your assumption maybe you can get that when the pot is big. That is crucial to your outcome. If you get a big return when the pot is small and a tiny return when the pot is big, the impact on the overall outcome is enor- mous. That is why we say focus on measuring the outcome for different cohorts and think about different scenarios for assets. If you are clear about what outcome you are looking for, you will be better able to react in ways that meet that outcome. We have seen the issues inflation can create in assets. Under- standing how that affects different members at different parts of their journey and acting on it is key to achieving the out- come you are aiming for. Delo: This is the nature of the beast with DC because you can- not control much around outcomes and thus member dispari- ties are inevitable. There will be winners and losers and differ- ential outcomes which will be problematic over the years. It will take some member understanding. It will test communica- tions. We will have to go the extra mile on getting members to understand what is happening, what can happen and why. Smart: Is it about getting members to understand what is hap- pening or making sure they tell you what they plan to do and when so you can make sure they are in the right place? Delo: It is a bit of both. This is quite challenging and not just for master trusts. DC as an overall concept is still not that well understood by members and I suspect they generally think outcomes are more certain than they are. They do not under- stand the cliff-edge nature of some aspects and, therefore, we have to up our game in that area. But it is still, as I said, unfor- tunately, it is the nature of the beast. Humble: We also often overestimate how well people are prepar- ing. When we did focus groups research on how people approach retirement, they are disengaged, disengaged, disen- gaged, and then they are super-engaged. So people are engaged, but it is broadly in the last six months when they are close to retiring, so they are well prepared but they are a bit late. Smart: Is that because we are not engaging with them until six months before they retire? Humble: From our research this was much less about their retirement investments and much more about their stage of life and uncertainty about life events. Smart: It is difficult to say people are not engaged 10 years before retirement if we are not trying to engage them. If we were sending lots of communications which were simply thrown away, then it might be the case. But I don’t think that is what is happening. Look at Nest. When its 12 million members reach retirement, they will be told to sort themselves out. But many may never have engaged with their pension before that point. There is something needed that would help with that decumulation
14 November 2022 portfolio institutional roundtable: Defined contribution
Most default funds probably are not going to deliver value in real terms if we settle on a
higher level of inflation. Mitesh Sheth MBE, Newton Investment Management
journey for millions and millions of savers. What that regime ends up looking like, is not in our gift. Humble: We send quite a bit. We do have some level of engage- ment, and some methods yield better results. We often overes- timate how uncertain people’s lives are. Delo: From a consumer perspective, this subject matter is sim- ply not attractive or compelling. We struggle as an industry to make it interesting enough for people to look at it early enough in their lives. Fearn: That is why auto-enrolment worked. We just chuck them in and they think: “It’s done, the company is looking after it and 8% is fine.”
There will be a crisis at some point that wakes the nation up to it. I can’t see any other way. It will start to have an impact when people see someone having a difficult time because they did not plan or put enough in. Segars: We need to be careful when we say people did not plan or put more in because some of this is about the system. The system says 8% and that is what most people get in an auto enrolment.
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32
