June 1, 2020

Pension Plans And The 'Duty Of Impartiality' Rule: Implications For Plan Design

“Now more than ever, investment leaders have the opportunity to make life-changing differences for roughly four billion people’s savings and investments. They will do so by drawing from the widest range   of leadership skills to manoeuvre through the epic challenges this crisis presents and by emerging with stronger, fairer, and more sustainable organizations.”


“Our Funding Management Policy provides the sponsors with a guidance framework for decision-making when there is a funding surplus or shortfall. Funding zones provide a point of reference for whether  action is required…..answering questions of when it is prudent to increase or decrease benefits, raise or lower contribution rates, or simply conserve assets for an uncertain time. Ultimately, it is the sponsors’ responsibility to decide what actions to take…..”.


Financial Individualism has a Cost

In his recent article in The Economist, Mark Carney reminded us that financial individualism has a cost and that only collective action can deliver good healthcare, financial security, and a livable planet for all. In a new article in TOP1000FUNDS, Roger Urwin reminds us that it also requires effective organizations with strong leaders to actually deliver good healthcare, financial security, and a livable planet. This Letter expands on those themes, specifically on its financial security dimension. Past Letters have addressed the cost of financial individualism if people are left to create and execute a retirement savings plan on their own. Logic suggests and research confirms that while some people can do this successfully, most cannot. For the vast majority of people, the problem begins with failing to systematically save for retirement and invest those retirement savings skillfully and cost-effectively. It continues with failing to use the accumulated retirement savings skillfully and cost-effectively to finance life after work.

How can we best help this vast majority of potentially underachieving people? Logically, by designing and building collective retirement income systems (RIS) that do most of the heavy lifting for them. The ideal RIS has three pillars: 1. A universal tax-funded base pillar, 2. A workplace-based pillar with a variety of large, well-managed workplace pension plans (WPPP) designed to serve differing components of the workforce, and 3. A do-it-yourself pillar ideally only used by people with the requisite financial planning and investment skills.    

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