Editorial
DEFINED CONTRIBUTION
CONTENTS P4 : In figures
Six numbers that define the DC market P5: The participants
De-risking a defined contribution pension scheme is a tried and tested strategy. As a member approaches retirement, they gradually move towards the perceived safety of some bonds, particularly those issued by the British government. The idea is to keep the pension pot away from the volatility associated with equities, which have a place in the early years of a member’s journey to build a long-term retire- ment income.
It appears an ideal approach to protecting value as a member pre- pares to cash-in their pension, but we are not living in ordinary times. The sell-off in gilts following September’s now largely reversed mini budget has reduced the value of such strategies, meaning members planning to retire imminently will receive a smaller pension pot. “Glad I’m not retiring anytime soon,” was probably the most com- mon phase I heard at the PLSA’s annual conference in October when asking those working in defined contribution for their thoughts on the gilt crisis. Yet this reaction could be heard more often in the coming years as defined contribution schemes are facing many challenges. Since the financial crisis in 2008, interest rates, volatility and infla- tion have been low. But things are changing. Inflation is at a 40-year peak, interest rates are rising and the outlook for equities has looked better. So equities and bonds may not be enough to turn members contribu- tions into an adequate long-term income. Workplace pension schemes may, therefore, have to bring more illiquid assets into their default funds.
This could be good news for the government, which has been trying to entice the stewards of private capital to repair and update Britain’s infrastructure. The question is, do DC schemes have the expertise to assess such assets? We sat down with master trusts, professional trustees, asset manag- ers, a consultant and the regulator to discuss the industry as it enters a new phase that will challenge investment managers to earn a suita- ble real return for members. When looking at what has happened to gilts since the end of September, it may not be easy.
Mark Dunne Editor
m.dunne@portfolio-institutional.co.uk
A look at who took part in our discussion P6-21: The roundtable
A transcript of our debate on the challenges facing defined contribution
P22-23: Levelling up in pensions? LGIM’s Rita Butler-Jones wants greater equality for pension scheme members.
P24-25: DC investment in a new market regime Newton’s Mitesh Sheth explains what happens now that the ‘super bubble’ we have seen for the past 40 years has burst.
P26-27: Feature: No time to retire The gilts crisis has been bad news for a certain group of DC members. Mona Dohle reports
November 2022 portfolio institutional roundtable: Defined contribution
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