Discussion – DC Multi Asset


Government should stick to governing the country and let us gov-


ern pension schemes. Alan Pickering President Best Trustees


benefit from that, as part of globally diver- sified portfolios. But it will be a smaller piece of a bigger pie. The big pie being what is going to drive better outcomes for DC savers in terms of wider investment opportunity, not just illiquids. Accessing the wider investment opportu- nity set might attract a higher cost point, but we should be less concerned about whether that is 20 basis points or 70 and be more concerned about whether a par- ticular opportunity is going to improve outcomes longer term net of those costs. We are not there yet. For me, the solution is to ensure we embed an unconstrained framework in the UK. There are different beliefs across our industry and there is lit- tle freedom to deploy them as cost contin- ues to dominate focus. Providers are con- strained because we know at the end of the story there is going to be pressure on cost.


Last year, we could have done better as an industry. The average return for an older saver was about -15% across master trusts, for example, reflecting an investment opportunity set constrained by cost. Some negative performance perhaps came from too much duration in bond portfolios, but shorter duration and global diversifica-


36 | portfolio institutional | September 2023 | Issue 126


tion would still have likely provided nega- tive returns overall. We should be target- ing much better outcomes, but it will require a higher cost point to get there. Pickering: Where we can help govern- ments is by being responsible investors. It is our role to make sure that whoever is investing and wherever they are invest- ing, the money is appropriately deployed and well stewarded.


It is our job to make sure that what people save is put to good effect and they will get value


for money. And in that way,


hopefully, we will get growth and govern- ment will be able to get back to doing other things rather than trying to pre- scribe what we do. Governments killed off defined benefit through over prescription. It would be sad if they were to kill off DC innovation by being similarly prescriptive here.


What lessons did you learn from the mar- kets in 2022 that you will be putting into practice? North: Diversification. There is a poten- tially beneficial outcome from the push into less conventional assets, whether it is government mandated or by design. That is, when thinking about the difference


between the past 40 years and what we think of going forward, the trend for low interest rates has been a beneficial envi- ronment for all assets. So just owning the market has been fan- tastic. Being equity heavy in the early phase of the lifecycle and then owning more fixed income later on has been a good solution. We are probably now in a world where we might have a decade of not much in terms of market returns. In order to deliver the growth Alan was talking about, you will need to look for other assets.


On the growth side, you need other assets to get diversification and other forms of return. And that is addressing the savings rate point that was raised earlier. That is how you build up those savings. But the real lesson from 2022, from our point of view, is that there is building up your savings and then there is maintain- ing what you have. When you start to think about retirement, starting to gener- ate an income, starting to think about how big your pot needs to be to cover the rest of your life, suddenly holding on to what you have is important.


The way to do that has been a version of life-styling, so you become more fixed


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