Speaking at the Pensions Management Institute’s (PMI) annual conference this week, panellists discussed how the industry could improve investment communications and support individuals achieve better outcomes in retirement.
Tim Hodgson, head of the UK DC platforms and retirement solutions at BlackRock, emphasised the need for education around the potential of asset classes such as emerging markets debt and private markets.
These are likely to be new to many DC savers, as schemes have previously been limited asset classes that supported daily dealing.
Hodgson said new asset classes could produce better investment returns but added that schemes needed to be realistic about expectations. They also needed to ensure members understood there was no single product or solution that could manage risks such as inflation and volatility at any time, he said.
He added: “It’s all about understanding how we monitor and measure the different choices that we might make.”
An Australian example
Hodgson said there were examples that could be used to demonstrate the value of increasing a scheme’s weighting in newer asset classes.
“If you look at the last 10 years, the average Australian pension has received a return of about 8.8% per year, the equivalent average UK investor’s portfolio has returned 7.6%,” he said.
“That is a 1.2 percentage point difference in performance every year. So that member retires with potentially a third more in their portfolio when they retire.”
Asset managers can “spend an enormous amount of time designing solutions” but would still need to work on helping members understand what their options are, he added, particularly as default options were unlikely to be appropriate for all members.
“The default is going to solve for somebody average, but there are an enormous number of people who fall outside of that,” Hodgson said. “I think the guidance, advice, consultation that’s going on has the ability to explain that.”
Dominic Byrne, head of DC strategy for Europe, the Middle East and Africa at BlackRock, said the industry also needed to face up to issues of perception.
He said: “There’s also a bit of mistrust of the industry. What can we do to help the members trust us and they engage with us. That’s the $64m question.”
Byrne urged delegates to “harness the power of attention” to encourage members to engage at retirement with their savings.
“People don’t feel comfortable about spending down savings or taking income or dividends – so we need to help them,” he said.
“Australia, for example, is 20 years ahead of us and they have higher contributions to their superannuation funds. There, people retire with a pretty large pot, but [many people are] also dying with this large pot because they haven’t touched it.”
Further reading
PMI conference: Joined-up thinking needed to solve saving problems (4 July 2024)
PMI launches innovation initiative as part of strategic overhaul (4 July 2024)