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Spotting a gap in the pensions market Back  
Since its establishment in 2005, Pensco, the pensions consultancy firm, has gone from strength to strength. Its three founders - Gavin Caldwell, Samathana McConnell and John McGovern - talk to Fiona Reddan about how the firm has developed to date as well as future plans for expansion.
Pensco was established in 2005 to provide consultancy advice and asset allocation services to corporate clients. At its helm are Gavin Caldwell, Samantha McConnell, with whom Caldwell had previously worked with at KBC, and John McGovern, who was responsible for establishing Becketts' office in Dublin in 1998. McConnell and McGovern now act as joint managing directors of the firm, with Caldwell as chairman.

Caldwell has long been associated with the financial services industry, having started his career as an investment analyst with Wood McKenzie in 1971. He returned to Ireland to join Bank of Ireland Asset Management in 1974, and in 1980 he established Ulster Bank Investment Managers, which was bought by the KBC Group in May 2000 for €105 million.

The three spotted an opportunity in the growing defined contribution business, and quickly set about arming the company with the best software on the market. This took Pensco around the world as they sought out the best supplier, finally settling on Canadian software provider, CPAS Systems Inc. CPAS was recently awarded the 'Best Pension Plan Administration Services' award for 2007 by Global Finance magazine.

'We became the first in Europe to use CPAS,' says McConnell, who points out some of its benefits, including the automatic online provision of leaving service statements to former employees. 'Employees no longer have to go to their HR colleagues to find out such information,' she says.

But there is much more to Pensco's service than CPAS. The firm also entered into an agreement with Scottish actuarial firm, Barrie and Hibbert, which has become renowned for its stochastic model, which projects the probability of asset classes achieving a certain return over various time periods.

'We integrated this pension projection tool with CPAS and it has led to the creation of a very user friendly, member centric, pensions administration system,' says Caldwell. With the system, employees can check their pension valuation every day, as well as getting a complete history of their pension fund.

The three soon realised they would need a backer, and Fexco, with its strong processing background, soon emerged as the best partner. The three have an earn-out arrangement with the firm, based on the achievement of certain targets. The three were joined by Noel Thorp, as director of client services, in October of last year who brought his experience in dealing with client relationships within a large multinational benefits provider to the mix.

When it came to choosing Pensco's default fund, Caldwell's investment experience came in to play. As a very high percentage of pension scheme members opt out of making an investment choice by choosing the default fund selected by the trustees (81 per cent in the UK according to a National Association of Pension Funds survey), the team realised the importance of Irish pension scheme trustees providing the right default fund for their members.

According to McConnell, 'Pensco can provide advice to our clients on all the investment manager fund products in the market place, but we advocate that trustees do consider avoiding the risk of their default members being with an under-performing investment manager by offering a passive fund as their pension scheme default fund'.

So, after significant passive fund market due diligence the firm selected the asset management arm of Northern Trust, to offer access to index funds and global cash funds to Irish defined contribution (DC) pension market.

As part of the agreement, Northern Trust Global Investment (NTGI) launched an Irish equity index fund, benchmarked against the ISEQ index, so that a complete range of funds would be available through Pensco's platform. Since its launch last autumn, approximately €38 million has flowed into NTGI's funds.

With Pensco's system a member can assign themselves a risk profile, and McConnell says that this life-styling default strategy has been well received, and broadly used, by the members of its client schemes. 'The life-styling default strategy helps trustees ensure younger and older members have appropriate exposure to investment risk,' she says, adding, 'recent investment legislation now requires trustees to offer an appropriate choice'.

McGovern says that, 'feedback to date from our clients has been very strong. Members really appreciate our online software, illustrating for them a roadmap to retirement. Also the quality of our administration systems provides our clients with significant service efficiencies.'

Another benefit of the Northern Trust funds is the low fees attached to them. 'The most a member pays is 0.15 per cent,' says McGovern, 'compared with standard investment fees of 0.50-0.90 per cent'.

Fees are incredibly important for pension fund holders - more so than most people realise. According to McGovern, every 0.1 per cent of a management fee erodes the value of an annuity after 40 years by 3.5 per cent per annum.

The firm currently employs 10 people in Dublin with full back office support based in Fexco offices in Killorglin, Co Kerry. Pensco has strong growth ambitions, and is currently recruiting for a number of positions, including that of chief operating officer.

And Pensco's ambitions do not just lie in Ireland. Caldwell is also looking to the UK market - and perhaps further afield, although he recognises that the legal and fiscal requirements needed to enable cross border pensions administration remains some way off.

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