By Dale Critchley, Workplace Policy Manager, Aviva
Within defined contribution pensions most of the largest providers have signed up to the Mansion House Accord, based around a belief that an allocation to private markets can deliver good outcomes for members.
The Mansion House Accord is an expression of intent, to invest at least 10% of main defaults into private markets with at least half of this invested in the UK by 2030.
Progress toward this aim is dependent on several factors in the Accord. Aviva took a positive step forward, by launching a new default fund, My Future Vision, that will see 25% of the fund invested in private markets. The 25% allocation to private markets is maintained all the way up to retirement. Although private market assets classes will change as savers get closer to their retirement date.
The mix will evolve as a scheme member approaches retirement. Up to 15 years from retirement an allocation to private equity, infrastructure, real estate and private debt alongside listed equities is designed to provide diversified growth potential. The allocation to private markets is rebalanced over the following 5 years, and the exposure to listed equities is reduced, increasing diversification through the addition of corporate and government bonds, as well as alternative credit and cash. Over the remaining 10 years to retirement there is further rebalancing to adopt a more defensive position, with greater allocations to asset classes such as public fixed income and private debt, although an allocation of over 35% to a mix of listed equites, private equity, infrastructure and real estate is maintained.
Aviva has engaged a range of specialist global asset managers to work with Aviva Investors to deliver the My Future Vision solution. This creates a potential benefit for investors through deployment of expertise within each asset class, as well as risk mitigation though diversification.
While the performance of My Future Vision will be dependent on the expertise of the fund managers, the extent to which My Future Vision, and other premium defaults, are adopted by workplace pensions will be influenced by factors in the Mansion House Accord.
These include a shift in the focus of trustees, employers and their advisers from cost to value, the successful implementation of regulatory change that will focus on returns, and an alignment of DWP and FCA rules on the treatment of performance fees within the automatic enrolment charge cap.
It seems clear that collaboration between regulators, providers, trustees and advisers will be essential if we are to realise the vision of more diversified default arrangements, delivering higher long-term returns, and bigger pensions for savers.
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