2003 was a tumultuous year. In January, I fell off a cliff and broke some bones in my back. But once I recovered, I was full of the joys of being alive and looked to the future with optimistic eyes.
The world of pension investing was being criticised for being short-term and not looking at the risks and issues that were important. Risks were managed through asset liability modelling looking at broad asset classes and market benchmarks. Liability-driven investing (LDI) was still an idea in the lab. Responsible investing and stewardship, beyond the 'socially responsible investment' of the 1995 UK Pensions Act, were embryonic.
Innovation needed a nudge. So how could we do it?
The Universities Superannuation Scheme (USS) and Hewitt long-term responsible mandate competition, started back then by Raj Thamotheram and I, for “long-term, responsible investing” flushed out some of the best ideas at the time: it kicked off deeper thinking about liabilities when we invested, and it opened up new vistas for thinking about responsible investment.
As that competition asked: What if pension funds invested: “As if the long-term really did matter?”.
The discussions brought about by that competition exposed the challenges to long-term investing, but approached them with a “can do” attitude. Unsurprisingly, given the financial challenges of the time and the fees model for derivative sales, Liability-driven Investing (LDI) took off. Responsible investment has taken its time, but is also now firmly on the investment agenda.
It’s 2021, and again I’m glad to be alive, and thinking: what’s next?
In September 2003, at the event in Amsterdam that showcased the results of the long-term mandate competition, I remember posing the question: “Wouldn’t it be great if we didn’t just try to meet promised retirement payments, but used our investments to influence what those pensions could buy, and the world our pensioners were living in?”.
To me, that was what investing in line with “the best interests of beneficiaries” really meant.
Since then, technology has improved the quality of our lives, with or (probably) without the deliberate action of pension fund investors.
And we’ve all got older, too. I’m now 56 and can take my pension!
Speaking from the experience of my parents in their eighties, and hearing from friends about the experiences of their parents, I know that more needs to be done to improve the lives of those in their later years.
So, to repeat the question that I posed 17 years ago – what if we now invested: “As if the best interests of our beneficiaries really did matter?”
How can we invest to improve the lives of our growing older population? Of course that will include me, and you!
Enlightened self-interest points to making efforts to resolve social challenges and pressures and the one I get most exercised about is how we care for those in older age, and in particular, how and where they live.
The retirement demographic time bomb is nothing new. But tax changes in the UK have added to it a financial dimension, with pensions now subject to a lifetime limit even the wealthiest pensioners will have problems paying care home fees from their income. Care home fees can easily exceed the pension you can buy with your lifetime allowance, and yet government policy is that we won’t need to sell our houses to meet the costs of care.
Adding to the challenge, without those private residents’ fees, the care home funding model crumbles. It relies on a cross-subsidy between those fees and Local Authority allowances. Those allowances may have been ample to meet the costs of care when care homes in the UK started moving from Local Authority ownership into private hands; indeed it may have been necessary to provide some profit to encourage private investors to take an interest in care provision.
However, staff costs have risen since then, not least as a result of UK minimum wage regulations and, ironically, the cost of pensions for care staff.
The need for cross-subsidy has increased, but the capacity to pay it has reduced.
There was always the risk that we sacrificed good care provision for profit, but now the hopes of profit are increasingly forlorn, and care quality with it. As the current crisis has revealed, we have a disaster unfolding in plain sight.
You don’t need to be a mathematician to know that this doesn’t add up.
But, as a mathematician, I’m always optimistic that there’s often ways to configure problems to make solutions possible.
So I’ve been thinking back to the 2003 competition, and about what went well and less well.
Back then, I read all the entries and marked them against a scorecard which we’d put together to give marks out of ten for each of “long term” and “responsible”. Those with the highest scores won.
However, very few entries scored well against both sides of the scorecard. We had good entries on 'long-termism' which introduced a liability dimension, and others which nailed the “responsible” part. For us though, “long-term, responsible” required the combination of the two.
We ended up splitting the prize for individual entries between these two approaches. There were some fantastic sparks of innovation but no overall silver bullet. And the sparks sadly got lost a bit in the rigid desire to have a consistent methodology for comparison.
Not all ideas come in 3000-word ‘Business Plans’. And as a mother of a creative but dyslexic son, I see quite often how our demanding world can exclude good thoughts in favour of precise, longer articulation.
Competitions can be great, but to solve big problems, knowledge-sharing and collaboration is required.
So, when we were looking for solutions to this, bigger, interdisciplinary problem of sustainable older age care provision, we didn’t just want another Business Plan-focused scorecard; although we know that is important.
We wanted a competition to capture the bright germs of ideas, and make them easy to share and collaborate on.
We’ve called these Brainwaves, and we look forward to seeing yours!
Sally Bridgeland FIA, one of the creators of the Silver Linings Competition, is a trustee, non-executive director and adviser.