Speaker 0:
Hello and welcome to another episode of the pensions pod. My name is Sam Rossiter. And today I'm joined by Philip Smith, who is director of DC, AT T P T Retirement Solutions. Hi, Philip. How are you?

Speaker 1:
I sound very well. Good stuff.

Speaker 0:
So, uh, Philip, obviously today we're gonna be talking about DC. Um, we've seen recently that we've had the first approval of a CDC scheme. Uh, here in the UK. What do you think the impact will be on the wider DC market?

Speaker 1:
Um, I think it's, uh, CDC presents a number of opportunities for the DC market. Um, and the main debate seems to be around what it can bring to Deum ation and the actual way in which people would generate their income in retirement. It's pretty. It's pretty widely accepted that, at the moment, the current system, I don't think that you know, pension pension freedoms is not really delivering,

Speaker 1:
um, in doesn't deliver a sustainable retirement income or the the options available, don't really deliver a sustainable retirement income without people having to make really difficult decisions. And,

Speaker 1:
um, without quite a lot of friction in the process that can result in suboptimal decisions. So without advice for most people, it's really, really hard to, um, it's really, really hard to make a decision on how to structure your retirement income with DC now. So I think CDC does present some interesting opportunities, Um, on the way forward to to make that journey much easier. I guess the challenge that we've got is that,

Speaker 1:
um, freedom of choice is so sort of now embedded in people's minds, whether or not they they'd be willing to sacrifice that in return for the benefits that CDC brings is a is an interesting question. I think more widely for DC. It'll be interesting to see the outcome of the, um the consultation not on multi employer, um CDC. We, um

Speaker 1:
I mean, I think I I I I I think it given the scale that you need to deliver Um CDC it. It is for rust like t p t to kind of, I think lead the way for for organisations that want to participate but perhaps haven't got the scale to do so. And I think that could bring,

Speaker 1:
you know, some real benefits for for certain organisations that maybe are not entirely comfortable with the pure DC approach to accumulation as well. So yeah, wait. Awaiting the outcome of that consultation of interest,

Speaker 0:
OK, And, uh, also on on DC Why have, uh, illiquid become more of a focus for DC schemes in recent times?

Speaker 1:
Um, I think it's about enhancing uh um, enhancing and diversifying long term returns. That's what it really boils down to. We're in a market with DC where there's been,

Speaker 1:
um, you know, quite a historic focus, I guess, on low cost, passive only solutions. And given the the economic environment that we're currently in finding, um, finding extra sources of return to, um help, help drive better member outcomes, I think has been increasingly difficult in public markets. And so when you look at, you know, the the expected asset class returns from equities, bonds,

Speaker 1:
cash it, it it's hard to see. Um, you know, generating the return, generating the returns that members want in excess of inflation is gonna become, um, harder. Uh, you know, much harder than it has been say over the last 10 to 15 years.

Speaker 1:
So private markets, you know, present the opportunity to help drive that that extra return and provide some diversification as well, so I think that's why people are interested in them.

Speaker 0:
How do we persuade members to contribute more to their schemes during a cost of living crisis?

Speaker 1:
So I think this is a really difficult question. It's something that, you know, I've thought long and hard about. I think where I've landed is that I don't think it's, um

Speaker 1:
I don't think it's the pensions industry. Shouldn't really be focusing on encouraging people to pay more money in times when members have got other priorities and might be facing quite difficult personal circumstances. I think it probably needs a bit of a change in focus to ensuring that people understand what their options are. Um, with their pension. Um, understand

Speaker 1:
the long term impacts of some of the decisions that they might make now will have and

Speaker 1:
put in place support for people. Um, you know, through member engagement or education initiatives to help them find the facts that they might that they need to deal with what might be some very difficult financial decisions. I think it will be very tiered of the industry to try and,

Speaker 1:
you know, encourage people to pay more money into their pensions. In the current environment, I think we need to support educate and really, I suppose just make sure people understand, um, what their options are and the impact of their choices. Now,

Speaker 0:
OK. Hello, Smith. Thanks for joining me.