The UK pensions landscape has changed; we’re now seeing greater contributions into DC schemes than DB for the first time, prompting a shift from schemes to look beyond traditional asset classes to deliver best outcomes for members.
Master trust investment strategies have been designed to focus on public markets given the asset class' lower costs. This approach appears to have worked effectively while schemes were setting up and contributions were low.
But the DC market is evolving quickly. At Nest we are now receiving around £450 million of contributions every month, while also experiencing more volatile markets than we've seen in recent years.
Against this backdrop, looking beyond the traditional asset classes to keep DC scheme members' money growing steadily makes sense. Risk management remains paramount, with many new savers brought in by auto enrolment particularly sensitive to volatility and loss.
Schemes should be looking to develop an investment approach that goes beyond indexed equity markets and find new ways to produce strong and steady returns for similar or lower amounts of risk than public markets alone can offer.
At Nest, the next big step is into private markets and illiquids and we're pleased to have recently announced our partnership with leading fund managers to manage these new mandates. These have allowed us to enter into private credit, including global infrastructure debt and real estate debt.
We believe our members will benefit from the illiquidity premium offered by these asset classes and the more sophisticated investments should ultimately deliver better outcomes when they reach retirement.
Watch our short video to understand more about our move into private markets and how we believe this will benefit our membership.