- Mercer announces “Mercer SmartPathTM” their new DC Investment Approach
- Member engagement and consolidation built into innovative default investment design to suit 2015 flexibility
Having originally brought a delegated investment solution - Mercer Workplace Savings (MWS) - to the defined contribution (DC) market in 2011, Mercer is now bringing that same innovation to the new post-budget retirement savings landscape.
Mercer SmartpathTM will become the consultancy’s new default investment approach for DC schemes. The new approach re-orientates conventional retirement thinking by assessing default investment offerings against outcome based objectives, with the aim of delivering adequate and sustainable retirement incomes for members. Mercer SmartpathTM focuses directly on the member - incorporating their whole life saving and spending experience, including both state pension benefits as well as DC savings.
The approach is designed to be robust but flexible. Members starting to build up their retirement savings will start with an allocation to a diversified set of growth assets. As they approach retirement, they will automatically and gradually ‘glide’ from this growth investment strategy to a more defensive strategy – depending on their onward path (see Graph 1). Mercer SmartpathTM builds in the flexibility for members to continue down one of three paths – full cash withdrawal upon or very close to retirement, secured income though the traditional route of annuity purchase and, lastly, income drawdown, which aims to deliver an adequate long-term income that can be sustained throughout old age. Within income drawdown, the approach balances the need for growth to improve the adequacy of retirement incomes, but also aims to manage volatility of investments with a focus on increasing the certainty of income in retirement.
Mercer SmartpathTM allows the flexibility for members to dictate their retirement savings path - allowing them to adjust their investment strategy to meet the sometimes conflicting objectives of access to their capital, potential for growth and security of income. For employers and trustees it provides the flexibility to offer either growth or growth plus flavours of the savings phase - depending on member appetite for fees and active management - and facilitates a seamless link for their employees into a well governed post-retirement solution.
According to Brian Henderson, Head of Mercer’s DC and Savings Team in the UK, “Many consumers will turn away from annuities upon retirement. Together with the blurring of work and retirement, this means that investment strategies aimed only at the purchase of an annuity on a set retirement date are largely defunct. Instead, schemes will need to provide investment approaches that match members’ needs at different stages of their working lives. They need to be robust enough to provide a good income in retirement, but also flexible enough to allow the members the option of how they can be ‘cashed in’ when retirement does take place. Our Mercer SmartpathTM approach does this and aims to help members target an adequate level of income in their retirement.”
According to Mercer, this new investment approach means companies will also need to reevaluate how they communicate with their staff on their pensions.
“People, and their circumstances, change,” said Mr Henderson, “so schemes need to check in and engage with employees more frequently and more effectively. How have their circumstances changed? Have they had a windfall or extended their mortgage into their retirement? Does their investment strategy need to change to take these into account? Companies need to have early discussions with members on what they can save, possible retirement dates and what financial options they might choose. Regular information is going to be vital in helping members build up a good base-level of income for their retirement.”
Graph 1: Mercer SmartpathTM DC Investment Approach
About Mercer
Mercer is a global leader in talent, health, retirement, and investments. Mercer helps clients around the world advance the health, wealth, and performance of their most vital asset – their people. Mercer’s more than 20,000 employees are based in 42 countries and the firm operates in more than 130 countries. Mercer is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy, and human capital. With over 55,000 employees worldwide and annual revenue exceeding $12 billion, Marsh & McLennan Companies is also the parent company of Marsh, a global leader in insurance broking and risk management; Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; and Oliver Wyman, a global leader in management consulting. For more information, visit www.mercer.com. Follow Mercer on Twitter @MercerInsights.
Mercer Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No. 984275. Registered Office: 1 Tower Place West, Tower Place, London, EC3R 5BU.
