Industry view – Pensions Policy Institute
Daniela Silcock is head of policy research at the Pensions Policy Institute (PPI)
A REVOLUTION IN SAVING AND INVESTMENT
People used to glaze over at the word pen- sions. But over the past decade pensions have gone through significant changes. Now they are a hot topic in parliament, the news and at dinner parties across the country. And with good reason. It is not hyperbolic to say that there has been quite a revolution in the way people save for later life in the UK. We have moved from a position in which people generally relied on a combination of state pension and income from a defined bene- fit scheme in retirement, to one where many future pensioners will rely on income from the state pension and defined contribution savings, which can be accessed in a variety of ways. Meanwhile, understanding of the finan- cial implications of companies’ behaviour with regards to environmental, social and governance factors is developing, and pressure is growing on schemes to ensure that their investments take these factors into account.
Alongside this, understanding is growing regards to the benefits of investing in illiquid assets, such as real estate and
infrastructure, that may limit access to underlying funds for a series of time, but also allow the potential for increased return and diversification. And on top of these changes, Covid has brought into question the suitability of current investments as even gilts, which are generally considered extremely safe, are showing an increased level of volatility. So, what does this mean for how member contributions are invested? Unfortunately, there is no simple solution. Schemes are adapting rapidly to changing circum- stances, external pressures, new regula- tion and new types of members, thanks to the around 10 million savers brought in through automatic enrolment. Anecdotally, I know some schemes are struggling to find the best way forward, particularly as constraints on consultants and asset managers appear to be prevent- ing schemes from understanding all of their potential options and the full impli- cations of investment strategies. It seems clear that increased collaboration between schemes, regulators, asset man- agers and consultants could bring indus- try closer to structural understanding of investment options and their implica- tions for members. However, it is impor- tant to remember that each scheme will differ in scale, resources and member needs. Increased togetherness should not interfere too far with schemes’ ability to adapt to developments and take a flexible approach.
I believe we are on our way to a brighter future. Industry pioneers are leading the way in illiquid investment and considera- tion of ESG factors, and guidance for how
to adapt to the new environment exists for all schemes. Government is working to ensure that members of smaller schemes are not dis- advantaged, by encouraging small schemes to consolidate with larger ones; and industry is developing new and novel funds, taking into account current inves- tor needs, for schemes to use in their default strategies.
The answer is that all of us, industry, gov- ernment and other stakeholders, need to keep
working and fighting for
transparency and a greater understanding of how investment strategies can best be designed in order to meet member needs in an ever evolving world.
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14 | portfolio institutional October 2020 | issue 97
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