the opposable needs for boards of trustees to be both representative and strategic continues to slowly move in the right direction.
There is a growing understanding that it is not a question of either/or, but of how to get both ingredients into board composition.
Why both?
Because pension boards need legitimacy to be trusted, and at the same time need to be strategic to produce value-for-money outcomes for their stakeholders.
This strategic mindset addresses tough issues such as organisation design and culture, investment beliefs, incentives, and stakeholder communication and relations.
Behind these governance imperatives lies the broader question of organisational autonomy.
Unnecessary legal and regulatory constraints are increasingly seen as value-for-money destroyers in pension organisations.
Pension investing
Pension investing has been changing for the better too, starting with serious re-examinations of investment beliefs.
There is growing evidence the leadership of the global pensions sector is beginning to see their job as transforming retirement savings into wealth-producing capital.
There are a number of factors at play here. One is the simple reality that good investment returns are increasingly difficult to come by.
Another is a growing understanding of the zero-sum nature of short-horizon active management.
Yet another is that both logic and empirical evidence support the idea that long-horizon active management should, and actually does produce higher long-term returns than either short-horizon active, or passive management.
However, saying is one thing, doing another.
For many pension organisations, there is still a sizeable aspiration/implementation gap to be closed.
“Unreasonable” men
So my “Frankfurt moment” was to recognise that the significant “pension revolution” developments since 2007 in pension design, governance, and investing should be chronicled in a coherent, integrated manner, and that I was well placed to do that job.
However, I would not be doing it alone.
A good deal of the necessary insight and inspiration to write this book would come from five “unreasonable” men as defined by the Anglo-Irish playwright George Bernard Shaw in his 1903 play Man and Superman.
“The reasonable man adapts himself to the world. The unreasonable one persists in trying to adapt the world to himself. Thus all progress depends on the unreasonable man….”
This is not the place to describe the profound contributions George Akerlof, Peter Drucker, John Maynard Keynes, Roger Martin, and Jan Tinbergen made to my thinking in setting out the required 21st century actions on the three pension fronts.
However, as an early reviewer of the book noted, they made my job one of not inventing anything new, but of translating their insights into tangible action steps to raise the bar in the design, governance, and investing fronts of the ongoing pension revolution.
(I predict the noted thought-leaders of the 21st century will not all be men.)
Much work remains to be done.
For more information about The Future of Pension Management, click here.
Keith Ambachtsheer will speak about the book’s key messages at the upcoming Fiduciary Investors Symposium at Cambridge University from April 10-12.
