Anxious academics and drawdown letdowns – tomorrow’s DC battles

The DC sector has seen unprecedented shifts in the past few years, brought on primarily by the introduction of the pension freedoms earlier this year and by auto-enrolment in 2012. It has since been adjusting offerings and tools to meet changing member needs and a larger member base.

Some of the most pressing tasks facing the DC industry were discussed during a panel session last week run by State Street Global Advisors.

Jamie Fiveash, chief operating officer of B&CE, provider of mastertrust The People’s Pension, said one of the big topics on the horizon is how to provide digital advice for members who want a more individually tailored product.

“I’m surprised, looking at the research, that trustees aren’t thinking around advice,” he said.

Robo-advice could be a low-cost solution, he said. “We see no reason why you can’t get advice to your members for less than £100 each.”

Fiveash said the pensions industry was “a bit behind the game” in terms of digital capability compared with other industries.

We see no reason why you can’t get advice to your members for less than £100 each

Jamie Fiveash, The People's Pension

“It’s not an easy thing to do, but it shouldn’t be beyond the means of man these days to get the industry to work and collaborate and provide that information in a digital format.”

His statement was made as Origo, the ecommerce standards and services body for the financial industry, confirmed last week it was developing a pensions dashboard with government agencies and providers, to enable savers to view all their pension assets in one place.

Introducing DC to the academic sector

Mel Duffield, head of product strategy and liaison at the Universities Superannuation Scheme, said its priority would be the design of a default strategy for its new DC top-up section to be launched in 2016.

Having replaced the defined benefit section with a career average revalued earnings section for new employees in 2011, the USS is closing its final salary section to accrual.

The DC element will sit on top of the Care scheme, capping members’ benefits at £55,000 in the DB section.

Because of the DB underpin, members could be less likely to opt for an annuity at retirement, meaning the scheme might become a trailblazer for in-scheme supported drawdown provision. Duffield said USS would be exploring this option.

She added: “We need to be able to demonstrate to our stakeholders that we have [created] something for the USS that takes into account this DB underpin – the fact that members close to retirement have got a huge DB legacy while members further from retirement will be more reliant on this new DC section.”

However, Duffield admitted there was “quite a lot of anxiety” around DC and “potentially some anxiety about USS’s ability to run a DC section”.

Investment managers not offering drawdown

Partner at consultancy LCP Laura Myers said product development for post-retirement options is a key focus for next year.

She noted there was still a lot of work to be done by the financial services industry to make the new pension freedoms a reality.

Myers attributed the lack of drawdown solutions to the fact investment managers were hesitant to join the market as total DC assets are still relatively small (see graph).

“The majority of assets are in the accumulation [phase], that’s where we’re seeing the innovation. It’s a shame for members, they need a choice of products now,” she said.

“The solutions really haven’t appeared for drawdown... There have been a few products [that have] come forward, but I’m hoping that in 2016 we’ll get a more rounded view of the products that are in development.”

The original version of this article misquoted Duffield as saying there was “especially some anxiety about USS’s ability to run a DC section”, rather than "potentially" some anxiety. The article has since been updated.