Category:

Pension Strategy

Laptop on desk in office | Mobius
Pension Strategy

Breaking the Retirement Mould: New Approaches for Member Success 12 December 2024

Read time: 4 mins

Welcome to Mobius’ new series exploring how pension schemes can deliver better outcomes for their members. Spoiler: they might need to invest differently.

From private markets and new investment vehicles to the transformative power of technology, we’ll explore how pension schemes can evolve to meet modern members’ needs. In this first article, we look at why traditional pension approaches are no longer fit for purpose and explore how private markets could transform member outcomes.

Pick up any retirement brochure and it will invariably feature an elderly couple walking on a beach with a dog. But a new breed of scheme member is tearing up this image. Retirement is no longer a destination, reached by a single road.

Members now save at varying levels, retire at different times and have different ideas about how to spend the final third of their lives. They need investment solutions that are as flexible and varied as they are.

While needs have become progressively individual, investment solutions often cater to the masses. Many investment management tools were forged in a world of final salary pensions where people uniformly placed their carriage clock on the mantelpiece at 65. That world has gone. A new world of possibilities is rising in its place.

Regulations Bring Challenge and Opportunity

Existing and incoming regulations signal a new direction. Schemes are obliged to consider the impact their investments have on people and the planet. Incorporating illiquid assets and infrastructure investments into defined contribution (DC) schemes is now a must. Stipulations to invest in the UK promise to stoke homegrown companies. Even though pension schemes have few avenues to do so.

At the same time, consumer duty demands that pension schemes look beyond mere cost to focus on member experience, choice and value for money. The new law asks that pension schemes deliver ‘good outcomes’ for members. A noble concept that is tricky to define, quantify and evaluate.

While these requirements have good intentions, they inadvertently threaten to put pension schemes in a box at a time they need to be thinking outside one. There is a critical mismatch between what members and regulators demand, and what pension schemes can achieve with the tools at their disposal. New solutions are urgently needed to navigate this shifting landscape. The good news is that many already exist.

Investment solutions to improve member outcomes are already circulating in the pensions universe. All too often they are disconnected, out of reach or remain ideas that haven’t been rendered into reality. But they are achievable with the right people, technology and spirit. We know because we deliver them every day.

Change Will Be Driven by Private Capital

“Private markets have historically been off limits for DC schemes, stifling diversity and potentially handsome, stable returns for members.” – Mobius

While there is no consensus on what a ‘good outcome’ is, it is often linked to better returns. That’s why one of the biggest conundrums is how to give DC schemes better access to the lucrative private markets. Private markets have historically been off limits for DC schemes, stifling diversity and potentially handsome, stable returns for members.

Vast swathes of the world’s fastest growing companies aren’t publicly listed. In fact, nearly 90% of established businesses and commercial real estate around the globe are privately owned. By shunning private markets, pension schemes are resisting opportunities that span different geographies, sectors, and risk appetites. This includes companies operating in tantalising areas such as digitisation and climate tech. As the winds of change blow across developed economies, these companies may leave their publicly listed peers in the shade.

Meanwhile, the world of listed companies is shrinking. While savers are still partial to the stock market, companies are less keen. The number of companies going public has been dwindling around the globe. In the UK, some 2,700 were listed on the London Stock Exchange in 1996. By the end of 2022, this figure had tumbled 60% to 1,100.

Engines of change such as AI will be fueled by private capital. Private markets are perfectly placed to benefit from the structural changes that are reshaping the world we live in. Pension members can’t be denied access to some of the world’s most exciting, and potentially very lucrative, opportunities.

This is Part 1 of our series on improving member outcomes. In Part 2, we’ll explore how new investment vehicles are opening up private market opportunities for pension schemes, followed by deep dives into technology’s role in transforming pensions, member engagement strategies, and innovative approaches to decumulation.

If you would like to discuss any of the points raised in this insight or would like to learn how Mobius can assist you further we would love to hear from you.

Speak to a member of our team

By 0 Comments
Close up of side of tell commercial building in city of London | Mobius
Pension Administration, Pension Strategy, Platform

Evolving a pension administration eco-system

It would be fantastic if all these services could be delivered in one place by one supplier – but for real, practical reasons, schemes need to rely on a range of different suppliers to meet their needs.

It would also help if the different suppliers were all used to working collectively, to provide a best-in-breed solution, where straight through processing and integrated systems worked seamlessly together.

The perfect pension administration eco-system is gradually emerging, like the butterfly from its chrysalis, and at Mobius Life we’re helping to nurture this process. Our wide range of client relationships and expertise in collaborative working across the spectrum of service suppliers to pension schemes, means we’re perfectly placed to enable the eco-system to thrive.

We already work closely with all the key providers involved in delivering workplace pension solutions. These include consultants, investment managers, member administration specialists, data and reporting analysts and governance experts. As well as bankers, technology and website suppliers, scheme accountants and member communication professionals.

And because we’re working collaboratively with these suppliers all the time, we know how they operate and we have developed our capabilities to integrate with theirs, making life easier for our clients.

So, the perfect pension administration eco-system may not be fully formed yet – but at Mobius we’re working to help the industry evolve, to deliver better and more efficient holistic solutions to sponsors and in turn improve member outcomes.

And of course, all of this helps to meet the regulators’ requirement that schemes deliver measurable value for money.
If you would like to discuss how the pension administration eco-system might develop and grow, please let us know. We’d be delighted to hear from you.

By 0 Comments
James Finch, CEO | Mobius
Platform, Defined Benefit, Pension Strategy

Accessing alternative credit on-platform for DB schemes

The shift from traditional bank lenders as a result of tightening regulation since the global financial crisis, has resulted in the financing gap being filled by capital flows from private credit funds. It is a significant and growing market, driven largely by the search for higher yield. S&P Global reports the AUM of funds principally involved in direct lending grew to $412 billion by the end of 20201.

Typically, alternative credit involves non-bank institutions making loans to private companies. These businesses borrowing in the alternative market are usually mid-market private companies who struggle to access traditional bank finance. However, the expansion of private credit has resulted in a wide range of sub-asset classes covering direct lending, leveraged loans, distressed debt, securitised credit, consumer finance, real estate and infrastructure debt.

Private credit funds must undertake rigorous due diligence before investing, and as lending is privately negotiated, managers will generally seek seniority and stronger covenants. These allow investors to access higher yielding opportunities while mitigating some of the associated risks. The problem for many DB schemes however, particularly small to mid-size ones, is how to access and implement alternative credit funds. Investing requires significant levels of governance, the funds can also be illiquid with unique fund structures, and high minimum investment limits restrict access to only the largest schemes.

Now, Mobius has made a range of alternative credit funds available to DB schemes of all sizes on our platform. All the governance is undertaken at the platform level, meaning schemes do not have to jump through numerous governance hoops and cumbersome account opening documentation. Mobius takes on the implementation of these illiquid assets to manage the infrequent dealing cycles and valuations.

All implementation is carried out by Mobius, as we accommodate the complex dealing terms associated with the asset class.

Many DB schemes and their advisers can see the investment potential offered by alternative credit. Now the opportunity is available to far more schemes, thanks to the scale and flexibility of the Mobius platform and the continued investment in our infrastructure. If you want to know more, please get in touch.

  1. S&P Global: Private Debt: A Lesser-Known Corner of Finance Finds the Spotlight.
    https://www.spglobal.com/en/research-insights/featured/private-debt
By 0 Comments
Old british coin | Mobius
Pension Strategy, Innovation, Pension Administration

Addressing pension scheme investment cost disparity

At the same time there is pressure from the government and regulators to keep costs for members as low as possible. There’s the charge-cap on default funds of 0.75% and the government is planning to stop providers levying a flat fee on members with small pots under £100. Now the Pension Regulator and Financial Conduct Authority has added to the challenge with their Value for Money discussion paper. This aims to ensure members’ funds are “well invested and their savings are not eroded by high costs and charges.” And rightly so!

Efficient operational delivery and execution is key to keeping costs down. One way for schemes to reduce administration cost and risk is to rethink the way the default fund is structured and delivered. Many default portfolios are constructed
using individual funds; managing these at a member level is largely inefficient, introduces risk, increases costs and can confuse members; reducing engagement and possibly member outcomes.

Or is there another way? Using the Mobius platform, pension trustees can benefit from sophisticated, thoughtfully constructed default funds, designed to Trustees’ exact specifications, blended into one or a choice of default funds, simplifying delivery and member communications.

Once trustees have defined their default fund investment strategy, we manufacture it from scratch or replicate an existing strategy, using our expertise and technology to meet our clients’ exact needs in a highly cost-effective manner. We’ve already created multiple bespoke default funds and other specialist funds for DC scheme members, including target date funds, zero-fee index funds, private asset and pooled property funds as well as structured equity solutions.

Efficient delivery models and blended fund structures can help reduce risk, improve schemes’ commercials, in turn helping manage the costs of the growing small-pot problem child. If you want to know more about how we can help you reduce your costs, call us today.

By 0 Comments