DC Close Up

The Default Lens – DC Close Up

Lesley-Ann Morgan

Welcome to another episode of DC Close Up. I'm Lesley-Ann Morgan, Global Head of DC in L&G's Asset Management Business. Today, we're getting closer to DC default strategies. Defaults play an important role in around 90% of UK DC pension savers being invested in their scheme's default strategy. And there are many different types, and some master trusts and independent governance committees offer more than one default. Today, I'm joined by Graham Moles, our Head of DC Strategies, to examine the different types of defaults, how they're evolving, and what happens at retirement for members both now and in the future. Welcome, Graham.

Graham Moles 

Thank you, Lesley.

Lesley-Ann Morgan

Graham, let's start with one of those questions we get asked a lot about, which is target date funds versus lifestyle strategies. We moved to a target date fund a little while ago. Can you tell us more about why we selected target date funds?

Graham Moles 

Yeah, it's a really important debate. Fundamentally, both a target date fund and a lifestyle is trying to achieve the same outcome, which is to manage a member's risk throughout their journey. But for us, target date funds have three key benefits over a lifestyle strategy. The first is simplicity. So, a member is in one fund for their entire journey. We believe this makes it less confusing for members and also means that there's less sort of switching between funds, which can actually add to increased costs. The second is flexibility. With that sort of structure, it's much easier for me as a fund manager to make changes to the strategy. Again, I can do that efficiently. We don't need to have confusing communication going out to members and ultimately you can save costs doing that. And the third is that it allows us to go to and through retirement. So, a lot of lifestyles will go up to the point of retirement and not beyond.

We know that many members are holding their investments for long periods of time, past retirement and saving patterns and approaches change as people age to evolve that strategy afterwards is really important.

Lesley-Ann Morgan

Now, you mentioned there about simplicity. Now, simplicity is obviously super important in DC because individuals have to take so much more responsibility than they ever did when they were in DB. Can you just give us a bit of a flavour about kind of how that simplicity comes through in defaults?

Graham Moles 

Yeah, absolutely. So, DC is really complicated, but we need to make it as simple as we possibly can for members. So, one of the ways that we do that within the target date fund structure is that with that benefit I mentioned earlier of a member being a single fund, we can actually have a much more tailored asset allocation based on the age of a member, so the generation they're in. We call that generation intelligence, and what it really means is that we can invest in a different way for people who are retiring today than for people who are retiring in the future.

Lesley-Ann Morgan

And how does that kind of work in retirement? Is that where we really need to kind of understand this generational intelligence?

Graham Moles 

Absolutely. People retiring today are much more likely to own their own home. They are much more likely to have a final salary pension scheme, and their DC pot is probably more modest than it would be in the future. And so actually for those members, it's really focused on protecting downside risks, because for those members, they're much more likely to cash out. If they do draw down, it'll be a relatively short period of time.

Lesley-Ann Morgan

So that's people who are kind of retiring around now?

Graham Moles 

Yes, absolutely. Whereas for people that are retiring in the future, when they get to the point of retirement, it could be their only source of retirement income. And so actually the worst thing you can do is to have not enough risk. And so, what we do is try to make sure there's an appropriate level of risk for those members. And so, it's actually about thinking about the sustainability of income rather than managing that downside risk. So very different approaches for people retiring today than those retiring in the future. A target date fund structure, you can do that. In a lifestyle, it's very difficult.

Lesley-Ann Morgan

Very difficult to do that. Okay, that's good. So, if I just stick with that kind of generational idea in the member demographics, our target date funds have evolved a lot, particularly when we look at kind of 30 years before retirement, how did kind of membership data help inform you on the way in which you should design the target date fund in this particular point of the glide path?

Graham Moles 

So, I think member data is really important for DC strategies at all stages. So, in the growth phase or for younger members as we describe it, we were looking at things like opt-out rates. So, our members opting out of their pension, not contributing, potentially because of a cost of living crisis or economic instability. We found that wasn't the case. So the volatility that were in markets, the cost of living issues that were going on didn't stop people contributing.

Lesley-Ann Morgan

Oh, that's good to hear.

Graham Moles 

And that allowed us to take more investment risk. So, in 2025, we increased to be 100% in growth assets for younger members.

Lesley-Ann Morgan

So, I think that probably builds on a previous episode that we did on behavioural biases. Kind of how are you seeing what people are doing now? You've kind of given us the information about what you saw back then, but how is that changing now? Are you seeing anything different?

Graham Moles 

So, if we move towards more the retirement stage and the innovation that we've been thinking about there, we've done a lot of times of researching our members. There are 5.8 million members that we look after and we're able to look at what they're doing at retirement versus what they say they'll do at retirement. And often those things can be quite different. So, that's one sort of aspect that we can look at. We can also look at trends and things, how things are evolving. So, for example, people with larger pots are doing things differently to people with smaller pots. And that gives us an indication of what might happen in the future when everyone's pots will be bigger. So, by taking that sort of factor on board and looking at internal and external research on retirement spending habits, how inflation links they might be, and also looking at things like the contribution of the state pension, we were able to think about how we might want to evolve our retirement asset allocation. And so, we did a big, big lot of research this year, and those changes are coming in right now. And the conclusion is that we believe we can actually improve outcomes for people close to retirement and those who will be retiring in the future. For those retiring now, we've been looking at whether we can implement our inflation protection more efficiently. A lot of spending is very inflation-linked and we believe there is a way we can do that more efficiently and that's actually allowed us to take more growth exposure, so improve expected returns without increasing risk.

Lesley-Ann Morgan

And how much different is that for someone earlier in their journey then, compared to that later part that you just talked about?

Graham Moles 

So, we've been looking at how the whole environment for people retiring in the future is likely to change. And for people in the future, there will be guidance from us in terms of what level of income we think they can take, whether they're spending too quickly or too slowly, guardrails of support, et cetera. And because all that extra support is in place, we think that actually allows us to take more risk because we can help guide people to make the right decisions. So, actually the change we're making in the future is that we're expecting to take more risk at retirement for those members.

Lesley-Ann Morgan

Okay, good. Well, I think that kind of understanding of what people are actually doing and what we can do to help them take more risk while also feeling supported, I think is great.

Graham Moles 

Exactly.

Lesley-Ann Morgan

Yeah. So, let's switch to revolution now then, Graham, and let's touch on value for money, one of your favourite topics, I think. So, what about this transparency about performance of the default fund? How do you think that's going to impact the way in which you're going to be managing the defaults when people are looking at them with a very fine lens?

Graham Moles 

Yeah, value for money is a really, really interesting one, as you say. So it's very difficult to assess performance across different providers for a number of reasons. They might have a different member demographic to the ones that we have. Their scheme may have started at different points to ours. And so it's very difficult to sort of make that comparison, make it in a fair way. So it's a challenge to overcome and we've engaged a lot with regulators around how best to do that, fed into all the consolidation approaches, et cetera. I think when it comes to the value for money, a lot of people are talking about will there be herding? So, will everyone end up with the same asset allocation? I make no secret that we already look at peers and how they invest. I think it's a very healthy mechanism for you to be able to look at what they're doing and challenge yourself as to, are we making the right decisions? But I think we have to always remember that the member is at the heart of everything we do. So, to give you a sort of tangible example of how that emerges, a lot of our peers are invested in more, say, market cap approach within a market cap equity index there's around about 25% of the exposure of those indices are just within 10 single names.

Lesley-Ann Morgan

It's quite a lot of concentrated.

Graham Moles 

Yeah, exactly. And so, we really try to think about that in a number of different ways. So, diversification, but still getting returns. So, we allocate to private markets, emerging market debts and high yield to give that diversification. But we also think very carefully about how we're implementing the equity itself. So, we think about sort of factor exposure, we think about sector, about regions, about names. So that's an example where it's a risk that we are concerned about, but we're still acting on that despite this sort of value for money framework.

Lesley-Ann Morgan

Yeah, so you've kind of got what other people are doing in the corner of your eye, but you're still thinking about the member and the portfolio yourself.

Graham Moles 

That's exactly it, that's exactly it.

Lesley-Ann Morgan

Great. On this value for money point then, we've got 2 defaults, right? One's got some private assets in it and one doesn't. Do you think there'll be a split in the way in which value for money will work in the performance test for different types of defaults?

Graham Moles 

Perhaps it's something that's been sort of talked about by various people in our industry so an obvious one would be that you say the private market exposure so private markets are very much long-term investments and so assessing them over a relatively short time bridge may not be that helpful so it could be that there's a split between a default that has not very many private markets and one that has a substantial amount of private markets. We do have to be really, really careful here though. So, you could quite easily get quite perverse outcomes. So, for example, ESG factors are really important the way that we invest, but it could be that those ESG factors actually provide tracking error. So, it's really important that we don't have a situation where we're encouraged to do the wrong thing. And actually, Lesley-Anne, you've just come back from Australia who I think have gone through sort of similar sort of value for money type framework. Is there anything from there that we can?

Lesley-Ann Morgan

Yeah, I think that ESG point's really well made because the Your Future, Your Super performance test, it's not quite the same as what we're going to have in the UK. It's measured against an index rather than against a peer group. But because ESG was not in the index, what happened was as soon as this performance test was brought in, everyone recognized that by having ESG in their portfolio, it created a tracking error. So either, you know, some supers basically stopped doing ESG, some basically went very light on ESG or were very conscious of the amount of tracking error that ESG was creating relative to the index. So it is something that we need to be conscious of but in a slightly different way to the Australians I think.

Graham Moles 

That's really interesting. So changing track a little bit. I'm interested in your thoughts on multiple defaults. There are a number of reasons to have sort of more than one, but what are your thoughts on this?

Lesley-Ann Morgan

Well, we've got two, as I mentioned. So, we've got one that is at the lower cost end of the range, because we're in a very competitive environment in the UK. Providers are very much fighting for clients to come to their master trust. So, we've got one that's at the lower cost end, and then we've also got one that's got 15% allocation to private markets. And I think it's horses for courses. In the UK, the master trust employer is actually selecting the default on behalf of the employees.

So, the employer has to get comfortable with private assets or decide which of these two defaults they're going to go for. If you ask me whether or not you think we're going to launch another one in the near future, I don't think so. I'm not seeing a massive demand for even higher allocation to private markets than what we've got at 15%. I see some providers launching some funds that have got higher allocations, but actually they probably haven't got the money in the ground yet.

So, I would say for now, I think two probably makes sense.

Graham Moles 

One area where regulation is really pushing forward our thinking is in retirement itself. With the Pension Schemes Act opening the door to default to accumulation, what do you think this means for how defaults are designed beyond accumulation?

Lesley-Ann Morgan

Yes, I think the first thing to note is that we have pension freedoms, which allows members to choose what investments they want at retirement. That is not going away. So, for those people who want to be able to choose their investments, they still can. I think the recognition from the government and the regulator is that lots of people have found that really hard. They haven't known what to invest in and they feel kind of adrift. And if they don't have an advisor or they don't want to pay for an advisor, they kind of don't know what to do. So, the idea behind having some sort of default was to particularly help those people. And at the moment, if you think about kind of what you've just been talking about, we have a to and through glide path. So, we do have something that caters for people in retirement. But I think what the Pensions Act is really asking us to do is to be much more deliberate about the way in which we think about providing a default in retirement. You know, think about the income. How are we actually going to provide that to someone? So, I think there's three points that I'd really, really focus in on when I'm thinking about designing these default accumulations, when you and I are having these conversations about how will we actually design this. 

I think the first thing is most people are different. Everyone is different, right, in their retirement. Some people retire on one day and they're completely done and they go straight into retirement. Some people partially retire where they are retired, but they also are working. And there are some people who retire and then go back to work later. So everybody is different in retirement. So I think it's quite difficult to find only one solution that will fit all. So I think that's the first thing I would note. The second is about continuity. It doesn't make any sense to me that you would have an investment strategy that looks one way the day before you retire and then looks completely different the day after you retire. I think we really need to think about that accumulation and de-accumulation together when we're working our way through how people are going to get from pre-retirement into post-retirement. And then the third one, I think, is really around this area about support. People are crying out for help, as I said. Targeted support really helps people get their way through this. So, you know, there may be multiple different options for them. Each one is different.

So, it's finding the right thing for the right individual.

Graham Moles 

Yeah, really agree with all that. It really resonates. Clearly there's a lot of detail to sort of still work through with the regulator and the whole industry. I think it's really important to recognise that an accumulation default is very different to a decumulation default. We know that, sort of, as she said in your introduction, more than 90% of people are in a default in accumulation, whereas in decumulation, we know that actually people will engage much more frequently than they would do in accumulation, even if it's as simple as just providing bank account details. So it could well be that the accumulation default is more about people that are unable to engage. So it could be more about our vulnerable customers, or it could be more about deferred members. And so that's a very different sort of thing to be thinking about. We also have to think about context. If a member's got, let's say, a small pot, 5,000 pounds, is it really appropriate that we put them into a default that gives them an income for life?

Lesley-Ann Morgan

Yeah, that's a fair point, because they're not going to have very much income if it's an income for life.

Graham Moles 

Exactly.

Lesley-Ann Morgan

So, it's certainly a very dynamic environment, Graham. And if we reflect on everything that we've discussed today and turn the lens on ourselves, what are you most proud of in terms of the defaults that you've been working on over the last few years?

Graham Moles 

Yeah, it's a really good question. I think I'm most proud of the way that we've adapted and the way that we've evolved. So, member behaviour has changed, the markets have changed. And so, I'm really pleased with the way that we've innovated to allow us to be more diversified, how we found ways to sort of increase number returns without sort of being too much risk on the table. And so, I think for me that's really the thing that I'm really pleased that we've done, really proud of, and it's something we need to keep doing. The decumulation thing we've just talked about right now is a really good example of how we're going to have to keep evolving the defaults.

Lesley-Ann Morgan

And innovating…I think what's really come home to me today in this conversation with you is that the defaults are dynamic. We have to be able to think about moving them on all the time, whether it's regulation or whether it's more information that we're getting about the members, whether it's thinking about how are their pots moving forward in decumulation? So, it's always something, it must be on your mind all the time though. And then I think the other thing is this is all about people. We are designing these defaults for individuals, and we really have to think about their needs and that's a huge responsibility. As we've already mentioned, there are a lot of people involved and invested in these defaults. So just making sure that we've really done our homework and we're really on top of the situation, I think is imperative in getting these designs right for people.

Graham Moles 

Absolutely, it's a massive responsibility and it's a massive privilege, but we've got to keep making sure we all ensure those members get great outcomes.

Lesley-Ann Morgan

Well, thank you very much, Graham. I've really enjoyed the discussion today. It's been fascinating. And thank you all for watching. If you'd like to explore more on DC strategy, investment thinking, and retirement outcomes, you can find other episodes available now on our DC Close Up page. Bye for now.

Episode 4: The international lens 
 
Lesley-Ann Morgan 
Welcome to DC Close Up. I'm Lesley-Ann Morgan, Global Head of DC in L&G's Asset Management Business. This episode comes to you from our Hong Kong office. I'm joined by Natasha Mora, who leads our asset management business across Asia. We've been spending time with pension plans and wealth providers in Australia and Hong Kong, and it's clear there are strong parallels with the UK, alongside valuable insights that we can all learn from. Natasha, welcome to DC Close Up. 
 
Natasha Mora 
Thank you. It's great to have you here in the Hong Kong office. 
 
Lesley-Ann Morgan 
Shall we start with Australia, Natasha, because I think there's quite a few lessons that the UK can learn from Australia. The Australian DC system is huge. It's 4.5 trillion Australian dollars. That's 1.5 times their GDP. And they really have been going through this whole scale story that we've been seeing in the UK. So, I kind of think about there's three things in Australia that the UK can learn from. First is the scale and the consolidation. The second is the impact of the performance test, which is quite similar to the way in which we're going to have a performance test or a value for money test in the UK. And the final thing is around accumulation. So, what are they doing about retirement and who's winning in retirement? Shall we start then with that area about scale and consolidation? What's been going on and what do you think the UK can learn from that? 
 
Natasha Mora 
It's true, there has been a lot of consolidation in the Australian market. So, if I think about 10 years ago, there were over 200 superannuation schemes. There are now less than 100 and they're still consolidating. The top 24 large funds control over 95% of all assets now. And the performance test, which you've mentioned, and which we're going to come on to, has played a really big part in that consolidation. But so has the regulator, who's encouraged some funds to merge. 
 
Lesley-Ann Morgan 
So, I guess there has been consolidation, but probably not as much as we're going to get in the UK, because the scale test that's being brought in in the UK may result in maybe less than 10 master trusts. So even though it's gone from 200 to about 100 in Australia, that's still not the same level of consolidation that we're probably going to see in the UK.  
 
Natasha Mora 
And I think the important thing to remember is that in Australia, in addition to those superannuation schemes, you also have a large number of what we call self-managed superannuation schemes, and this is where the members are the trustees of their own scheme. The people run the fund themselves, and they make all the investment decisions, the compliance decisions, rather than leaving it to a large industry or retail fund. It's estimated that there are now over 600,000 of these self-managed schemes and therefore this is possibly not quite the consolidation that was hoped for at a total system level. 
 
Lesley-Ann Morgan 
No, I mean, that's incredible. Can we come on to talk about this performance test? Because I was really struck when we were in Australia about the impact of the performance test and what resonance that might have in a UK context for the value for money. 
 
Natasha Mora 
So, the performance test came in in Australia for the default fund in July 2021, and in Australia that's called Your Future, Your Super, and it differs a little bit from what's been suggested for the UK. Basically, each superannuation fund sets their strategic asset allocation, and the performance test is applied primarily at an asset class level and relative to a public market benchmark or benchmarks. There have been a few challenges with that, and subsequent versions or iterations of the performance test have attempted to tweak that. The key point is that what we've seen is a hugging of the index, and it has become more challenging for the superannuation funds to invest particularly in private assets, with the exception of infrastructure. I'm really interested to know what do you think that that might mean by way of learnings for the UK in terms of value for money? 
 
Lesley-Ann Morgan 
And I think we're in this real dichotomy in the UK, where there's been a huge amount of market pressure to reduce the fees that are being paid by employers for master trusts. But simultaneously, the government is also trying to get the amount of private assets, particularly the amount of private assets in the UK, increased. So, we've got this real conundrum, if you will. I thought it was interesting when we were in Australia that one of the ways around this that they were thinking of was that they would essentially create some sort of side pocket, which would allow the superannuation schemes to invest in venture capital, renewable energy and social housing. So maybe that's something that might come to the UK in future. 
 
Natasha Mora 
Shall we move on to point three that you mentioned at the start around innovation in retirement products in Australia? I heard you say that despite the retirement income covenant that came in July 2022 for trustees of superannuation funds, which requires those trustees to formulate and publish a retirement income strategy for their members. You actually haven't seen as much innovation as you might have expected. 
 
Lesley-Ann Morgan 
Exactly right. I've actually been really surprised by how little innovation there's been in Australia, given that even before the retirement income covenant there was something called Sippers, which was also designed to be a sort of retirement product. We've seen a couple of providers provide something that looks a bit like CDC in the UK, but there really hasn't been that much innovation. Most are kind of in some sort of drawdown product. And I think there's a couple of reasons for this. One is that idea of targeted support that we have in the UK is just not permitted in Australia because that would be regarded as advice. So, any way in which they think they might be able to help people always comes down to advice. And so, there's always that fear that they might be overstepping the line. I think the other area is really that concern by the trustee of not knowing enough about the member to be able to give them a solution that works for them. So, there's a number of different barriers, if you will, that's been kind of getting in the way of being able to design proper retirement solutions in Australia. But who do you think is winning in retirement in Australia, Natasha, if it's not the supers? 
 
Natasha Mora 
I think it's really interesting here. I think it's actually the advisors supported by the technology platforms who are actually seeing the most growth in this area. The tech platforms are making life really easy for the advisors by enabling straightforward portfolio construction, compliance, reporting. And there are a huge number of investment and insurance products that provide great choice. And so, the superannuation schemes are finding it really hard to retain members at the point that they get to retirement. 
 
Lesley-Ann Morgan 
Yeah. And my sense was that really the fees that are getting paid once someone gets outside of the superannuation scheme are actually not that different to the ones being paid inside superannuation. So that barrier that maybe we might have in the UK is really not there in Australia. So, I guess I guess it's not a surprise that you see a lot of people leaving their supers when they've been in them for many, many years and going off to these wealth platforms. So, I think that whole performance test area that's in Australia really makes us think a lot about Hong Kong, because Hong Kong has got into a very interesting space in terms of how important performance and fees have become here. The mandatory provident fund system, which is similar to master trusts in the UK, is significant. It's not as big as Australia by any mean feat, but it does have assets of about 1.4 trillion Hong Kong, which is about 130 billion pounds. And it is a core part of retirement savings for the population here. And it's been going through this meaningful evolution, particularly in relation to EMPF. What's your take on some of these changes that have been happening here, Natasha? 
 
Natasha Mora 
Indeed, I think EMPF is having a really significant impact on MPF providers here in Hong Kong. So, the EMPF rollout is now complete. And what that's done is it's centralised administration across the system. And what that really means for your MPF providers is it's becoming really difficult to differentiate. You can't differentiate anymore on the member experience. Because they no longer hold the member data. So now the focus has shifted much more to fees and investment performance. 
 
Lesley-Ann Morgan 
Right, okay. And at the moment, like in the UK, the employer selects the MPF provider. But the intention is in the next few years that there will be what's called full portability here. So that means that individuals, once they're inside an MPF provider, will actually then be able to choose their own MPF provider, perhaps be able to switch a couple of times a year. So, my sense of that is it's going to create a much more competitive retail-like DC market. 
 
Natasha Mora 
Exactly. I think, therefore, what we're expecting to see is much greater use of passive building blocks to manage costs. 
 
Lesley-Ann Morgan 
Yeah. 
 
Natasha Mora 
A quicker turnover by MPF providers of the underlying managers where performance has been poor, and a greater use of multi-manager kind of white-labelled options that allow an easier switch out of poorer managers, correct. 
 
Lesley-Ann Morgan 
So that's accumulation. But what about decumulation? Because decumulation looks completely different here in Hong Kong to Australia and the UK. What can we tell people about kind of how it actually works here and what happens? 
 
Natasha Mora 
It is really different. So, at the point of retirement, a member is written a physical check by the MPF provider and will often take that to the bank and cash it. 
 
Lesley-Ann Morgan 
Wow, okay. 
 
Natasha Mora 
There's no tax page on the MPF account, so it's a straightforward exercise to pay out the whole account in this way. MPF providers and the regulators would very much like to see members stay invested in the MPF, but in reality, this is proving quite difficult to achieve. And I think that's partly because MPF wasn't originally designed to think about people in retirement versus the accumulation fee.  
 
Lesley-Ann Morgan 
So, I guess from a cultural perspective here as well, we've heard from a few people that like to be able to invest their own money. So that concept of being able to invest for themselves is something that's very appealing. 
 
Natasha Mora 
It is. Many believe that they are able to manage their assets in retirement. For some, they may engage an advisor or an insurance agent to help advise them. Here, different to the UK, I understand, many agents and advisors do not charge a fee. So instead, they're paid a commission. And this means individuals may be invested across a whole wide range of different products in retirement. 
 
Lesley-Ann Morgan 
So completely different to what we've seen in the other two markets. Interesting. So, thank you, Natasha. That's been a really interesting perspective. And that global picture hopefully will help our UK audience. Thanks again. 
 
Natasha Mora 
Thank you. 
 
Lesley-Ann Morgan 
To me, Australia brings into focus the real decisions trustees and pension providers face in a mature DC market. Managing assets at scale in a system that can penalise holding assets that are not in the index, dealing with complex regulation, particularly around advice, while navigating the path towards better retirement outcomes. Hong Kong, on the other hand, shows how shifting administration to the government sharpens members' focus on performance and fees during accumulation. With full portability on the way, we're likely to see more movement between MPF providers. And because people can cash out at retirement, the focus naturally shifts to real engagement and a smoother handoff into wealth. Now, Australia, Hong Kong and the UK are physically miles apart, but the questions DC is trying to answer are increasingly the same. How do we turn savings into sustainable income? How do we design defaults that do more of the heavy lifting? And how do we support people to make good decisions when it matters most? Natasha, thank you very much for joining me today, and thank you to everyone for watching. I hope that you found today's insight valuable. See you again soon. 

DC Close Up – Private Markets Lens 
 
Lesley-Ann Morgan (Host): 
Welcome to another episode of DC Close Up, where we focus on the DC issues that matter now and those that shape the long term. 
 
I'm Lesley-Ann Morgan, Global Head of DC in L&G's Asset Management Business. 
You may have seen our recent DC private markets campaign, Wish You Were Here, where we explore how we've packed in a lot since launching our own private markets offering. 
 
And in timely fashion today, we're going to get closer to private assets and how they've become part of the DC journey, not just for us, but for the wider industry. 
 
And who better to discuss this topic with me than Martin Dietz, Head of Diversified Strategies at L&G and the fund manager behind our own private market strategies. 
Welcome, Martin. 
 
Martin Dietz: 
Hello. 
 
Lesley-Ann Morgan: 
I'm also delighted to welcome Robert Waugh, Independent Chair of the L&G Master Trust Trustee Board and part of the Investment Committee.With a successful career in investments and pensions, I'm looking forward to hearing your insight on this topic, Robert. Welcome. 
 
Robert Waugh: 
Thank you. 
 
Lesley-Ann Morgan: 
With all the momentum around private assets in DC, it's hard to imagine that we didn't have private assets in DC just a few years ago. 
But there has been a lot of regulatory and policy development in that time. 
Robert, from a trustee perspective, how do trustees get comfortable with private assets? 
 
Robert Waugh: 
From a trustee perspective, the big shift wasn’t really policy like Mansion House — it was regulation that enabled us to invest. 
The creation of LTAFs gave us a structure to pursue a DC strategy. Before that, operational challenges like liquidity, valuation, and fairness between members made it too hard in a daily dealing environment. 
The introduction of authorised structures gave something tangible to assess, but raised important questions — especially on liquidity, valuations, and fees. 
Trustees still have a fiduciary duty. Government encouragement doesn’t override our responsibility to act in members’ best interests. 
So while policy set the ambition, it was the structures that made it possible — alongside significant due diligence on investments, fees, liquidity, and governance. 
We also need to be careful — private markets have risks, and history shows failures. 
 
Lesley-Ann Morgan: 
Great, thanks. 
Martin, let’s build on that. When you were setting up our approach in 2024, there were multiple structures available, but you chose a different route. Why? 
 
Martin Dietz: 
Our starting point was to design something that truly works for DC. 
DC schemes need daily pricing, fair treatment of members, and flexibility for people entering and exiting at different times. 
We also focused heavily on deployment. Many traditional private market structures deploy capital slowly and suffer from the “J-curve,” where early costs drag on performance. 
So we started with evergreen private market funds. These allow quicker deployment, better diversification, and fairer outcomes for members from day one. 
As we’ve scaled, we’re now moving into closed-ended funds, co-investments, and mandates — but sequencing was key. Evergreen funds helped us get started and remain important for liquidity and rebalancing. 
We also focused on assets members value — renewables, infrastructure, housing — tangible investments they can relate to. 
Overall, the goal was a solution that works from day one, scales, and delivers long-term outcomes. 
 
Lesley-Ann Morgan: 
That member-first approach really stands out — thank you. 
Robert, based on your experience, what does “best in class” private asset investing in DC look like? 
 
Robert Waugh: 
We’ve seen best practice more in DB than DC so far. Scale is critical — you need access to large assets. 
But it’s not just about allocating — it’s about managing those assets. Private markets involve real-world risks and operational realities. 
The best approaches invest long term — owning assets like wind farms or infrastructure for decades, aligning with retirement outcomes. 
These assets can provide inflation-linked income and diversification, but they must be integrated into the whole portfolio — not treated as an add-on. 
Over time, you evolve toward closer asset ownership, co-investments, and even building assets directly — which also creates tangible benefits for communities. 
Trustees must maintain strong oversight, with continuous monitoring, valuation checks, and governance. 
 
Lesley-Ann Morgan: 
Martin, how do you see private assets evolving — especially into retirement? 
 
Martin Dietz: 
In accumulation, private markets provide diversification and growth. 
At retirement, the focus shifts — members need liquidity and stability, especially given smaller pot sizes today. 
This means using different types of private assets, such as short-duration private credit and more stable income-generating investments like long-lease property. 
Over time, as DC becomes dominant and pots grow, we expect greater use of infrastructure and real assets that provide stable, inflation-linked income. 
It’s about building a flexible toolkit and adapting as member behaviour evolves. 
 
Lesley-Ann Morgan: 
Robert, are employers and the wider market becoming more comfortable with private assets? 
 
Robert Waugh: 
Yes, but not just because of time passing. 
Fees in DC have come down significantly, so attention is now shifting to value for money. Employers are increasingly willing to pay slightly more for better outcomes — like choosing between economy and business class. 
Education, transparency, and government support have helped improve confidence. 
That said, trustees remain cautious — liquidity mismatches and historical lessons mean we must carefully manage downside risks. 
 
Lesley-Ann Morgan: 
And looking ahead — will private assets become a bigger feature in DC? 
 
Robert Waugh: 
Yes, particularly as the market consolidates into fewer, larger schemes — scale makes private markets more viable. 
Private markets may become a key differentiator in value for money. But outcomes will vary widely — the dispersion between good and bad managers is much larger than in public markets. 
So success depends heavily on expertise, governance, and execution. 
 
Lesley-Ann Morgan: 
Finally — do private market investments support UK growth? 
 
Robert Waugh: 
Only if invested in the right areas. 
Buying existing assets doesn’t necessarily drive growth. But investing in new infrastructure, providing capital to businesses, or developing projects can make a real difference. 
So it’s about how you invest, not just that you invest. 
 
Lesley-Ann Morgan: 
Martin, to close — what are you most proud of, and what’s next? 
 
Martin Dietz: 
We’ve built and scaled a private market solution for DC, now around £3 billion, with 70% invested into real assets like housing and infrastructure. 
We’ve also successfully integrated this into default strategies at scale. 
Looking ahead, the focus is on continuing to evolve responsibly, deliver strong outcomes, and keep members at the centre of everything we do. 
 
Lesley-Ann Morgan: 
Thank you both — that was a really insightful discussion. 
And thank you to everyone for joining us on DC Close Up. If you’d like to explore more, you can find further insights on our DC Private Markets webpage. 
See you soon. 

Lesley‑Ann Morgan: 
Welcome to another episode of DC Close Up, where we focus on the DC issues that matter now and those that shape the long term. 
I'm Lesley‑Ann Morgan, Global Head of DC in L&G's Asset Management business. 
In our last episode, one of our own personal highlights was how we've combined data, technology, and behavioural science to drive real action and outcomes for our members. 
And today, I'm delighted to be joined by Jenny Hazan to delve into this topic in more detail. 
Jenny is our Director of Customer Strategy and Engagement and the driving force behind our innovation in this space. She'll be well known to many of you, I'm sure, whether it's from speaking at industry events or from her latest media insight. 
Welcome, Jenny. 
 
Jenny Hazan: 
Thanks, Lesley‑Ann. I am delighted to be here. 
 
Lesley‑Ann Morgan: 
So, Jenny, we've talked about engagement in DC for many years, but I've said before, and I'll say it again, I'm pretty sure people don't get up in the morning and say, “I wonder how my pension's doing today.” 
So what is the real problem that we're trying to solve for here? 
 
Jenny Hazan: 
The real challenge in DC is actually adequacy. 
Auto‑enrolment has really helped with participation, particularly amongst employed workers, but we still see — and our latest Decades Ahead research shows — that 41% of people aged between 25 and 55 are not on track for the retirement income they need. 
So this is a really important conversation to be having. We really need to make that shift towards action over awareness to drive better outcomes and make sure people have enough to have the retirement they need. 
 
Lesley‑Ann Morgan: 
Yes, I was at that research launch event and I found it to be a real rallying moment for the industry. 
But why do you think people disengage so much that we're facing this issue of people not having saved enough for retirement? 
 
Jenny Hazan: 
I think the reality is that, as an industry, we’ve sometimes really over‑indexed on education — the idea that we can educate people into better outcomes. 
But there’s much more going on under the surface. When people think about pensions — and yes, they don’t wake up thinking about them — these are emotionally complex ideas. They feel overwhelming, distant, and far in the future. 
It’s not that people don’t care; it’s that there are emotional barriers tied into these decisions. So it’s about breaking things down, making them simpler, and making them relevant to what people are experiencing at that moment in time. 
That’s what allows people to act earlier and, ultimately, retire better. 
 
Lesley‑Ann Morgan: 
And I think you’ve got some interesting stats around compounding as well, right? 
 
Jenny Hazan: 
Yes, absolutely. 
If you think about someone who’s 47 — midlife, although that’s a slightly scary thought — and they hadn’t saved before, paying an 8% contribution from age 47 to 67 would give them a pot of around £116,000. 
When combined with the state pension, that’s just over £19,000 a year. So time is incredibly critical, and it also shows that it’s not too late. That really demonstrates the power of compounding. 
 
Lesley‑Ann Morgan: 
I’ve heard you say before, Jenny, that engagement isn’t just about clicks or content — and you just mentioned it’s not necessarily about better education either, although some people may not agree with that. 
What are the myths around engagement that you’d like to retire? 
 
Jenny Hazan: 
We often say that great engagement isn’t about clicks or content; it’s about building confidence, changing behaviour, and creating positive momentum that allows people to take action. 
Another major myth I’d like to bust is that segmentation is just about demographics — age, marital status, pension pot size, broader finances. That’s important information, but it only tells part of the story. 
It doesn’t tell us how someone will behave, where they might get stuck, or what challenges they’ll face when making decisions. To really tackle adequacy, we need to understand behaviour deeply so we can remove friction and help people act. 
 
Lesley‑Ann Morgan: 
We talk a lot about generations in DC. How important is that as a lens for behaviours and outcomes? 
 
Jenny Hazan: 
Generations are important because they give us context — the cultural and societal influences people have experienced. 
Take mid‑lifers in their 40s and 50s. DB was largely gone for them, and auto‑enrolment came later. They’re a stuck generation in the middle. They’re also more likely to still have a mortgage in retirement, or to be renting. 
Those structural factors matter, but they still don’t tell us where people will get stuck. Two 45‑year‑olds with the same income and pension pot can behave very differently. 
One might feel confident and proactive; the other might feel overwhelmed and avoid looking at it altogether. 
We also see a group we call “sleepwalkers” — people who feel fine until they suddenly face a big decision, and then everything feels overwhelming. 
So generations give us context, but behaviour tells us how to help people act. 
 
Lesley‑Ann Morgan: 
Let’s touch on that behaviour point, because I found this fascinating when we covered it in research last year. 
Talk us through the top three behavioural biases that impact pension behaviours. 
 
Jenny Hazan: 
Three really stand out. 
The first is social proof — people want to know what others are doing before they act. For comfort. To know they’re not alone. It’s actually one of the top questions asked in our customer service centre: “What do others do?” 
The second is ostrich bias. When decisions feel overwhelming or emotionally complex, people stick their head in the sand. That’s why we need to break decisions into simple, step‑by‑step actions rather than presenting everything at once. 
The third is present bias — we overvalue the present over the future. People have busy, real lives: kids, caring responsibilities, career changes, and everything else going on in the world. It’s no wonder pensions slip down the list. 
We need journeys that support people through these stages, recognising that behaviours change over time. 
Finally, there’s the say‑do gap. People say they want security in retirement, but their actions don’t always reflect that. Life gets in the way — the microwave goes off, the doorbell rings — and intentions don’t become actions. 
That’s why we need to design for real life, not ideal behaviour. 
 
Lesley‑Ann Morgan: 
So if we bring this back to adequacy, how does that change how we think about engagement? 
 
Jenny Hazan: 
It flips the script. 
We need to identify behaviours, recognise the moment someone is in, and respond in the right way. If engagement doesn’t feel relevant or personalised, it just adds to overwhelm rather than driving outcomes. 
 
Lesley‑Ann Morgan: 
When we think about the shift from DB to DC, DB worked because it was easy — people didn’t need to make decisions. 
With DC, engagement really matters. How are we bringing behavioural science, data, and technology together to support that? 
 
Jenny Hazan: 
The shift to DC puts far more responsibility on individuals, and that complexity comes to the surface. Our role is to strip that back and make things simple. 
For me, it’s three connected things: understanding behaviour, recognising the moment, and responding in the right way to drive action. 
First, we need a deep understanding of how people think and behave when it comes to money. 
Second, we use data to understand behavioural signals — are people hesitating, stuck, or suddenly more engaged? 
Third is technology, which allows us to scale that insight, deliver the right message at the right moment, through trusted channels, and measure what’s actually happening over time. 
Engagement is a chain of behaviours, not a single moment. It needs to be an ongoing learning system. 
 
Lesley‑Ann Morgan: 
So how can we, as an industry, make sure we’re doing this responsibly? 
 
Jenny Hazan: 
Doing it responsibly and doing it well shouldn’t be separate. Long‑term savings are built on trust. 
First is intent — behavioural science must be used to help people make better decisions, not push provider‑led outcomes. 
Second is transparency — people need to understand how their data is being used and why they’re being prompted or nudged. 
Third is design for vulnerability. If we only design for the most financially confident, we won’t shift outcomes. We need flexibility to support people at different stages and confidence levels. 
 
Lesley‑Ann Morgan: 
In the age of AI, trust, transparency, and customer intent become even more important. 
I hear people are increasingly using AI tools to help plan their retirement. Does that worry you? 
 
Jenny Hazan: 
People will increasingly turn to AI tools for ease and simplicity, and providers might not always be the first port of call. 
That makes strong data foundations even more important, as well as maintaining trust even when we’re at more of a distance. Our journeys need to work both for people coming directly to us and those using AI alongside. 
And regardless of AI, people can still become overwhelmed. We need to help with the next step, not every step. 
 
Lesley‑Ann Morgan: 
Looking ahead, what’s next in technology for DC? 
 
Jenny Hazan: 
People will expect more responsive, adaptive digital experiences — joined‑up data, not having to repeat themselves, experiences that evolve over time. 
We’ll also see more in the AI virtual assistant space, but the key question will always be: does it drive action and improve outcomes? 
Another major development is targeted support. People want us to go further, and targeted support allows ready‑made suggestions that help people act confidently. We’re very supportive of the FCA’s review and see huge potential there. 
 
Lesley‑Ann Morgan: 
We’ve covered a lot of ground today. Thank you for helping viewers get closer to what really matters. 
Turning the lens on ourselves — what excites you most about what we’ve been doing recently at L&G to support member outcomes? 
 
Jenny Hazan: 
What excites me most is seeing evidence that our approach is working. 
One area I’m particularly proud of is our guided digital retirement planning journeys, launched in November 2024. They adapt based on what we know about members and what they tell us, break planning into simple steps, and take a more holistic view of finances. 
We’ve seen 50% fewer members using the journey facing a retirement shortfall. One in three completes a full plan, and one in five takes a significant action — like consolidating pensions, adjusting contributions, or changing retirement age. 
Those behaviours really matter, and we’re now seeing strong engagement from younger audiences too. 
 
Lesley‑Ann Morgan: 
Jenny, thank you so much for joining me. That’s been a fabulous conversation and a powerful place to end. 
My takeaway is that DC doesn’t have to be a DIY system. When it’s designed well, it can guide people, build confidence, and help them take action long before decisions become urgent. 
That’s what DC Close Up is all about — focusing on what really matters and sharing practical examples of how the industry, and how we at L&G, are evolving to support better decisions and better retirements. 
Thank you for joining me, and thank you to everyone for watching. We’ll be back soon to get closer to the DC topics that matter to you.