Ideally, we want those who decide which DC schemes to use do so based on the best outcomes for their membership. We want competition in the market, not just on costs and charges, but on good outcomes, too.
Due to consolidation, it will be interesting to watch how the market develops when there
are several large master trusts. Veronica Humble, Legal & General Investment Management
The government wants DC schemes to invest in infrastructure. Are you interested? Philip Smith: We have been looking at alternative sources of return within our default funds. We have made some early investments in private markets during the past 12 months, which includes elements of green infrastructure. Infrastructure definitely has a role to play in diversifying sources of return and balancing out some of the ups and downs we are seeing.
How easy is it to access these assets? Smith: We access them through publicly traded vehicles, simply because of the operational constraints of having illiquids in the portfolio.
DC life-styling is still right and is the approach we take at Now Pensions, where we move people out of riskier assets as they hit their retirement glide path. We have to recognise that for a new scheme like Now Pensions, where balances are quite small, most members take their money as cash. That will change when we see balances grow. Sarah Smart: You cannot maximise an outcome until you have defined it. You then need to decide how you will measure what is being delivered. Then, crucially, when talking about life-styl- ing, you have to ask: “Do you have the flexibility to change course if outcomes are not as expected?” All of that will blend into our Value for Money framework, the key tenets of which are investment performance, costs and good governance. But it is not about keeping costs as low as possible. It’s about understanding that paying a bit more for a better outcome is worth doing.
I suspect that as the industry grows in scale and the infrastruc- ture begins to adapt, that will change. Segars: I feel a sense of déjà vu with the government pushing pension funds into infrastructure. The Pensions Infrastructure Platform was created back in 2010 and we are still having this discussion. I have always been a fan of infrastructure, believing it to be a good asset class for pension funds, but it is more than just tell- ing them that they should invest in infrastructure. It is also about having the right pipeline for pension funds to invest in. We will look at it as we grow, but infrastructure is not some- thing we are doing right now. To do it directly, which is where you get the most influence, you need to be quite big and many of us are not there yet. Humble: We have a significant allocation to listed infrastructure within our standard default funds, amongst other listed alternatives. To consider an illiquid infrastructure allocation, you need proper scale and diversification. You cannot have a big slug of one asset class which is illiquid and difficult to deal with. The conversation about value for money will help. The focus in the industry is still too much on costs and charges, but this is changing. Conversations have moved from: “It is interesting, but we have no idea how to approach it,” to: “What are the con- siderations, limitations and barriers that we need to think through and how do we overcome them.” Lydia Fearn: Smaller schemes tend to get the short end of the deal because they do not have the governance budget. The larger ones need to push it through to give smaller schemes more access. We are living in the 1980s in terms of giving DC schemes suit- able access to infrastructure. Platforms do not have to give
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