Industry experts debate current trends and future directions for DC investment strategies

Speakers: Tim Banks, managing director of sales and client relations, Alliance Bernstein; Andrew Brown, director of Defined Contribution, Threadneedle Investments; Martyn James, team leader DC & savings business, Mercer; Andy Seed, client advisor, J.P. Morgan.

 

Engagement and choices

The history of member engagement with pensions is not good, says Tim Banks, as it has always been hard to have the conversation about what people will do with their savings 10 years (or more) into the future. Data shows that half of over 65s don’t even know what year they will retire – and so schemes are asking members questions they can’t answer: they want the flexibility to take advantage of all their various options, but also need clarity.

“The history of member engagement with pensions is not good”

Martyn James agrees, commenting that the decisions for members are hard – but must be made at some point in their lifecycle. Scheme providers and employers need an engagement and communications programme to help members decide and make educated judgements.

 

Guidance and risk

Smaller pensions pots, along with the new freedom of choice, may well encourage more people to drawdown, argues Andy Seed, however for drawdown to work in a mainstream way the industry will need more innovation and drawdown infrastructure. While the freedom of choice brings greater flexibility and ability, it also brings greater risk. The guidance guarantee will help members navigate the system, but it won’t solve their problems – the industry also needs to help.

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The risk around the new freedom is echoed by Andrew Brown, especially around the multifaceted decumulation phase. The guidance guarantee can only take employees so far, and an advice gap is already starting to emerge in the market. The onus is on asset managers, trustees, platforms and employers to help employees make the right decisions.

 

Evolution or revolution?

James suggests that the changes have caused both evolution and revolution in the industry. The accumulation phase has not seen much change; the pre-retirement phase has seen evolution in lifestyle strategies and target date funds – but the post-retirement phase has seen revolution in member options and choices.

The pensions industry has generally been characterised by the evolution of auto-enrolment, but the freedom of choice is revolutionary, argues Brown – but Seed disagrees, saying the “tinkering of lifestyling defaults” is still not the full revolution the industry needs.

“Everyone knows about freedom of choice and wants to take advantage of it”

Banks concludes that everyone knows about freedom of choice and wants to take advantage of it – and the pensions industry will need to revolutionise to deal with it. it may be hard for trustees and providers – but they will need to be prepared by March 2015.