DC DEBATE


Can member data help tailor default investment solutions and even choose de-risking paths?


John Reeve: Default funds are a very blunt instrument, despite the fact that more than 90 per cent of members are invested in them. Where you are invested is often based merely on when you joined the plan and your age. There is no consideration of personal circumstances. Full data about a member’s financial position


(not just their pension) plus data on their beliefs and their aims in life (all of which are available for most people in one form or another) will enable targeted, dynamic portfolios to be created. Indeed, in a world where artificial intelligence makes most of the decisions for us, the concept of default funds goes away as we each have an AI-based asset manager working in our interests and to our requirements. The criteria for identifying a default strategy is


IDENTIFYING A DEFAULT STRATEGY


IS ALREADY CHANGING


CRITERIA FOR


THE


already changing. There is very strong evidence that people now look at whether their savings are doing good in the community or environment as much as they consider what financial return they are getting. Hence environmental, social and governance considerations are being taken into account.


Mark Rowlands: Defaults need to be built around members’ needs. Our member data and research into their preferences showed our members would be largely new to pension saving, be likely to stay


Employers ignorant of existing solutions Current level of employer awareness by type of tool


decisions on funding and investment Tools to encourage saving


and improve understanding Analytics platforms to help make


‘At-retirement tools’ for individuals Member outcome analysis platforms


Tools for individuals to view and edit personal info and savings preferences


Investment advice/monitoring platforms Automated member


Financial planning tools


Administration platforms and biometrics Contribution collection or


payment systems Source: PwC


0102030405060 %


communication platforms Covenant monitoring


return they are getting John Reeve, director, Cosan Consulting


There is strong evidence that people now look at whether their savings are doing good in the community or environment as much as they consider what financial


invested in the default strategy, and have a strong desire for predictable investment returns. The overarching objective of our default funds,


where 99 per cent of our members are invested, is therefore to grow their money above inflation after all charges over the long term without taking more risk than is required. To deliver on that, we developed a range of 47


single-year target date funds, one for every year a member could retire. Fromour extensive research we knew this solution would allow us to provide sophisticated, age-appropriate risk management for each of our 8m members, while taking account of economic and market conditions. We do not, however, think schemes can or should try to be too granular in offering numerous permutations of default strategies, as this is likely to run two major risks. One is spurious accuracy, and the other is that the data you have on individual members, or your interpretation of what that data should mean for their investments, could be erroneous.


Samantha Chandler: Tailoring is possible now with the data that already exists in many cases. How far this is taken will depend on the data being collected, its integrity and reliability, and also the attitude and appetite of individuals towards how it is used. ‘Lifestyling’ is a very old- world example where using data was accepted to make changes to investment choices. The data available now is far richer, so the potential to use it for far more sophisticated means is huge.


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