Despite this attitudinal shift, we know that the majority of UK savers still pay the minimum auto-enrolment contribution rates and that engagement in retirement savings is low, reinforcing the need for nudges such as auto-escalation of contribution rates.
A Helping Hand
According to plan sponsors, members value the ability to access advice most. Respondents also stated that simplicity and ease of use, as well as low cost, would be important. Only 44% of plan sponsors felt that investment design would be important to members.
Compared with the other countries, UK plan sponsors placed the most responsibility for providing and paying for advice on members: 91% of plan sponsors felt that members should source advice themselves and 71% thought that members should also cover the associated costs.
Plan sponsors also noted that the employer could play some role: 71% of plan sponsors surveyed this year felt that the employer had full or significant responsibility in providing members advice.
Our 2018 member survey revealed that even providing simple education on the options available could go a long way in helping members feel prepared for retirement. Therefore, asset managers, providers and master trusts should look to support plan sponsors with providing this “advice” through educational sessions/seminars on the different retirement options available to members.
I Need Results
When we asked plan sponsors what the key criteria were for selecting providers, investment return was a common theme in their responses. This focus on performance is not surprising, as evidence has suggested that savers are becoming increasingly sensitive to market shocks, placing more importance on protection from falls in value than the potential to increase income.[i]
Large falls in financial markets have the potential to seriously knock the confidence of DC savers. It is therefore critical that scheme defaults include measures to minimize significant drawdowns. These behavioral insights, along with the recent periods of global market volatility, reinforce the impact of investment strategies that can help manage risks within DC schemes, including:
1) Strategic diversification across asset classes based on long-term views
2) Dynamic asset allocation based on current market environments
3) Systematic de-risking out of equities closer to retirement
Doing Good and Doing Well
In support of the growing interest in ESG investments that we have observed in the UK, 71% of plan sponsors said they felt that it was important to incorporate environmental, social and corporate governance (ESG) considerations into their plan’s investments.
Despite this perceived popularity of ESG-focused investments, we know that many plans have not yet taken the step to incorporate ESG into their defaults.[ii]
We asked respondents what the reason for not incorporating ESG so far was: