Pensions - Articles - Individualised glidepaths are the future for DC Pensions


Aon has said that the UK pension industry needs a clearer definition of what it means by ‘good outcomes’ for members of pension schemes, if investment strategies are to fulfil their aims.

 While the concept of a good outcome is generally recognised across the pension industry, no clear definition of it currently exists and which can therefore be incorporated into investment strategies. With the diverse nature of defined contribution (DC) scheme members only increasing, greater clarity is needed to aid targeting a sustainable level of retirement saving.

 Chris Inman, head of DC investment advisory at Aon, said: “Saving for retirement has never been easy but the introduction of Freedom and Choice introduced new variables for people to deal with – and which the industry is still grappling with. DC schemes are focused on providing good outcomes for scheme members – but what is actually meant by that phrase and how they can be achieved is less straightforward.

 “We believe that an individualised glidepath can be constructed for each DC saver that targets a sustainable level of retirement saving using risk-rated building blocks. Key to that, is not only a clear definition of what a good outcome looks like but also avoiding the common mistake present in traditional DC lifestyling - which is de-risking too early and missing out on growth opportunities.”

 An instance of this sort of rigidity in traditional lifestyling came where it could force members to disinvest from assets at inopportune times. A traditional lifestyle could have sold out of equities in February 2009 - just before the market bounce back - simply because the DC saver had become a little older. An individualised approach allows members to 'bank' returns they have accumulated while continuing to participate in market growth when required.

 At the heart of this process for DC schemes – and ultimately for members - is a good investment strategy that incorporates a good level of diversification.

 Chris Inman continued: “Changing models of retirement mean we need to look again at what a good outcome is for DC savers and how it can be delivered – and it’s vital not to de-risk too early.

 “No matter what members’ personal objectives are, delivering stable returns above inflation and ensuring capital preservation have to be the two key investment objectives of a default strategy for those nearing the point of accessing their DC savings. Many current approaches which combine cash and UK fixed income now risk significant capital losses, so diversification and individualisation is very much the answer.”
  

Back to Index


Similar News to this Story

Awareness of commercial consolidators soars in last year
Awareness of the two main commercial consolidators - The Pensions SuperFund and Clara-Pensions - has rocketed amongst DB pension trustees over the las
Cannot reclaim pension contributions for furloughed staff
Kate Smith, Head of Pensions at Aegon comments, following the recent changes to the government’s Job Retention Scheme which mean employers can no long
FTSE 350 pension deficit rises as COVID19 lockdown eases
Mercer’s Pensions Risk Survey data shows that the accounting deficit of defined benefit (DB) pension schemes for the UK’s 350 largest listed companies

Site Search

Exact   Any  

Latest Actuarial Jobs

Actuarial Login

Email
Password
 Jobseeker    Client
Reminder Logon

APA Sponsors

Actuarial Jobs & News Feeds

Jobs RSS News RSS

WikiActuary

Be the first to contribute to our definitive actuarial reference forum. Built by actuaries for actuaries.