A passive approach to pension scheme management will not wash. Trustees must be proactive in adding value, argues Rose Leonard.
As a trustee or employer managing your company pension, you need to ask yourself the question: how proactive are you when it comes to running the scheme?
In today’s competitive marketplace, adopting a passive approach or displaying inertia simply won’t wash. Your employees, the pension scheme members, will demand that you add actual value to their scheme and the pension pots with which they hope to retire.
Adding value through pension fund performance
You are probably familiar with the active versus passive investment fund debate. A passive fund simply tracks a stock market index, whereas an active fund has fund managers who decide daily on where to invest. Passive funds have been popular in company pension schemes as they have been promoted on the premise of removing fund manager risk (i.e. the risk that an active fund manager makes the wrong decisions or investment calls).
At Zurich, we disagree with this approach. We are active fund managers and have been since we first established our Fund Management team almost 40 years ago. We believe strongly that good active investment management delivers outperformance; Zurich has delivered this consistently over the long-term*. Our underlying process and stringent oversight facilitate this. The performance of Zurich’s funds over the last three decades has been impressive, with Zurich regularly winning awards for the strength of its performance**. Depending on underlying market conditions, Zurich occasionally delivers exceptionally strong results – and 2020 was one of those occasions.
Annual performance figures can sometimes get overlooked unless you put them into context. In this case, we will consider the example of a pension scheme member. Let’s take an average 30-year-old scheme member on a salary of €45,000 with a total annual contribution of 15% of their salary. The difference in the final pension fund at retirement between a good active approach and a passive approach can be startling. With Zurich, their fund would have been roughly €200,000 higher than it would have been had the trustees invested in a passive fund with similar asset classes over the same period*.
Could a passive approach deliver this type of outperformance? We don’t think so. And as a trustee, you should be asking yourself the same question and considering whether to adopt a more active approach.
Adding value through responsible investment
Zurich’s approach to responsible investment (environmental, social, and governance or ESG factors) is integrated across all of our funds. As a global group, Zurich is committed to responsible investment and is a signatory to the UN Principles for Responsible Investment. In Ireland, Zurich is fully committed to adopting and integrating responsible investment in how we manage monies for our customers. We have had a responsible investment framework for several years, and we maintain a sharp focus on this area. Representatives from Zurich sit on many strategy groups across the industry, including the Irish Association of Investment Managers, and we are committed to broadening the base of people who understand what responsible investment is, its importance, and what it can achieve.
As an active investment manager, we continually refine and enhance our process. The integration of ESG factors into our investment process can help deliver additional insights, which can in turn improve our assessment of investment risks and rewards. We aim to achieve both positive financial and non-financial benefits for all stakeholders by applying sound principles and integrating them in a practical way into our process.
We believe that creating long-term, sustainable value – doing well and doing good – is not only possible, but necessary. When we do well, we help people save for retirement and have a good pension at the end of it. When we do good, we impact positively on the society and communities where we live and work.
Community investment is at the heart of Zurich’s sustainability strategy. Through the Z Zurich Foundation and our local offices worldwide, we share our resources and expertise to help build more resilient communities, adding value beyond our core business activity. Community investment is also an important part of our employee engagement strategy. The knowledge and experience employees gain from our community programmes often help us shape our products and services, leading to better customer outcomes. Some examples from Ireland include the following.
‘Rethink Ireland’ Innovate Together Fund
The Zurich Foundation committed €500,000 to the ‘Rethink Ireland’ Innovate Together Fund as part of its global COVID-19 response, and Zurich in Ireland is working in collaboration with the Foundation on this initiative. In December 2020, the second round of ‘Rethink Ireland’ saw 20 projects from all over Ireland receive cash grants of between €20,000 and €200,000. Areas of innovation cover sustainable Ireland, economic recovery, food security and community outreach.
Power 2 Progress
Power 2 Progress seeks to foster educational resilience in the Irish education system, with a three-year intervention plan for approximately 600 senior-cycle DEIS (Delivering Equality of Opportunity in Schools) school students across 15 schools. Zurich Foundation has also committed to supporting University College Dublin (UCD) with a four-year grant of over €300,000 to fund a four-year PhD student to research the impact of the three-year intervention programme and inform future policy around addressing socio-economic disadvantage in the Irish education system.
Tackle Your Feelings
Tackle Your Feelings was launched by Rugby Players Ireland in 2016 and is funded by Zurich and the Z Zurich Foundation. Built on a foundation of diversity and inclusion, the campaign encompasses the island of Ireland and features some of Ireland’s best-known rugby players, including CJ Stander, Jack McGrath, and Eimear Considine. They discuss their own mental wellbeing challenges and the strategies they used to overcome them. Tackle Your Feelings has impacted the lives of people all over the world and motivated people to be more proactive in looking after their mental wellbeing. The campaign content has been viewed more than 23 million times, and the free Tackle Your Feelings app is available on the App Store and Google Play store.
If you would like me to review your pension scheme or guide you through a governance framework for your pension scheme, email me at rose.leonard@zurich.com
*Source: Zurich Life & Fund Focus, April 2021.
**Source: Brokers Ireland Excellence Awards, 2019, 2018, 2017, 2016, 2015. Warning: These figures are estimates only. They are not a reliable guide to the future performance of your investment. Zurich Life Assurance plc is regulated by the Central Bank of Ireland.
Rose Leonard is Head of Corporate Distribution and Customer Relationship Management at Zurich Life.
(This article is sponsored by Zurich.)
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