Anne Lester, managing director, portfolio manager and head of retirement solutions at JP Morgan Asset Management, has questioned whether cash spent on bombarding investors with paperwork would be better spend on reducing the fees they face.
Speaking to FTAdviser, Ms Lester explained three key takeaways from the US market that the UK could consider.
The first of these was to strongly recommend rethinking what success is defined as in the retirement space.
Ms Lester said: “The ultimate success goal for DC is making sure that people don’t run out of money before they die, but that is really, really hard to measure, possibly because we don’t know when anyone is going to die.
We think that is ultimately the fundamental goal of workplace retirement schemes.
“So we have stepped it back and in the US and we have a similar definition of success for our accumulation strategies in the UK, which is ‘to maximise the number of individual outcomes for pensioners or members who reach a minimum level of replacement income at the point of retirement. That is a goal which you can look at and measure.”
The second takeaway is education for its own sake with the objective of making individuals better, more sophisticated investors.
She said: “We are trying to teach people very complex things and they don’t fundamentally have a lot of influence or control over what happens.
“A lot of the education 10 years ago was really focused on helping people understand how to do asset allocation, what a stock was, how these things work. We would give people reams of information and fund prospectuses and disclosures and statements about financial instruments.
“Asking people to educate themselves so they can do it is themselves is unconstructive and frankly the money would have been better spent lowering fees.
However she added giving people communications that are targeted at a point when they are making a decision that is meaningful is “really, really good.”
Ms Lester said the focus should be less on teaching people to be investors than teaching them to be empowered.
Finally, the third point is behavioural in nature.
She said we need to understand how people make decisions and grasp that this is often emotionally motivated.
Ms Lester said: “People once on a path tend to stay on that path, so inertia is a very powerful force.
“If you think about a retiree who has a little bit extra they are going to have a very happy life. If they are equally short then they are not eating out at all. Their lifestyle is materially impacted.
“In individual retirement you don’t get to average out anything. You don’t get to pool, you don’t get to share, you don’t get averages.
“So we think its important to understand that and make the distribution narrower.”
Ms Lester also said one of the trends we will see more and more of in both the US and the UK is people opting for a phased retirement.
She said: “With the removal of a default retirement age, some people will opt to continue working on a part-time basis to supplement their income.
“For some industries this will actually be really important as employees with vast experience in certain fields will be needed to pass on their skills to the rest of the workforce.”
Russell Welsh, head of sales and distribution in corporate at Aviva, added that one of the things that the UK is now coming to terms with is how old people are when they wish to retire.
“Employers [were] saying we need to consider this because you can’t force anybody to retire because of their age, so how do you deal with a workforce that don’t want to leave because they don’t have enough retirement money to retire on?
“That could be a problem for the employer – it will be hard to bring new blood in and insure them. Can these guys physically do the job if it is more manually orientated? Does the pensions freedoms help that?”
ruth.gillbe@ft.com