“Investment management should sit at the heart of pensions delivery both in the accumulation and retirement phase,” says Jonathan Lipkin, director of public policy at the IMA.
“But,” he adds, “we need to ensure that the governance frameworks are fit for purpose because you have shifted an enormous amount of risk onto individuals as a result of this change, both in the savings space, and also, depending on what choices you make, in the retirement part.”
As a result of this, the IMA is focusing its efforts on two primary pillars, both with a similar goal at heart, raising the level of confidence investors have in the asset management industry.
The first pillar is costs and, in particular, the transparency of costs levied by the industry.
“Our goal is to build a framework to ensure that the information available to the market, whether it is institutional decision makers or consumers, is meaningful and consistent,” Lipkin says.
The second pillar is on governance. And, while Lipkin says the IMA does not have a direct role in pension scheme governance, the group does feel it has a role to play on aiding on the investment side.
“This is a major opportunity to redefine the nature of the retirement income process, we are product neutral. We don’t champion drawdown over annuitisation. But, in a world where people are living longer and seeing different patterns of income, there is going to be a need for a much more flexible approach that doesn’t require, as a default, full annunitisation.
While Lipkin feels that there are going to be a number of different evolutions to the market, he expects that ultimately, asset managers will work together with insurers to deliver what people think is the best of both worlds: a degree of capital certainty with some flexibility to risk exposure.
“It is a very exciting period but it is also tempered by a concern to ensure that investors are well supported in the decisions they have to take. We are moving from a world where inertia is a starting point under auto enrolment to one where individuals will be faced with quite an overwhelming range of choices. And, what we need to do is create a framework, industry, government, regulators and advisers, a frame work in which individuals are supported,” he added.
Benchmarks
As an adjunct to the two pillars mentioned above, the group is also looking closely at its sector classifications and, in particular the evolution of the unclassified sector.
“The question we are figuring out at the moment is what to do with a range of risk-targeted funds that have emerged in recent years in the unclassified sector.
“There is significant growth in the unclassified sector and we are looking at the moment, very seriously at how to address that.”
While Lipkin acknowledges that the group is sometimes critizised for sometimes not moving quickly enough to amend its classifications, he points out that it is important for a framework to have a reasonable degree of stability, and so it thus, can’t be amended too frequently.
“Our approach is always to respond to developments in the market. What we try to do is take a considered view, consult members, take account of the interests of users and reach a decision that is both durable and coherent.”
But, as for the unclassified sector, he added: “Watch this space.”
