Interview: Simon Hoffman, Friends First

14 Dec 2017 | 02.49 pm

Interview: Simon Hoffman, Friends First

'Our Magnet and Compass range of funds is popular'

14 Dec 2017 | 02.49 pm

The Pensions Authority proposals to streamline the pension landscape will almost certainly result in more costs levied on pension holders. That’s the view of Simon Hoffman, pensions and investments director with Friends First. Hoffman has worked in a variety of pensions and investments-related jobs for over 25 years, and he worries that small company pension schemes will suffer if a consolidation process happens, as envisaged by the Pensions Authority.

“The idea here is that consolidating smaller schemes into larger schemes run under ‘master trusts’ means you can put more professional trustees in place and have better oversight,” says Hoffman. “The fact is that you get what you pay for, so if these trustees are going to provide a better service it will have to be paid for. I can’t see how this will not increase costs which, for smaller schemes in particular, will be passed onto members.”

Hoffman adds that with registered administrators in place for all defined contribution schemes, a question remains regarding what additional protection members will be receiving for this additional cost.

“In essence, the same sets of rules apply for a 1,000-member scheme as a one-member scheme. The Pensions Authority is trying to raise the bar for smaller schemes rather than looking at appropriate levels of oversight and appropriate pension structures.”

Noting the significant shift from defined benefit pensions to DC alternatives, Hoffman says that DC schemes are easier to run and should lend themselves to simplification and streamlined oversight. “However, the emphasis should be on making each scheme easier to administer from the perspective of the scheme, not from the perspective of the Pensions Authority.”

One-Member Schemes

Changes could also be coming down the line for one-member pension schemes, which are favoured by company directors. As things stand, Hoffman says that for most one-member schemes trust structures are set up due to an accident of the legislation governing the schemes.

“To obtain a certain set of Revenue benefits, the schemes must be set up under trust,” Hoffman explains. “There are contract-based alternatives available but these have different sets of benefits that are less attractive. The solution here is very simple. If you offer the same sets of benefits to both trust-based and contract-based pensions, the vast majority of arrangements will elect to use contracts.”

Hoffman agrees with the Pensions Authority idea of a default strategy introduced to DC schemes, albeit with qualifications. “There has to be a reasonable default strategy to help those unfamiliar with investments or who do not have access to advice,” he says.

“However, it is in everyone’s interest that members are brought closer to their pension. If the investment selection is dumbed down too much, members disengage and feel that someone else is looking after everything. It is important to get the message across that with defined contribution pensions the member is the most important stakeholder and needs to take an interest. Bringing them closer to an investment decision is one way of achieving this.”

Hoffman adds that as long as there is a reasonable default strategy in place, all restrictions on providing other fund options should be removed, and asks: “How does restricting choice help promote pensions and personal ownership?”

Asked what type of investment funds are favoured by clients who actively directs their pension savings, Hoffman said outcome oriented funds are by far the most popular. “These are investments where the fund manager is given more freedom than traditional mandates in order to achieve specific objectives,” he explained. 

“Our Magnet and Compass range of funds are proving very popular. Each series has options which target a pre-defined level of risk and manage the portfolio to first stay within these risk ranges and then maximise returns. These funds aim to manage downside risk so investors are less likely to get any nasty shocks. This is becoming increasingly important to consumers.”


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