Editorial: Turn the dial?

In the world of DC, contributions are king. But how those contributions are invested takes an important seat at the king’s side.

Within that, the debate over the level of risk taken by younger members is recurrent, and vital. Perhaps I should admit here an interest as a young-ish member of a DC scheme.

There is nothing like the paternalism intrinsic in defined benefit pension schemes in this space. But where there is still a need for employers, scheme managers and trustees to ‘do the right thing’ by their members is in deciding the right default course for the unbothered majority.

Illustration by Ben Jennings

Last week’s Informed Comment from Towers Watson’s Chris Smith talks in stark terms about the “reckless conservatism” in the first third of the savings journey harming younger members’ retirement prospects.

This challenges what I would suggest is a consensus, driven in part by the influential state-sponsored pension scheme, Nest, that higher volatility could drive new savers out of their new workplace pensions – a conclusion based on research the scheme conducted prior to launch.

At worst, it could be actively misleading to talk about ‘managing’ a DC saver’s savings experience, or reducing the swings in the value of their pension pot. How protected would these supposedly diversified strategies really prove in a period of severe market loss?

At any rate, we cannot rely on old research. If the point is to keep people in, we need live evidence that a year-to-year drop in the value of a pension pot from a higher equity allocation is pushing people to opt out.

Only then can we believe we are protecting people from themselves, not just protecting ourselves from short-term reproach.

Ian Smith is editor of Pensions Expert. You can follow him on Twitter @iankmsmith and the team @pensions_expert.