Retirement Investment Management - June 12, 2017

I see a clear need for solutions to be developed - an interview with Mark Fawcett

In this month's interview, Mark Fawcett, Chief Investment Officer at the UK's National Employment Savings Trust (NEST) and Chairman of EDHEC-Risk Institute's International Advisory Board, discusses the long-term relationship between EDHEC-Risk Institute and NEST, as well as the retirement investing challenges facing European institutional investors. He also informs us about how NEST is contributing to the retirement debate and tells us how EDHEC-Risk Institute’s research can help pension funds to cope with these challenges.

Mark Fawcett

You have recently accepted the chairmanship of EDHEC-Risk Institute’s International Advisory Board. Could you tell us how you came to be interested in EDHEC’s research and why you agreed to take up this position?

Mark Fawcett: We began our relationship with EDHEC-Risk Institute several years ago when it became clear that we had a shared and evolving philosophy regarding defined contribution (DC) investment. EDHEC-Risk Institute had been working on the need to separate the Return-Seeking or Growth part of the portfolio from the Income-Seeking or liability-driven part. We had been thinking about how to implement this in practice and about the trade-offs required. Further to this introduction to EDHEC’s research, we’ve followed developments in various areas, notably in alternative indexes.

So when EDHEC-Risk Institute asked me to first join the International Advisory board and then subsequently take up the chairmanship, I was delighted to accept. I viewed it as a chance to both get early insight to EDHEC’s research and contribute to the development of the research programme.

As the Chief Investment Officer of the UK's National Employment Savings Trust (NEST), you have been invited to take part in a round table session on new developments in retirement investing at the JOIM-Oxford-EDHEC Conference. The theme seems particularly topical given the fast evolving environment in the UK. What do you think the main issues will be over the next few years?

Mark Fawcett: The introduction of freedom and choice in the UK and the abolition of compulsory annuitisation is a sign of the times. People are living longer and the idea of retirement as a cliff-edge event is changing. So it makes sense that retirees want more flexibility over their money for longer and want it to keep growing beyond retirement age. However, the challenges for most people will be what investment choices to make; how much income to take; and how to get decent outcomes without tailored financial advice, which our research suggests will either be unaffordable or unwanted for many of those with average sized retirement pots.

I see a clear need for the development of solutions that remove those issues for people and give them a sustainable income for life without expecting them to buy an annuity.

How do you expect NEST to contribute to this debate in the UK?

Mark Fawcett: I was asked to talk at the JOIM-Oxford-EDHEC Conference because at NEST we’ve developed a concept for delivering a sustainable income without requiring members to make lots of complicated choices along the way. We call it our Retirement Income Blueprint, which combines an investment portfolio for growth and income with longevity protection in later life. This gives people flexibility in the early years of retirement and is expected to provide a sustainable income for the whole of retirement.

We launched our Retirement Income Blueprint with a challenge to the UK financial services industry to develop products with similar features that would meet the needs of our members. We have yet to see significant innovation in this space however and our members, who are likely to have relatively smaller pots and unlikely to be getting financial advice, aren’t the industry’s focus.

We’ll continue to discuss this issue with industry and with government so that by the time our members have appropriate pot sizes, which isn’t far away, there is at least one, and hopefully a number, of solutions that meet their needs.

How do you think EDHEC's research can help pension funds cope with these challenges? More generally, do you have any suggestions for specific questions for which you feel that more academic work could be useful?

Mark Fawcett: I think EDHEC can assist in a variety of ways, but in particular by (i) helping us think about how to optimise the growth vs. income challenge within a retirement portfolio; (ii) how we could efficiently deliver longevity protection for our members; and (iii) further developing the concept of mass-customisation so that we can ensure sufficient tailoring of products to meet members’ needs without requiring them to make decisions.

More generally, we have been doing a lot of work on climate-aware investing to improve the management of ESG risks within our portfolios. ESG risk management would be a fertile area for further research, I believe.

About Mark Fawcett

Mark is NEST’s Chief Investment Officer. Mark has been an investment manager for the last 29 years and has led the investment team at NEST (PADA) since 2008.

He has managed money at a variety of institutions. At Gartmore, Mark was head of Japanese equities while at American Express Asset Management International, he was Chief Investment Officer. Before joining PADA, Mark was a Partner at the boutique investment manager Thames River Capital LLP. He has a number of external appointments including a seat on the Investment Committee of the Universities Superannuation Scheme.

Mark has an MA from Oxford University and an MSc from London Business School.

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