If there are worthwhile infrastructure
investments out there, as an industry we will find them, regardless of
government directives. Steve Delo, Pan Trustees
ing their money as cash because their pots are small. That will change over time. We are looking at what this means for people approaching retirement and how that will change as pots grow. It is part of the circle that we have to keep squaring. Fearn: CDC is not going to rear its head much in accumulation. Steve Webb talks about flex first, fix later. He has a concept about retiring but not buying an annuity until you hit 80. It is a mindset of “this is my pot to use in my retirement until I die, it is not to be used as an inheritance”.
There are some concepts that master trusts are trying to build something around to allow that en masse solution. We will need something for the middle pot people who need more than the state pension but do not want the advice piece. I hope we can get that before that wave hits.
What will be the biggest investment challenges for DC going forward? Humble: Being in a different market regime. There is a genera- tion within the industry who have never seen equities fall or a high inflationary environment. It will be interesting to see how investment strategies adapt. Delo: We are entering an era of explaining disappointing outcomes.
Smart: The big investment challenge is knowing what to pro- vide for members.
They do not know if they want to buy an annuity or drawdown their money. It is not like DB where we broadly know what we are shooting for because we have a liability profile and can invest accordingly. Sheth: A quick mindset shift is required to move away from assets that have benefited from low rates, central banks print- ing money, low volatility, and low and manageable inflation rates into strategies that are likely to benefit from a market regime that we have not seen for 40 years. We are entering a potentially decades-long new era, so we can- not wait it out patiently. Some of the maxims we use, like ‘diversification is a free lunch’, were developed over the past 40 years when they worked. We might have to review not only our models and assump- tions, but some of our investment principles, too. Another challenge will be looking at things that have fallen out of fashion because they did not work for so long, such as cur- rencies, commodities or other liquid alternative strategies that could bring diversification to a portfolio at a reasonable price. Quite a significant shift in approach is now needed to deal with this new environment.
November 2022 portfolio institutional roundtable: Defined contribution 21
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