So, what will 2023 bring for DC trustees and employers?
Ongoing trends such as consolidation into master trusts, and an emphasis on sustainable investing, will continue at pace. It will also be crucial that value, rather than costs, drive decision making given the potential that exists to materially improve outcomes.
Improving member outcomes through illiquid investments
We think illiquid investing is too often placed in the ‘too hard’ or ‘too expensive’ categories, but illiquid investments have the potential to improve member outcomes substantially, particularly for younger members. We’re hopeful that more hybrid decumulation investment strategies are developed to better match the retirement needs of those reaching retirement now. With the introduction of these more complex options, we need to see the evolution of education and support. There has been slow innovation in digital strategies to help inform and engage members, so we are hoping to see the pace ramp up through 2023.
The Single Code of Practice
In 2023 trust-based DC schemes will finally need to get to grips with the Single Code of Practice as it comes into force. We know many schemes have already made progress, but key challenges will be navigating overlap with the Chair Statement, clarity over exemptions for Master Trusts and whether the substance is genuinely being covered elsewhere, and truly understanding what an ‘Own Risk Assessment’ is all about.
Taking Value for Members to the next level
We know there will be a further upping of the game on Value for Members as TPR and FCA present a more joined up approach to the definition of value. We expect to see a widening of the Enhanced Value for Members Assessments to schemes above £100m. The need to benchmark all aspects of trust-based schemes against master trusts will therefore increase.
To and through retirement
There is the potential for 2023 to be quite a turning point in terms of retirement options, investments, decisions and the impact on member outcomes. Through 2022 there have been lots of positive debate on CDC and the role it can play in the UK, at one side of the fence it is considered “too much, too late” at the other, “a game changer” for managing risk and has a firm place as an innovate decumulation strategy. In 2023 we are likely to see more of a concrete vision on how CDC could work in practice as a decumulation only option. Coupled alongside this, we are hopeful that more hybrid decumulation investment strategies are developed to better match the retirement needs of those reaching retirement now. But with the introduction of these more complex options, we need to see the evolution of education and support. There has been slow innovation in digital strategies to help inform and engage members, so we are hoping to see the pace ramp up through 2023. And finally, a potential game changer would be the introduction of personalised guidance. We are probably still a few years away from that reality, but simply talking about it will lead to improvements in the guidance and advice space.
With all this change on the horizon, understanding the potential implications and building this into future work plans is a good first step.
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