Pension Fund Forum | Outlook for DC

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  • 38 mins 06 secs

Learning: Unstructured

From falling markets to the cost of living crisis and the maturing profiles of DC schemes, our panel looks at the big issues facing trustees. Taking part are:

  • Annabel Tonry UK defined contribution, JPMorgan Asset Management
  • Alison Bostock, Professional Trustee, Zedra Governance
  • Steven Leigh, Associate Partner, Aon
  • Channel: DC Pensions

    Speaker 0:
    volatile markets, a cost of living crisis and continued downward pressure on fees. What is the outlook for DC pensions in the UK to discuss that? I'm joined here in the studio by Annabel Tory lead on UK defined contribution at JP. Morgan Asset Management. Alison Bostock, professional trustee at ZRA, and Stephen Lee, associate partner at a


    Speaker 0:
    Yeah, Annabel, Let's start with you. Uh, we talk about the outlook for DC in the whole. On the whole. Do you think it's looking positive at the moment or negative, particularly given the volatile markets we've had of?


    Speaker 0:
    I think that whilst we've had challenging year last year, particularly, I think that I would say that I'm broadly very positive on the outlook for DC. I think since the introduction of water enrollment, we've had plenty of challenges in terms of operational administrative regulatory things for DC plans to be dealing with. But now it feels like investment is at the forefront, the opportunity to try and really think about. How can we


    Speaker 0:
    adapt that investment, those default funds to make sure they're delivering the most for members, getting them to an adequate income replacement level? I think it's a really exciting time because there's lots of debate and there's lots of discussion about what that investment profile should look like.


    Speaker 0:
    Just about your role at what are some of your thoughts on? Sure. I mean, I think the first thing to say is, You know, it has to be a good outlook for DC because, you know, unless you're in the public sector, that DB ship has sailed. So as an industry we have to make this work. So


    Speaker 0:
    So as a professional trustee, I'm involved in the master trusts space, also in governance of workplace books as well as some single employer DC schemes. And I would say I'm excited about what I see going on in the master trusts space, the work that's being done there on member engagement, real focus on member outcomes and again, still seeing that continued stream of employers looking to make that transition to master trusts. Two positives. Steve, how about you?


    Speaker 1:
    Well, without wanting to upset things too much, I think in the short term, perhaps it's going to be quite a challenging time for DC. I think you know, with the cost of living crisis that we're all fully aware of high inflation and what we've seen in markets over the last 12 months. It's perhaps not particularly rosy time for DC pensions and members of DC plans in particular. But that's not to say longer term. I don't think I think it is a lot more positive in terms of the outlook,


    Speaker 1:
    and I I'd kind of echo what we've heard in terms of DC being a bit more grown up. You know, we've kind of it's It's the pension provision for for the masses now in the UK. And we are now at a stage where I think we are looking at the investment design, the adequacy of member outcomes and that whole sort of communication approach to make sure that we do deliver it better and do deliver better outcomes so longer term positive.


    Speaker 0:
    Well, I wonder just if I could come back to to what you mentioned as the market has been pretty tough in the last uh, year or so. Um, is there a danger that this is a bit of a sequencing risk for DC as an industry full stop? You know, I mean, the sceptic might say, Well, everyone got into DC in the middle of a bull market and decided it was a great idea and things could only go up.


    Speaker 0:
    Um, and as it always happens, it's Murphy's Law. About the time everybody plunges in, the markets fall and everyone says, Well, that was one year. But what if it's not? If we are going back to something a bit more like the 19 seventies, What if it's two years, three years? Four years? What? I'm not saying that will happen. But Abe, what are your thoughts about how stress tested this model is not just markets, but DC as a as a concept,


    Speaker 0:
    I think the reality is that we have to remember that DC is a long term game. There will always be a challenge for people who are on the point of retirement. That's something that is is going to be inherent.


    Speaker 0:
    And the way that we can mitigate those challenges for those people who are about to retire is to think about how they invested at the end of retirement at that point of retirement. I think that we have to make sure that we're thinking about this in the long term, so inflation obviously has been incredibly high. It has made a lot of people think to your point. Are we back to the 19 seventies? I think the expectations now is that we should see falling inflation this summer and going into the end of the year,


    Speaker 0:
    and we have to make sure that we don't get too distracted with design that's based on the short term markets. We have to keep thinking about. What does that long term default look like? And one of the keys to that will be diversification and making sure that there's lots of different sources of return for for members who invested in those plants.


    Speaker 0:
    What would you say to someone? Well, the industry always talks about diversification, stock selection. When basically nothing's going up, it's, you know, we we're the professionals that can find you something that will go up when everybody else is going is disappearing down. I think that, um,


    Speaker 0:
    I, speaking from a JP. Morgan perspective, we've always said that diversification is an important point. I think also what it's it's not just thinking about the return. It's thinking about that volatility and thinking about that journey that the member sees. If you are well diversified, at all points of the glide path. Then it will be a smoother journey for members. There'll be less chance they're looking at their pot, and they're extremely nervous about markets have dropped off a cliff, and suddenly they've seen a huge fall in value. So I think we would say that


    Speaker 0:
    it's always been important to be well diversified at all points in the glide path. Um,


    Speaker 0:
    Steve, from your perspective, if I said I'm not saying it's going to happen But let's say we had the the the sort of tough run in markets continue that can have a knock on effect on the profitability of asset management firms. DC is, you know, it is a space. It's not one that is, uh, I think it's quite quite priced at the moment. Are you starting to think if times are tough, how many asset managers, how many


    Speaker 0:
    master trusts are really priced for a tough time? Not just one year 234 and who's going to be


    Speaker 1:
    around? Interesting question. I don't think there's a huge amount of concern over the number of providers. I think at the moment in terms of the master trusts market, there are. There's a lot of choice out there, and expectation is we might see a bit more consolidation over the next five years or so from an asset management perspective. I think


    Speaker 1:
    given that you know, as we said, DC pensions are the future of of pensions in the UK for the masses, the amount of assets going into DC pensions is going to carry on increasing. We just need to make sure they're well looked after. So I don't think there's going to be an issue there in terms of asset managers pulling out of the DC space.


    Speaker 1:
    I think there is a very important messaging job to do with members of DC pension schemes who, you know, as you say in some cases, might have seen their fund values fall for the first time they've been, with the exception of the sort of period around the pandemic when there was a sharp fall and a sharp recovery. We've probably seen the longest sustained period of investment


    Speaker 1:
    volatility for decades, so I think there's an important job to keep members reassured that things are being looked after and remind them that pensions are a long term game,


    Speaker 0:
    A can I get your thoughts on that, Particularly around member communications. Yeah, Funny. I remember the first time this happened, and I was working then at the party administrator and, uh, worrying about a deluge of phone calls that we would get when members got a statement with a lower number on it than last year.


    Speaker 0:
    Nothing, nothing. No, I mean, I think it's different now. We've We're encouraging members to engage with pensions online. They've got the app on their phone. They can look at the fund value. So I do worry about that and whether that's positive, because obviously what we don't want is members doing perverse things. So if you think about a young member with a small pot, still, hopefully you know, sorry, contributing and they're getting their employers' contribution. Actually,


    Speaker 0:
    it's possible that the contributions that I have gone in will have outweighed the fall if they've got a small fund, so that's probably OK because they're not going to do anything. It still looks like it's going up. It's more of a worry. When a member gets it, it's fallen,


    Speaker 0:
    and they do something odd as a result, whether they switch the whole thing into cash so it doesn't go down anymore. Which, um, we heard from an about, you know, not very diversified, probably not a good idea or worse. Think this is whole thing is a waste of time. I'm going to opt out, and that's my big fear that we don't keep people in and contributing because the most important thing you can do stay in, keep your contributions going, keep the employer contribution.


    Speaker 0:
    And as I know, it's early days. But you mentioned things like apps and telling people it's their money. It doesn't belong to the company. Are you seeing any signs of negative behaviours that come off that sort of people having a desperate desire to trade more or


    Speaker 0:
    sort of worry around the edges? Not yet. I mean, take up of apps is still pretty low. Actually, across most of my schemes, no more than 30% are probably signing up for the online access, even though it's seen as an absolutely essential thing that that a master trusts or employer scheme must have the actual take up is very low. What you tend to find is there's a small number of people who log on every day and then a vast number who


    Speaker 0:
    they've logged on once and don't look at it again. So I think that's probably why we're not seeing this any more churning or excessive switching of investments than we had before. Because it's that same tiny proportion of people who always were engaged to that. I think that's one of the benefits, and one of the challenges with


    Speaker 0:
    so one of the benefits is that you will see a tremendous amount of inertia. So in times of market stress to this point, you will see that people will stay in and they'll keep contributing the other challenges that you find that people are less engaged with their pension when it comes closer to retirement, because they've always had more pressing financial decisions to make be that car insurance or their mortgage.


    Speaker 0:
    And that is one of the things that I think pensions. For all the work that we do, we will always be facing that challenge, that there is always a more pressing financial concern. So the key really is to make sure that they're in really well designed default funds that will help get them there if they're not as engaged as they could be. I'd like to come back to scheme design in a in a moment, but just before I do, we've touched on cost of living and the fact that people have got a lot of priorities immediate rather than the long term. Steve, are you seeing any evidence that


    Speaker 0:
    with cost of living that people are starting to reduce contributions to pensions if they've got a chance? We have


    Speaker 1:
    seen we have seen little yes, So we we're carrying, we carry out sort of quite regular surveys a day on and over the sort of final quarter of last year and indeed the carried through to the first quarter of this year, um, around one in five DC schemes said they they've seen an increase in the number of members opting out or or reducing contributions.


    Speaker 1:
    So admit that might come from quite a small base because auto enrollment has generally been very successful in getting people into pensions and staying there through inertia or or whatever else. Um, but we are starting to see that there there is an increase in the numbers coming out of pensions and and I think you know, in a way that's that's OK, potentially for the short term, because it's not for us to tell an individual that they need to put money into the pension for the future rather than whatever their their sort of day to day needs might be now.


    Speaker 1:
    But as long as they understand what the implications are, you know, talking about company contribution that they might be losing out on and thinking about Actually, this might mean you need to stay in work for another two or three years at the end of your career. Uh, as long as people are aware of that decision, um that the consequences of their decision, I think that's fine. The trade off and hopefully it will be a short term situation, and we will see people coming back in again afterwards.


    Speaker 0:
    Yeah, and there's quite a lot you can do here. You can set it up so that six or 12 months after they cease contributions, they get a prompt to say, Yeah, you've had you've had a You had a little holiday. Now think about seriously think about rejoining, and that's what I'm seeing, certainly with the master trusts that I work with, as well as a lot of material being put out there to help them with the cost of living in other ways so that they can understand the importance of trying to keep affording that pension contribution.


    Speaker 0:
    We've all of you mentioned things like outcomes or income replacement, so I just want to get just hope. It's not too simple question, but what is a decent retirement pot look like? So it's very vague. I know it depends a bit on salary. What age you retire. But Anna, But what are your thoughts around? How you you build? I mean, is it is it? Is it? Is it a finite sum of cash? £400,000. Good. £200,000. Bad? What? What should we? I think the reality is that it's very dependent on


    Speaker 0:
    in individual circumstances. So there will be lower earning, um, lower earners who will have a lot of their income actually replaced by the state pension, so they will be in a position where they don't have as many challenges when it comes to retirement. Very high earners. I think it's, um, they'll probably have access to other pools. It may be invested differently, and then you'll have the middle, which I think is probably the bit where we're facing the biggest challenge. I think it's very hard to define a


    Speaker 0:
    specific percentage, and it will depend on the position that they're in. I think the really important thing, though, is as part of this conversation and part of this debate. We make sure that woolly, nebulous terms like member outcomes are replaced with terms like income replacement so that schemes are able to focus more on. Are they getting as many people as possible, for example, to a minimum income replacement level? Factoring in what they were their expectations would be for state pension.


    Speaker 0:
    There isn't a Nirvana situation where a plan can know everything about every individual's financial circumstances, where they have an ISA. Whether they've inherited some money from a parent. Um, so the thing we have to do is with the knowledge that we have available i e. What the state pension will be. They have the plan's contribution information. We need to focus on income replacement for the default and getting as many people to a minimum income replacement. And when you say a an income replacement, is that


    Speaker 0:
    DB is that as a percentage of whatever their final salary was. I mean, obviously, DC and DB work slightly differently. Yeah, I mean, it's perfectly possible. We've done a lot of modelling where we've looked at people's expenditure and retirement, how they are spending it, be it on housing, on transport, on health costs on discretionary spend. And it is possible to look at that data to work out a calculation that would be appropriate for your plan and for the demographic of your plan.


    Speaker 0:
    OK, thank you. The other bit is, I suppose there's two parts to whatever pension pot you're aiming for it it's how much you put in. And then what that money does afterwards I have Is there Is there a rule of thumb as to how much of your final pot tends to be contributions? And how much is investment growth? Am I being overly simplistic? A. Can I get your I mean, I've always told people put in as much as you can.


    Speaker 0:
    It is as simple as that as you as you're going through, balancing it with your your other needs. But I think just picking up on the earlier point, the interesting bit. Here is that we give people an income their whole lives. Don't you have a salary? You know what that looks like? And then suddenly we say, Here's a pot of money. It's £100,000. Feels like an unimaginable sum to many people. And yet, you know, and the matter is quite simple. If you're drawing it out 20,000 year, It's gonna last you five years


    Speaker 0:
    because, you know, over that sort of short period of time, the investment return. Sorry, Annabelle isn't going to make a lot of difference, and it kind of is as simple as that. And, you know, it's a conversation I'm frequently having now with my 80 year old mother, who's only got DC. It's quite unusual. Um, she keeps saying, How long will this money last? Me and I said, Mom, it's time to buy any


    Speaker 0:
    Um, but of course, that's not realistic. When you when you're 60 you want to feel that you you can draw on that pot for a period of time, but but I think it's very, very difficult for people because we've we've grown all grown up in a DB environment or an environment where we've had an annual income to suddenly make that leap between a pot


    Speaker 0:
    money that feels very big but actually may not last us 20 or 30 years. I think there's a very important point there as well as there will be a lot of people who will be anchoring on the experience their parents have had. And most, unlike her mother will probably have had some DB, if not all DB in terms of their pension.


    Speaker 0:
    And they'll make the connection that that looked OK over there. They had a pension. Their retirement looks all right and there will be a lack of recognition that they're in a different kind of scheme. That they're in a DC scheme and how much they've saved will be critical to their ability to have a comfortable retirement. Um, so can I get your thoughts? So you mentioned outcomes, I think earlier. So what? What do you mean?


    Speaker 0:
    But


    Speaker 1:
    what I really like that sort of come out over the last few years is from the P l. A. The Pension Lifetime Saving Association, the retirement living standards. If you're familiar with those where they've attempted to define how much expenditure does a certain standard of living cost. So they've defined a minimum moderate and comfortable standard of living, sort of similar to the analysis you were talking about and how much that actually cost.


    Speaker 1:
    And that then gives us some sort of targets to think about. And so we can talk to sort of members of DC schemes and say Right, Well, if you're looking for this standard of living in retirement and here's some tangible information about what that means in terms of holidays, food, shopping nights out, then this is roughly how much it's gonna cost in today's money.


    Speaker 1:
    And then we can then use that information to say, And this is what you're on track to get based on your current situation, with your current contribution rates, our future expectations for investment returns and whether there's going to be a shortfall. And we can think about state pensions as being part of that, that sort of income. What we can't necessarily do is work out all the other sources of income people might have, but I think for the masses, I think that's a really good


    Speaker 1:
    kind of, um, rule of thumb to start with and say, OK, let's let's assume our DC plan. We want to get everyone to a a moderate living standard in retirement. Are we on track? Are we on track for everybody? Are there different groups that that might be on track and might not be?


    Speaker 1:
    Um, and I think that's really useful when en enabling sort of employers and trustees of schemes to really understand what they're going to be delivering for their members. And actually, what action can be taken if there are going to be shortfalls? You know, whether that's changing the design and paying more in from a company perspective or trying to encourage individuals to save more or or sort of tweaking the investment design and thinking we need a bit more return for investments. I think that sort of target that we can aim for them really can inform


    Speaker 1:
    essentially how we're running the the DC plan for the for the member's benefit


    Speaker 1:
    and


    Speaker 0:
    Steve, we talk about the the group in the middle because obviously people who got tonnes of money in a sense, if even if they didn't run it tax efficiently, that they're gonna be OK, and then you've got those who who've never earned or very little. So in a sense that there's never going to be much of a pension pot out, you know, to sit on top of whatever state provision is. But But this group in the middle in terms of salary, what range are we talking about? What range do you think about


    Speaker 0:
    for for for the for the the problem. I think


    Speaker 1:
    we we'd start with looking at something like sort of median salary. So it was about sort of about 35 to 40,000 year or something like that, I think at the moment, depending on which part of the country you're looking at. So I think that's quite a good starting point when you're thinking about a moderate outcome and a median earner that that sort of makes sense as a as a yard stick. But then


    Speaker 1:
    it does make sense to look at it from the perspective of other people as well, like, say, higher and lower earners and people on that spectrum to because it's not gonna be appropriate for them all to have the same target. You know, that's that. That's that takes a bit of thinking about is OK, well, if we're looking at a scheme from an adequacy perspective. And is it delivering? We need to be thinking about what's the right target for different groups?


    Speaker 0:
    Alison. I've come to you. You mentioned your mum's in DC, and she's 80. So this is probably, um,


    Speaker 0:
    this question probably clashes with that. But, um, given DC is fairly young, as as a as an industry, if you like, do the issues of accumulation. How much income people need a retirement? Are they actually front of mind for most schemes? Or are we still at the That's the thing at the minute. They're almost a theoretical problem because most people that have have hit retirement of DC now have got a modest part, and they're just going to draw it out, as I said over a short period of years, almost perhaps, to bridge them until the state pensions


    Speaker 0:
    starts, you know, so we haven't I don't think, as an industry properly cracked that problem, and there's another interesting one as well. How many times do we hear or even see in those features in the Sunday magazines? My house is my pension. No, it isn't. It's not going to give you an income in retirement. If you sell it, where are you going to live? And I I hear that a lot from people. Oh, I'm gonna downsize and then I'll be OK. And they haven't thought through the maths of that at all. I think part of the challenge as well is when people talk about downsizing,


    Speaker 0:
    they don't actually want to downsize. They don't actually want to reduce the footprint that they live within. They want to just have the ability to take some equity out, but they don't really want to move. Some of my parents, for example, have done exactly that. So that's one of those challenges that thinking that I will release a lot of equity from my house that will help support my retirement.


    Speaker 0:
    But the reality is downsizing may mean completely changing the area you live in, being further away from family, from friends from the life that you've built. And it's not always palatable for everyone. And presumably every time you move house, I mean, it probably cost you about 20 £25,000. £30,000? Yeah, So you're you're taking that out of the system, But just coming back to this accumulation point. I mean, is it


    Speaker 0:
    as you look at JP. Morgan Asset Management? I mean, is Is that in Alison's word, still a bit theoretical? The idea of what accumulation looks like, Or you you starting to see it having a real impact on some of the schemes that you're dealing with. I think it's something that we've been thinking about a lot. We obviously have a presence in the US and the market. There is at least a decade ahead of the market here in terms of DC and over their 41 K. So we have been able to help lots of plans and lots of clients in the US with Deum thinking and products,


    Speaker 0:
    I would say in the last six months or so, I'm talking about it increasingly, with clients. I think they're thinking about the fact that within the next five years we'll start to see an increasing number of people who just have a DC underpin like her mother. Um, and we need to make sure that we're thinking about what kind of solutions we're putting in place for them because there are a lot of them that don't want to take advice they're reluctant to spend the money. They're not sure what it will tell them.


    Speaker 0:
    And there's a gap there for people. Um, when they're thinking about their retirement and what kind of solution they need to go into.


    Speaker 0:
    And Steve, where? Where? Where's a think at the moment around when somebody retires, what their pot should be? Because traditionally, everyone said, Get yourself into sort of guilts and cash and you, you know you're mirroring the annuity or if there's a bump in the stock market, you're out of that. It doesn't. You know, if the market fell 20% your pension wouldn't


    Speaker 1:
    off you go. So, in terms of that sort of yeah, that as allocation question around, um, retirement, I think, given what we've seen since sort of 2015, when the the pension freedoms rules came in, that that essentially meant that most DC members no longer were gonna annuit and sort of needed to worry about annuity prices at retirement.


    Speaker 1:
    We've very much been of the view that you you ought to be thinking about investing through retirement and not just to the point of retirement, you know, it's no longer a kind of a right at this date. At this retirement age, you're going to take your money and just do something with it very much. The case that actually that money in in some cases might stay invested in another 10, 20 years, or or longer if you know, people do sort of continue drawing flexibly on on their income and retirement. So on that basis, I think any any allocation


    Speaker 1:
    needs to still take into account growth. Delivering growth on the assets needs to think about inflation protection


    Speaker 1:
    and and to Annabelle's point earlier needs to be diversified so that in difficult times people don't think well, I can't take anything out this year because because the pot's fallen too much. Um, so we need to have that diversification and that that's some protection in there against volatility. So it's no longer a case like you say, of matching um, annuity prices and thinking about fixed income investments. It's It's very much a case of


    Speaker 1:
    probably taking less risk than when you're 2030 years out from retirement, but still taking a little bit of investment risk and and having that growth there into retirement as


    Speaker 0:
    well. So have you got on the the medium earner. Who's put, you know who's hit all their auto enrollment? You know, they put they put their sort of 8% in a year or whatever with matching, and


    Speaker 0:
    they they get close to retirement. What what should they be? How big should that pot be? What should it be in? Should he actually now? You think? Actually, it sounds a bit counterintuitive, but it should be 60% equities and 20% corporate


    Speaker 1:
    bonds. Well, I I don't think


    Speaker 1:
    I don't think the size of the pots well unless the pot is relatively small, in which case they might just be taken out as a lump sum and paying off the mortgage or or similar. And then, obviously you don't want any investment risk if you can help it because they're taking the money out. I don't think the size the size necessarily informs, you know how it's invested. It's more the duration, how long people are expecting to to carry on drawing it, drawing from it for, um in terms of kind of the what that that percentage split looks like in different asset classes. I mean, I think


    Speaker 1:
    I think we would we would recommend sort of considering, um, continuing that de risking process throughout retirement. So it's not a case of right. We're going to go to 40% growth and 6% defensive. It's a case of right. We might start there. And then we might sort of derisk until people sort of into the seventies and even into their eighties. So we're kind of gradually coming out of those sort of growth assets. Um, and I think ideally, in many cases people probably still would buy an annuity. But just at our old older ages,


    Speaker 1:
    Um, although the alternative now that we're hearing more about is is CDC, as you mentioned earlier, which you know, could could be a retirement option for for people as well, where they don't want to have that worry or that decision making around how the money is invested and and are comfortable,


    Speaker 1:
    somebody else making that decision and and deciding what income is appropriate. Well, on


    Speaker 0:
    that point, I just get to a point that sound glib. That 75 is the new 65 for Renew and you know, 75 could be 18 and I saying about anchoring other people's experiences. Of course, she says. Oh, I don't want to buy. Your father had to buy and it was terrible. It was a number of years earlier and you didn't get a great deal like No, Mom, Yeah, I think that I do. Having observed it, I think there is a point at which you don't want to be worrying about the pot running out.


    Speaker 0:
    And if you think you're in good health and that's that's the time to do it. Obviously, if you if you're not so certain about your health, it's different. But then you won't want to be making those decisions. And that's to say, that's what I worry that we're We are forcing people to worry about how much income they can can afford to draw out. You know, um, every year for the rest of their life and having it close up. It's not good.


    Speaker 0:
    Um, just because we mentioned collective DC, the insurance that you mentioned early early days for the industry. But what are what are your thoughts on on it as a Because there's obviously an element of pooling in there is a positive or negative Do you think, um so I should say I'm an actuary by training. So I know, um, the the pooling of risks in retirement at the sort of ages I've just been talking about I think is is a good thing.


    Speaker 0:
    I'm not. I haven't quite got my head around it for the accumulation phase because having you know, we're in a mindset where I want to know what my pot is and have control of it. And you don't really have that with CDC, it's a greater a greater thing. But I think for me, probably the benefits of the pooling of investment and mortality risk after retirement are going to be a good thing,


    Speaker 0:
    Anna. But you you you mentioned diversification area. So what What's your thought of what you know, standard DC pension pot


    Speaker 0:
    would would look like at at retirement. What should it be in? And have we got enough of the right kind of diversification tools in there? At the moment, I think it has started to shift. So back to the earlier point pre 2015, you saw the end of the glide path looking like guilt and cash.


    Speaker 0:
    That was it. It's clear now that that isn't the appropriate end point because There are people who, while there will be still some who are taking annuity, and it makes sense, There are a lot who aren't so, I think, the end of the glide path whilst I would agree with the broader de risks in journey, although theoretically to your point,


    Speaker 0:
    increasing equities is the theoretical thing that you would be doing as you're going into retirement. Um, I think it needs to be really, well diversified. I think you do still need some growth assets in there at the end, because there will be people who will need that pot to last a bit longer and they'll still need some additional growth there. And I think it is a mix of different asset classes. It's a mix of fixed income, a mix of some equities and some other growth assets. Maybe some multi asset as well at the end


    Speaker 0:
    are there What about other


    Speaker 0:
    in terms of asset classes like liquids? Because we had a lot of chat about, you know, infrastructure, private equity, and the problem always seemed to be daily priced funds. We can't get it in, but this is this is this This was the good stuff. DB had that


    Speaker 0:
    DC couldn't get its hands on at the moment. Do you? Do you buy that argument? I think historically that has been the situation. There have been lots of impediments and lots of barriers to DC plans being able to access the liquids and more alternative asset classes. I think that is shifting. Now. We've had the introduction of different regulatory, UM, approved vehicles like the, for example, although the vehicle has been around for for plenty of time and would serve the same purpose. Um,


    Speaker 0:
    I think that there is a lot of merit to being able to diversify the default fund. Be able to get some of that risk premium from alternative asset classes, which will often behave differently to equity markets, which is really critical. I think there's an interesting conversation to be had about the transition into decimation, particularly when you start seeing that members will be looking for


    Speaker 0:
    sources of return, so a greater focus on income. So, as you say, asset classes like infrastructure potentially start to make sense as an allocation that continues into retirement. I think it's, um I think it's a very exciting time. There's lots of focus on it and there's lots of discussion around it right now. And and and Alison as a as a trustee, it's just as the point at which somebody is. If I say finally, off the books in this, it could be quite elastic, depending on what they do, how long they stay in defaults,


    Speaker 0:
    who you hand them over to or suggest they go to for advice. I mean, do do you worry that actually, your relationship will be start of people's working life to their grave rather than start a working life? But that is that is the reality. Hopefully. And if we if we've got this right, that is, that is how it should work. Yeah, yeah.


    Speaker 0:
    So in terms of I think one thing that's really come out from this is you can talk in broad terms, but everybody is different. Somebody might look like they've got a small pension, but their partner has a massive how you bespoke it. Do Do you feel that as a master trust, you've got enough resources or will have enough to be able to provide that? I would say, I don't know if I say individual advice, but certainly


    Speaker 0:
    enough bespoke options. There are guidance. There are tools we can provide. No, it'll never be as good as individual personalised financial advice. But not everybody will need that. I don't think. But, um, To say, there are just so many options you get quite interested in what you're saying about, you know, you're in some I liquid thing that's throwing off an income. And actually, then you don't have to in your because you've got that stability of income. I think there we can just


    Speaker 0:
    just do so much more with this if we think of it in terms of not just, I think, what we always thought about building a pot and then you know our problem. Whereas actually, if we think about providing an income for for the whole of life, that is the way we've got to be thinking about it and investing accordingly, I think sometimes I was just gonna say that perfection on the default and making sure that it meets every single last person and it can get in the way of actually


    Speaker 0:
    potentially a solution that would do for most people to your point earlier, The very high earners, they're probably not the people that the trustees will be exceptionally worried about because they have potentially taking other advice. They've got larger pools of assets. I think that


    Speaker 0:
    I think sometimes perfection and trying to be individually tailored to every last individual can get in the way of making some very appropriate investment decisions, for example, or other decisions be that administration or communication, which actually would serve the majority of the members in the plan. And Steve, we got about five minutes. But one thing with DC is obviously it's it's growing as people put money into DC, not DB. So if you look forward five or 10 years,


    Speaker 0:
    presumably DC will have a lot more scale in it, just a vast number of more assets coming through. What are some of the pros and cons of that? What will that allow the industry to do? What are some of the things it slows the industry down on it? It just makes it much


    Speaker 1:
    tougher. I think it's probably more pros than cons. I'd like to think, um, taking the positive outlook. Um, I I think as scale grows, usually that means costs will come down.


    Speaker 1:
    But having said that, I think there has been quite a focus on cost, certainly investment costs in recent years. That's not always necessarily driven the best outcome, because it's all about keeping the cost low and actually in a bull market, fine. It's almost a free lunch. You know it. It can be a cheap, passive fund, and it will do really well. But actually, when markets are more challenging, that's when there is a bit more value in sort of active management or sort of more sophisticated investment. So


    Speaker 1:
    the bigger scale, I think, will allow DC plans to offer more sophisticated, diversified investments at a lower cost than they can currently. So it's almost the best of both worlds, I think, from from that perspective,


    Speaker 1:
    um, and and as well, I think it will also encourage the development of more Inno innovative type solutions. So, you know, we've talked a lot about retirement, uh, solutions today, and in an ideal world, yes, everyone would get financial advice and they could hit retirement because that will help them make the right choices. But, um, for a lot of people, that's that's for whatever is not gonna be possible. But I think the more scale that that's in DC. The more assets that are in DC,


    Speaker 1:
    the more we will see that innovation, where people will build package products that work. That sort of do something clever behind the scenes and quite straightforward for individuals to understand. So that's my positives for DC going forward. Thank


    Speaker 0:
    you, Alison. We talked about cost. How do you prove value for money given the regulator is keen on keeping costs down. Theme really, of this whole debate is just how much you have to do to run a successful DC scheme.


    Speaker 0:
    Yeah, and I just really echo that point. It's not just about the cheapest is the best because you know it. It probably is worth spending a bit more on investment. It's worth spending to get the admin. I would just like to see this. As you say, the scale of the thing grow an understanding of what it should cost. I think there's some surveys where they ask people they're not even aware they're paying any charges. So that's why I think you know, the


    Speaker 0:
    the role of of the the trustees in the master trusts of making sure that that charges aren't excessive is important. But having said that in the workplace, it's a very competitive market anyway, and the employer is looking for a good deal, so that's OK. I think that the pocket of poor value is probably more on the individual retail side, people in much older products, and they haven't looked at it lately and they don't they don't understand what they're paying, So so that's where I really see the challenge.


    Speaker 0:
    Well, how about what is a fair price for active management?


    Speaker 0:
    That's a very, very broad question on that bombshell. I I think that I would I would echo just on the point some of the focus. Sadly, before the market has been able to able to achieve real scale and we're expecting, I think by 2031 it will be close to 1.2 trillion. It's going to be huge. It's a very significant market,


    Speaker 0:
    and I think unfortunately, in some regards, the introduction of the child cap charge cap meant that it all of the focus became on costs rather than letting the market grow. And naturally, as the market grows, it becomes more competitive and prices come down. That's what we've seen in the US That's what we've seen in Australia. I think that, um


    Speaker 0:
    what we would be really keen to see is that the decision making treaty changes slightly. So if you have a plan thinking about what's their income replacement target, what are they trying to achieve Their plan then thinking about the asset classes that they need that will help them get there, then thinking about how you implement them and then thinking about what's the most cost effective way to access those asset classes?


    Speaker 0:
    OK, thank you. Now we're pretty much out of time, so I want to get a final thought from each of you. I think we've chatted through today. If there's one key point from it you want to leave us with, what would that be? Um, Steve, I'm gonna start with you and then I'll work my way back down the line,


    Speaker 1:
    OK? In terms of a final thought, I think, for for people running DC pension schemes and for company sponsors, it's really just remember what your DC pension is there for. It's there to provide an adequate income to people of retirement and everything. The decisions around design, investment, communication should all be focused around that point, OK? Thank you,


    Speaker 0:
    Alison. Gosh, that's a great thought. Yes, I'll just with a with a more current topic, Please. Please, let's keep members in schemes and contributing.


    Speaker 0:
    Um, whatever else is happening out there. Thank you. I think mine would be that, um my thought is more that I'm very excited about the outlook for investments in the coming years. I think now that investment has taken my perspective. Certainly centre stage for DC. I think this is an incredibly exciting opportunity for plans to think about what they're doing, whether that's allocating to alternatives or liquids.


    Speaker 0:
    And I I think it I'm hopeful that it has a material impact on people's ability to retire. We are out of time. We have to leave it there. Annabelle Tory, Alison Bostock and Stephen Lee. Thank you for joining us.

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