March 1, 2016

The Future of Pension Management: Integrating Design, Governance and Investing

“No one has thought more about the issues related to managing pension money better or longer than Ambachtsheer. His writings are a must read for serious people with a desire to serve their beneficiaries well. This new book is destined to become a classic.”

Britt Harris, CIO, Teachers Retirement System of Texas, USA

"Ambachtsheer's latest book is both substantial and timely, bringing together the latest thinking on the global pensions industry.  He mobilises both its theoretical and creative aspects in what is seen as an increasingly necessary and even righteous cause.”

Virginia Holmes, Board Chair, Universities Superannuation Scheme Investment Management, and Board Chair, British Airways Pensions, UK

“Trustees of pension funds often decide on “how” before they decide “what” they should be doing.  This book gets the order right: from objectives, to strategy, and then measuring outcomes. Keith has always been the leading voice of reason on pension fund design and management.  This book is no exception.”

Brad Holzberger, CIO, QSuper, Australia

“Providing adequate pensions is a key challenge for ageing societies. In this new book, Ambachtsheer proves again his unique ability to combine theory and practice in unscrambling the complex problems surrounding pension design, governance, and investing. It is compulsory reading for all pension professionals around the globe.”

Klaas Knot, President, De Nederlandsche Bank, The Netherlands

“In his new book, Keith translates classic theory from famous economists into concrete solutions for pension funds. The result is essential reading for those who believe the future of pension management will start today.”

Geraldine Leegwater, CEO, ABN AMRO Pensioenfonds, and Board Member, ABP Pensioenfonds, The Netherlands

“Once again, Keith translates academic insights into the real world of pensions. He starts with pension delivery, from which he works backwards to deduce plan design, governance and investment strategy – always with the objective to benefit plan members. Anyone with an interest in pensions will enjoy reading this book.”

Carsten Stendevad, CEO, Danish Labour Market Supplementary Pension (ATP), Denmark

 “In his new book, Ambachtsheer has successfully combined all of the essential elements of our industry - from plan design, to governance, to investment strategy.  It is a must read for everyone in the pension industry, including policy makers, plan trustees, and investment managers.”

Mark Wiseman, CEO, CPP Investment Board, Canada


New Book Released! 

I thought my third book on pension management, PENSION REVOLUTION, published by Wiley in 2007, would be my last. So what happened? Why is Wiley releasing book #4 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 book on display in its sales booth. Curiosity got the better of me. I decided watch and see whether anyone would actually buy this aging 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 book #3, 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 #4 was born.  

Pension Design

In pension design, 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

In pension governance, 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 organization design and culture, investment beliefs, incentives, and stakeholder communication and relations. Behind these governance imperatives lies the broader question of organizational autonomy. Unnecessary legal and regulatory constraints are increasingly seen as ‘value for money’ destroyers in pension organizations.

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 organizations, there is still a sizable aspiration/implementation gap to be closed.

Three ‘Unreasonable’ Men

So my ‘Frankfurt moment’ was to recognize 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 three ‘unreasonable’ men as defined by the Anglo-Irish playwright George Bernard Shaw:

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….”

My first ‘unreasonable man’ is the first Nobel Prize Laureate in Economics: Jan Tinbergen. His claim to fame was establishing the principle that the number of economic policy goals has to be matched by an equal number of instruments designed to achieve them. Applied to pension economics, the principle offers a way out of the long-standing ‘affordability vs. safety’ dilemma in pension design. The Tinbergen Principle is very clear: achieving these two goals effectively will require two instruments: one that focuses on affordability through long-term return compounding, and another that focuses providing payment safety for life. Yet, ‘reasonable’ people persist in beating their heads against the wall trying to achieve these two goals with one instrument. Some ‘reasonable’ people say that the ‘right’ instrument is a DB plan; others say it is a DC plan. Both are equally wrong.

My second ‘unreasonable’ man is the father of modern management principles and practices: Peter Drucker. In his 1976 book “The Unseen Revolution” Drucker asserted that pension organizations are not exempt from universal governance effectiveness dictates. Just like in any other organization, ineffective governance will produce poor outcomes for the pension organization’s stakeholders. Effective pension organizations have clear missions, inspired governance, and great execution capabilities.

 My third ‘unreasonable’ man is, arguably, the 20th Century’s most influential economist: John Maynard Keynes. In the famous Chapter 12 of his 1936 opus “The General Theory of Employment, Interest, and Money”, Keynes makes a clear distinction between the dysfunctional short-term ‘beauty contest’ investing practices of most institutional investors, and long-term investment processes that convert savings into wealth-producing capital. He noted that the latter seemed to be an unimportant, second-order activity for most institutional investors. He asserted that ‘beauty contest’ investing is a zero-sum game played for the enjoyment of professional investors, funded by the fees paid by their clients. This game has little do with ‘real world’ wealth-creation.

These three ‘unreasonable’ men and their ideas surface many times through the new book’s 27 chapters.

Two More ‘Unreasonable’ Men

There are two more recent (still alive!) ‘unreasonable’ men who deserve mention as important contributors to the ideas and their implementation set out in book #4.

Nobel Prize Laureate George Akerlof’s ‘asymmetric information’ insight figures prominently in my thinking about the design of pensions systems and organizations. Akerlof reminds us that the wonderful ‘Adam Smith’ outcomes from free competitive markets (e.g., fair pricing and efficient resource allocation) require that all market participants have the same information when they buy or sell goods or services in those markets. He also demonstrates that when that is not the case, the result is unfair pricing and inefficient resource allocation. Book #4 argues that in the market for pension management services, sellers generally know more about what they are selling than buyers know what they are buying. This will result in buyers paying too much for too little, unless steps are taken to level the informational playing field.  

Former Dean of University of Toronto’s Rotman School of Management Roger Martin’s work on integrative thinking and the creative resolution of opposable ideas has also played an integral role in the structure and tone of book #4. On integrative thinking, logic tells us we lose a lot by being ‘silo’ thinkers. Connecting the dots (e.g., between pension design, governance, and investing) leads to more holistic thinking and more thoughtful solutions. On resolving apparently opposable ideas, Martin persuasively sets out his argument in “The Opposable Mind”. Three direct applications of resolving apparently opposable ideas in the pensions space are 1. The ‘DB vs. DC’ debate in pension design, 2. The ‘Lay vs. Expert’ debate in pension governance, and 3. The ‘Active vs. Passive’ debate in pension investing.

The book offers resolutions to all three apparent dilemmas.

Many More People  

Many more people have contributed to book #4 in one way or another, including colleagues, clients, family, and friends. I thank you all, but mention only one by name. My wife and partner Virginia Atkin once again provided the inspiration and encouragement to write this new book, while also ensuring I was not consumed by it.

Launching the Book

Book #4 will see its first light of day in Richmond, Virginia on March 15 at a meeting of the Board of the Virginia Retirement System. After that, the action moves to the first official launch of the book at the Rotman School of Management, University of Toronto on April 5. From there, it will make appearances at events at Cambridge University, London, Amsterdam, Washington, Montreal, Boston, Hong Kong, Singapore, Sydney, and Brisbane over the course of the rest of the year. Let us know if you would more information about the events in any of those locations.

Quite separately, we will ensure that all KPA Advisory Services clients receive a complimentary ‘house copy’. Thank you for your ongoing support for what we do! Additional copies can be ordered directly from Wiley….more information below.

Happy reading!  

Keith Ambachtsheer



  1. For the record, book #1 was “Pension Funds and the Bottom Line” (1985), and book #2 (with Don Ezra) was “Pension Fund Excellence” (1997).
  2. Shaw (1903), “Man and Superman”.Tinbergen shared the first Nobel Prize in Economics in 1969 with Ragnar Frisch.     
  3. Akerlof was awarded the Nobel Prize in Economics in 2001. His most famous article on asymmetric information was “The Market for Lemons”, which dates back to 1970. The context there was not pension services, but used cars. As proof that he continues to be a strong advocate for creating fair markets, see his recent book (with Robert Schiller) “Phishing for Phools“ (2015). The key to leveling the informational playing field in pension services is ‘fiduciary management’ either directly through dedicated pension organizations, or indirectly through regulatory enforcement in the financial services industry.
  4. Martin (2007), “The Opposable Mind”.
  5. I am aware that way back in 1903 Shaw wrote “The reasonable man”…..and that the ‘unreasonable’ ones I cite here are in fact all male. That was the 20th Century. We will see far greater gender balance in the 21st Century.

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The information herein has been obtained from sources which we believe to be reliable, but do not guarantee its accuracy or completeness. 



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