DC Multi Asset – Discussion
income heavy as you get closer to the mythical endpoint of 65. But that does not work in a world of higher inflation.
Are frameworks helping here? North: The frameworks with which we have looked at for asset allocation for 20, 30 years need to change.
It sounds like we will be still talking about the impact of 2022 in 15 years’ time. North: No, it could happen again in 2027 and we will be talking about that. Hope- fully, our portfolios would have adapted by then so you would not get caught out. Pickering: When you were describing 2022, you asked how we are going to cope in the new environment. There isn’t any- thing new about 2022.
What goes around comes around. There will be another distortion or bout of vola- tility. The new environment is that mem- bers are now in the driving seat, whether they know it or not.
There is no longer an employer underpin and the new environment is the new working and saving environment. There is nothing magic about 65 anymore. We
have to make sure that we have enough money to keep us going until 90 and we are going to have to flex the interaction between work and retirement, pay and pension. It needs to be a process rather than an event.
During the accumulation phase, we have to provide people with access to all of the asset classes DB has had but DC has been denied for all sorts of reasons. We all want the same thing during the accumulation phase, we then have to bespoke it. In later life when people have to decide if they want to spend their money in Barbados when they are 70 or live in a nice nursing home when they are 85. They need to have an investment strat- egy that reflects their desired lifestyle. The money has to keep growing. We can’t stop it growing and just protect it at 65 when we have another 30 years ahead of us. That’s the new environment, not 2022. Fearn: We have been working on our soft default for retirement. This is thinking about pushing those growth assets much further out and looking at a potential moment, which is probably around 80ish,
to annuitise. It might be some of the pot, it might be all of the pot; it will depend on the scheme. The actual
point of annuitisation is
If you start labelling some self-select options as green, some members are probably going to pick them because it fits with their own stance, rather than because it is an appropriate
investment. Natalie Winterfrost Director
Law Debenture
scheme dependent, and members can opt out. But it is this point of how to create a to-and-through investment strategy for members who after so many years sud- denly have to make an active choice about their savings. We are muddling our way through it at the moment because we don’t have masses of DC generation yet. But when the DC generation comes through, we want to be prepared for that. We want to help our members under- stand the beauty of saving, why it’s right and why you need to invest over the longer term, but also how they then man- age their assets until they can do whatever they want to do with it. North: Do they start to take income but still with the aim of annuitising? Fearn: It’s called flex first, fix later. It is like drawdown. You don’t have to think about 65, which is the moment schemes theoretically end. It is a long investment strategy that will be higher risk at that point, before moving seamlessly into a drawdown solution which kicks off income. At some point, members have to decide when to annuitise. It is called a soft default, because at that moment you cannot just put members into a lifestyle default. They have to make a choice about what they want to do with their money. North: Keep running your growth, start to introduce income but importantly you need to have some downside protection. Fearn: Exactly. At the early stages, you can take a lot of risk. Later on, you can’t. Diversified growth funds are good for managing some of the risks, along with the other assets you are trying to protect. There is a question around cost and we would like a bit more complexity to man- age that downside. Kirkwood: It would be worth it at that point because it is keeping the money
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