Rob Booth: If we held this roundtable two years ago, would the conversation have been similar? It feels like we’ve been hearing for a while that: “Returns are going to be low and volatility will return, so it’s going to be a bumpy ride. Let’s start preparing for it.” In the defined contribution (DC) environment, if members read that in the press they might sit in cash. 2018 would have been a nice year to be sitting in cash, but that corrected itself earlier this year. The world seems to be controlled by central bankers, so it depends on what happens in that environ- ment to determine the sort of volatility that could hit the markets. Andy Scott: In DC volatility is very much around investments, what’s happening to assets. On the defined benefit (DB) side, it is about your definition of volatility. Is it assets going up and down, or assets changing compared with the cost of your pension? So the funding level, effectively. If your assets are going up 10% but the cost of a pension is going up 20%, you are in a bad position. So for DB schemes, volatility is more about how the assets vary compared with the liabilities. That some- times is quite difficult for trustees to understand or to get across. Drewienkiewicz: The time horizon for a lot of DB schemes is getting pulled in and with volatility what’s important is your time horizon. It is different for the DC scheme that Rob’s looking after where it is potentially dangerous for people to have too many levers that they can pull because they don’t want to worry about it too much. But for DB schemes where the time horizon’s coming in, people are starting to think about buyout. Obviously, you can be more sensitive to a bit of volatility and it might make a difference between being able to buyout now or pushing it out for 18 months. Booth: In DC, we might have a long-term horizon but if a member looks at their benefit statement and the £1,000 they have put in over the past 12 months is now worth £800, they start thinking: “I’m not sure about this pension thing.”
So it is getting the right balance as trustees. You have got to have your foot on the pedal but without scaring the horses. Scott: The financial education of members is a big part of them not getting scared by that £1,000 becoming £800, especially when they are 25 and have 40 years until it all comes back to them.
PI: Have trustees been focusing on financial education in recent years? Booth: Yes, but, from an auto-enrolment per- spective, when you have all these new savers you must be careful what you wish for. Only a small proportion of members open their ben- efit statements or register online to see what their pension is worth. The whole idea of au- to-enrolment works because of inertia, people weren’t engaging. The more they engage, the more they understand, the more scared they could potentially become. So in a way it is great if they are not looking at the valuations, especially if markets are go- ing to drop. If they start understanding a little bit then that knowledge can be dangerous. They could start thinking: “I didn’t want to be here… I’m out.” Bart-Williams: The clarity of the objective is crucial here. It is one thing to measure the value of the assets versus the value of the
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