The ability to innovate is one of the key benefits of an internal team and we take this seriously as we strive to create the best possible products for our members. In 2016 USS became a hybrid scheme with both defined benefit (DB) and defined contribution (DC) elements – the Retirement Income Builder and the Investment Builder.
Last year USS became one of very few UK pension schemes to offer an allocation to its “Private Markets” investments to DC members invested in the Default Lifestyle Option. The term “Private Markets” largely describes companies that are privately held and whose value is therefore less affected by the volatility of the stockmarket. Our Private Markets investments include windfarms, Thames Water and Moto, the motorway services business.
Private Market assets have been difficult to provide to DC members in the UK because they are not traded daily and incur high charges. As we manage these investments in-house, we came up with a way to value these companies so that we can add them to the DC product without passing on any additional costs to members or employers.
This month, we are going one step further and expanding the DC offering again to include an allocation to our highly successful Global Emerging Markets team. This team, which was set up in 2010, invests across the likes of Greater China, Korea and India and over the last decade to 31 March 2020 (our last accounts), generated annualised 2.3% outperformance against benchmark. These investments will be available in both the Default Lifestyle Option and the Global Emerging Markets self-select fund, we will begin allocating in February and expect to be at full allocation within a few months.
In both cases – Private Markets and Global Emerging Markets, we are using the capabilities developed in managing the DB component of the scheme to bring real added value to our DC members.
But apart from what goes in to the suite of 10 products that make up our DC component, we have also built in a great deal of flexibility into the structure. Members can choose to hand investment decision-making over to us – the Do It For Me Option, or follow the Let Me Do It Option and choose their own funds.
In doing that they can build more or less risk into their portfolio by choosing the growth profile – low, medium or high. They can also choose other elements such as Sharia compliant or Ethical. And the first decision need not be final. Members can choose to move their money around the funds if they want to – for the most part, as often as they would like.
There are other pluses too. A member can opt to cap their salary for the accrual of DB benefits and still have the option of paying into the DC pot and saving for the future. This may be attractive to members who do not wish to feel tied down but want the freedom to move their money around to where it’s most needed.
We are very proud to be able to offer our members something that we think is truly innovative.
Nothing in this article should be construed as an offer, invitation or general solicitation to buy or sell any investments or securities, provide investment advice or to engage in any other transaction or service.