A panel at the SSGA Annual DC Conference picked out what flexibilities will be offered to members as the key challenge for next year Michael Klimes finds
- Crafting a default fund strategy and the scope of flexibilities will be the focus of many providers in 2016
- Trustees should use digital solutions to help them deliver freedom and choice to members
Although many people might think it is too early to think about priorities for the pensions industry in 2016, some are already doing it. A panel at the State Street Global Advisors Defined Contribution (DC) Annual Conference said designing DC default funds and defining the scope of retirement flexibilities on offer would be their priorities.
While USS is primarily a defined benefit (DB) scheme it is moving towards DC. The scheme's head of product strategy and liaison Mel Duffield (pictured above) is responsible for building the DC scheme.
The scheme has received agreement from its stakeholders to close its final salary section and cap members' benefits at £55,000. All members will be put into a career average earnings arrangement and the first 1% of salary will be matched by the employer.
Managing the interplay between the DB and DC elements would be difficult Duffield observed.
She said: "We are introducing DC to the academic sector for the first time and we are developing our platform administration system at the same time. My top priorities are designing the default fund strategy for members so we need to be able to demonstrate to our stakeholders we have something for the USS which takes into account its DB underpin."
USS has to be sensitive to its large membership base. "You would think perhaps they are quite financially literate because a lot of them are academics," said Duffield. "Do we offer them a really jazzy selection fund range or do we go where the market seems to be moving which is to offer them quite a tailored range with clear investment objectives? We are definitely leaning to that end initially."
Alongside the default fund strategy there are questions about retirement flexibilities, types of funds and the investment platform USS will use. The scheme has been making progress on the fund selection and investment platform. "We are going through the process of appointing an investment platform or custodian to help us manage the DC assets. We will be going out to market initially to look at external fund managers to support the default solution and self-select fund. We are half way through those discussions."
How much freedom?
Talks about post-retirement flexibilities have not started but will soon. Duffield admitted the decision on the range of choices which would be made available to members would not be easy. "Can we offer members access to their pots from age 55?" she asked.
"It looks quite difficult given some of our unusual scheme rules but what can we offer them at retirement around uncrystallised fund pension lump sum (UFPLS)? Can we in due course offer them some sort of in-scheme supported drawdown structure given that we have a relationship with DB members?"
Communicating the positive side to members would also be difficult as many were unfamiliar with DC schemes.
"Some of them have been in DC; some of them have never been in DC before. I think there is quite a lot of anxiety around DC. They still think DC is generally a bad thing and potentially there is some anxiety about USS's ability to run a DC section as well."
The People's Pension chief operating officer Jamie Fiveash said the provider was looking to technology to solve the problem of a default fund and flexibility at retirement. "The way we look at retirement now needs to change. Trustees are struggling to think what is the default? We think the average DC pot in the UK is about £30,000, with other parts of income made up of state pension, DB and other irregular income. DC for the majority will be a flexible savings pot, not a pension. What solutions fit that for the majority of members? We are looking at that at the moment."
For members to access their full flexibilities, The People's Pension is looking to robo-advice as the easiest way to educate members. "I am surprised trustees are not thinking around advice," he said. "It is difficult to design a default. We see no reason why you cannot get advice to your members for less than a £100 each. So we committed to looking at how we can do that."
Fiveash said the sector needed to embrace technology across the board and realise its power to help trustees. "The pensions industry we think is a bit behind the game when you look at other capabilities in industries," he continued.
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