Breaking the Retirement Mould: New Approaches for Member Success

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 Life

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.