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Michael Robinson Aegon “A call for open mindedness in asset class allocation”
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T
he DC market has been slow to innovate. Many in or near retirement have benefited from the security that having a DB underpin to their income provides. As a result, DC savings typically haven’t been used to provide a longterm stable income in retirement. As the membership of DB schemes reduce and generations continue to roll on, we are heading towards the first generation of DC savers who don’t have a DB safety net and the need for innovation will become more pronounced. As the ONS Wealth and Assets survey shows, pension pots form a large proportion of a household’s wealth and with many pension savers investing in their workplace default, providers have a key role to play in ensuring that savers are set up to make the best of their retirement. Traditionally, low-cost passive market cap solutions in DC have made up much of the market and have historically performed well. However, when compared to DB, there is a lack of diversification of asset classes that most have used for many years to drive growth and reduce risk, at price points that should be achievable given the DC industry’s scale. Looking beyond the traditional passive allocations, there are investment offerings available in the market that can be used to address the upcoming challenges facing UK savers. So, what else is out there? n There are asset classes where an active manager who deeply understands the asset class is needed to give the best possible outcome. Asset classes such as asset backed securities (ABSs), high yield and emerging market debt and certain equity markets could gain from active management to add benefits beyond what can be achieved through passive building blocks. It’s not that a fully active approach is the solution, however there is value to be generated from having a dedicated team who can actively manage the portfolio in the right areas. DC Innovation Unleashed
