Pension Funds Insider

Pension Funds Insider brings the latest pensions news and industry insights; from investment and governance updates to new mandate appointments and pensions regulatory information.

Hymans Robertson introduces new DC approach

03 November 2016

Image for Hymans Robertson introduces new DC approach

Pensions and benefits consultancy Hymans Robertson has launched a new approach to Defined Contribution (DC) investment.

The new approach is designed to offset the effects of lower yields, post-Brexit and the company said it will improve member outcomes by 15%.

It says analysis of more than half a million DC scheme members on its Guided Outcomes framework, has shown that post Brexit, the number of DC investors who will fail to achieve an adequate income in retirement has increased from two thirds to three quarters.

As a result, some savers will now need to contribute up to 20% of earnings to achieve an adequate income in retirement.

Lee Hollingworth, head of DC consulting at Hymans Robertson, said: "Post-Brexit, the reality is we're going to see lower interest rates for longer - and this is likely to result in a negative impact on investment returns when pots are accumulating and on income conversion in retirement."

Hollingworth went on to say that the number of DC investors who won't achieve an adequate income in retirement has increased from two thirds to three quarters since the Referendum.

"Some savers will now need to contribute more than 20% of their earnings to their pension to be able to retire on an adequate income and this will be a challenge for many," he said.

Fortunately, he added, there is scope for the pensions and investment industry to make investment strategies work harder to close the gap.

Using its new approach to focus on delivering the highest possible returns for members, Hymans Robertson said it expects to improve outcomes for members by at least 15%.

The key to this new approach is accessing long-term risk premiums and reducing the focus on managing short-term volatility in the early years of investing.

The company believe focusing on controlling volatility, which is a more common approach, is more likely to have a negative impact on members' outcomes.

"Worsening economic conditions necessitate a change in approach for DC investment – for too long DC investment strategies have been the poor relation of DB," said Lee Hollingworth.

"We think that's about to change."

First published 03.11.2016

Lindsay.sharman@wilmingtonplc.com