Pensions Talks Interview: Morten Nilsson, CEO at Brightwell Pensions

Brightwell Pensions CEO, Morten Nilsson gives SEC Newgate his thoughts and views on the pensions review, end-game options as well as the importance of cyber security.

We’ve recently seen the announcement of a Pensions Review, and there’s been some uncertainty from the pensions industry on what this means. How can pension schemes help boost the UK? Do we need to provide other incentives for pensions schemes to encourage them to invest in UK PLC and productive finance?

I don’t think it’s true that UK pension schemes don’t invest in the UK. The BT Pension Scheme, which Brightwell manages, has 67% of its portfolio invested in the UK in assets such as gilts, property and corporate bonds. Closed DB schemes, which make up 90% of all UK DB schemes are typically cash flow negative and are seeking bond and bond like investments that provide a regular payment to match outgoing payments to pensioners.

DC schemes, open DB and LGPS are in a different position as they are cash flow positive and can afford to take greater investment risk. As a result, closed DB schemes aren’t going to be big investors in equities. However, they do remain major investors in the UK and that shouldn’t be overlooked.

If the right opportunities are there that meet the risk / return profile DB schemes are seeking, there would certainly be appetite. There’s also strong interest in investments that are sustainable and will support schemes’ net zero goals.

Transforming the UK to a low carbon economy and making much needed upgrades to UK infrastructure will require a lot of private capital and a mix of equity and debt financing. So, working with all of the pensions industry will allow Government to unlock billions of pounds to support these investments across the capital structure. The work that the government is doing on the National Wealth Fund could certainly be interesting for DB schemes, so we’re keen to see how that develops.

What else would like you to see from the Government’s Pensions Review for pension schemes?

It’s encouraging that the new Pensions Minister has a remit across both DWP and HM Treasury as this has been a cause of frustration for the industry in the past.

As an investor in the UK, we have often found that there have been numerous governmental stakeholders but very little coordination between them. To accelerate investments in the UK there will need to be deep and broad coordination across several government departments.

The Options for DB schemes consultation which the previous government instigated also needs to examined as there are some big questions in there that the industry is waiting on such as treatment of surplus and the potential role of the PPF as a consolidator. Consolidation across the industry would be welcome so initiatives that support this are to be encouraged.

With improved funding levels for many pension schemes, endgame planning is high up on the agendas of both trustees and sponsors. What end-game options should trustees and sponsors consider?

With so much regulatory uncertainty, I think that it pays to keep your options open. If the surplus rules are changed, that could provide a real incentive for sponsors and trustees to give consideration to running on their pension scheme rather than targeting a buy-out.

For far too long the only endgame option that was really considered was buy-out. This means that very few trustees have been fully advised on what a run-on or run-off plan really looks like and what the benefits and challenges are. I think the industry would benefit from starting to lay out more of framework for run-on / run-off so it is easier to explain and compare to other options.

A secure run off plan in many ways is similar to what the insurers do but without the same solvency requirements and with a less restricted investment universe. That is where the benefits come but the challenge is that this requires quite a sophisticated operation and scale to deliver efficiently. 

How does a schemes endgame strategy impact the member experience? And why would a pension scheme choose to run-on?

Research we conducted with mallowstreet at the start of the year highlighted that one of trustees’ biggest concerns with a buyout is loss of control (cited by 29%). In a buy-out trustees lose oversight of both the investment strategy and administration. They also lose the ability to make discretionary increases – a concern cited by 14%. However, many are willing to accept this in return for absolute security of benefits.

We think that for schemes that do want to run on there’s a need for a more supported route which is what Brightwell offers. By partnering with Brightwell schemes can benefit from our scale, expertise and technology in order to run on in a more cost-efficient and sustainable way.

How do pension schemes manage ever increasing cyber threats? Does AI magnify these risks?

Every trustee board is very aware of cyber threats and of course this is across a pension schemes’ supply chain as well as within their own systems. AI is magnifying these risks but also helps support smarter ways of protecting ourselves, so it is part of a constant race between the bad actors and the good guys.

I think the biggest threat is from people and poor processes rather than system compromise. That’s not to say we shouldn’t focus on systems – we definitely should – but training people is equally important so they don’t keep sensitive data outside of systems and they know how to spot a phishing attack.

Brightwell run one of the largest private sector pension schemes in the UK, BT Pension Scheme, what is Brightwell’s proposition? How is it helping pension schemes?

In recent years we’ve invested heavily in systems, people and processes and the service we now offer to Brightwell is market leading. BTPS member satisfaction has never been higher, and we have never had a better investment platform allowing us to develop new innovative solutions such as how we can post corporate bonds from different investment managers as collateral for LDI. But looking ahead we needed to think about how we can continue to maintain that high level of service in a sustainable and cost-effective way. We felt that the best way to do this was to open our capabilities to a small number of other like-minded DB schemes that also want to run-on and offer high quality services to members. We felt there was a win-win here for both BTPS and for the schemes we partner with.