What is driving growth in the DC sector?
Despite everything the pandemic has thrown at it, the DC pension sector has still managed to end 2020 on a high. Growth has been phenomenal. We grew our DC assets by 20 per cent last year, driven by strong inflows from numerous channels.
While unfortunately some people did lose their jobs, we saw no increase in opt-out rates amongst those who remained in work. The fact that the furlough package included pension contributions also supported contribution rates.
So too did new client wins. Providers love to say they are winning clients, we have seen significant wins in 2020. But the key reason we have grown our market share is because we have been keeping clients after we win them – our retention rate is 98 per cent.
As a result, we are now by far the UK’s biggest DC provider, ending 2020 with £114bn of assets, almost triple the £43bn we held at September 2015.
New client wins have boosted customer numbers by 14 per cent, meaning we now have more than 2 million active members – more than any other provider apart from Nest – and more than 4 million customers when deferred members are included.
What makes a good default fund?
A good default fund is one that will support members who don’t want to make an investment decision, but do want growth, diversification and a focus on income in retirement. It will also invest the member’s money responsibly.
A target date fund can take account of retirement trends as they develop. After all, what a 55 year-old needs now is very different to what a 55-year-old will need in 30 years’ time. As the fund manager you can change direction and swap components quickly within
the funds, and members can hold the fund to and through retirement and pay the same fee throughout, rather than risk paying more in retirement where there is no charge cap.
How are you giving members a voice on the investment issues they care about?
A key part of our member engagement strategy is our partnership with Tumelo, the fintech that lets members have their say on shareholder resolutions on issues such as climate change, executive pay and child labour. Even entering the Tumelo dashboard is a great first step to
understanding that your pension is invested in companies. Members can then show how they would vote on issues, giving them a sense of empowerment, and the system can build a sense of community by showing how other people in the organisation voted.
In a trial we have already seen 6,000 votes cast by scheme members, with a return user rate of 50 per cent. Crucially, we are seeing cut-through with that hard-to-reach 25 to 34 age group.
How are communications influencing member engagement and how do you see this evolving in the near future?
Technology is really coming through in the DC market and Covid has been an accelerator. We have seen a huge upswing of online engagement as a result. To build on this online engagement we have recently launched Coll8,
a single sign-on app that gives information about pensions on the go. Crucially, employers can also put other workplace benefits into that app, such as the ability to book holiday or other wellbeing benefits, making it more compelling than a bare pension app.
Another innovation, for when we are back in workplaces, is our virtual reality engagement experience. This shows in three vivid dimensions the type of retirement people could experience if they save in a pension – and how life could be if they give pensions a miss.
Are members more prepared for retirement now than they were pre-freedom and choice? No, unfortunately. Recent research by Legal & General shows 60 per cent of people don’t have a plan for how to spend their money at retirement. People have lived in the inert world of auto-enrolment and then at retirement we are asking them to suddenly start making some very important decisions. No wonder they are confused.
The FCA’s investment pathways are a step in the right direction, but are not the finished article.
I support the Pensions and Lifetime Savings Association’s call for a legal requirement on schemes to signpost a solution at retirement. This solution needs to be more than the guidance that is currently available. It may be advice, or it may be some form of ‘advice-lite’, a personalised input that doesn’t quite meet the current definition of advice but does hand- hold people and give them reassurance. We need to work out a new way to help retirees navigate a path to a better retirement.
