Any other business: From Brexit to Trump, 2016 has been a year of the once-inconceivable coming to pass. Faith in institutions, already low, has taken repeated batterings as prediction after prediction has turned out to be wrong.
Former cabinet minister Michael Gove was widely ridiculed earlier this year when he said “people in this country have had enough of experts”, referring to predictions of what would happen in the event of a vote to leave the EU.
Now with Trump as president elect and, just this week, the resignation of Italian prime minister Matteo Renzi, it is beginning to look like Gove undersold it; it is not just people in the UK who have taken against the elite, real or perceived.
It is important to get away from the position where we blame the member for not engaging with us and start blaming ourselves for not getting them engaged with us
Yet even as the world turns upside down, the responsibilities of pension schemes remain the same, so we set out to speak to trustees and find out the main lessons they took away from 2016 and what they will be looking out for in 2017.
Expect the unexpected
Trustees noted the increased uncertainty throughout the year, and highlighted the need for schemes to be mindful of the potential for seemingly unlikely events.
“Very few of us expected Brexit or Trump,” said Richard Butcher, managing director at independent trustee company PTL. “We have to think the unthinkable.”
He added: “There’s no end with that of course… It’s going to be a tough time making investment calls.”
One prediction he did make, however, was an increasingly muscular role for government and regulators across the pensions industry.
“The Pensions Regulator, Department for Work and Pensions and the Financial Conduct Authority are all stepping up to the plate,” he said, highlighting the regulator’s increased pressure on trustees and the Financial Conduct Authority’s asset management interim report as two examples.
“We’ve learnt they’re all willing to step up and play aggressively with their agendas. We should expect they continue to,” he said.
Another increasingly important move would be to change the way the industry views engagement, Butcher said, insisting it was important to “get away from the position where we blame the member for not engaging with us and start blaming ourselves for not getting them engaged with us”.
Jonathan Reynolds, client director at independent trustee company Capital Cranfield, echoed Butcher’s view on being mindful of the possibility of unexpected events.
“One of the most important things I’ve learnt is just to try and stay calm and see through the noise,” he said.
“There’s so much expectation of what’s going to happen, pretty much every pundit has got it wrong. I’ve learnt to be a little more cautious on taking people’s opinions and the idea of any sort of tactical management… in the current environment I don’t know if anyone has got a good handle on it.”
The risk of not hedging
Giles Payne, director at professional trustee company HR Trustees, said 2016 had highlighted the importance of hedging.
“You think they can’t go any lower, and then they do,” he said. “It’s left a number of schemes very exposed.”
When things get hairy: Don’t overreact to President Trump
From the blog: Donald J Trump has been elected president of the US, sparking marked but short-lived market fluctuations and suggesting that you probably shouldn’t take investment advice from a pollster.
Payne added: “Going forward, we'll have some very interesting valuations.”
Reynolds also mentioned the risks posed by rates, but highlighted the danger schemes could find themselves in if rates begin to go up, especially when it comes to defined contribution schemes and lifestyling strategies.
“Ever since lifestyling has been with us, it’s been a fairly benign environment, so it’s looked like a really effective thing to be doing,” he said.
But “as and when interest rates start going up again, lifestyling will start to look like it’s broken”, he cautioned. “There’s a lot of work to be done with DC investments.”
