As private markets become established within DC portfolios, the next challenge is to determine how long members should remain invested after they reach retirement.
For much of the past decade, the debate around private markets in defined contribution (DC) pensions has focused on accumulation. The challenge was introducing illiquid assets into daily-dealt pension arrangements, creating suitable structures and convincing trustees that the potential benefits outweighed the complexity.
At PMP’s Defined Contribution Forum, the discussion moved on to the question facing speakers was whether they should remain there once members reach retirement. For Niall Aitken, head of investment strategy at Aegon UK, the industry’s perspective needs to change. “I really hate the phrase ‘endpoint’,” he said. “Let’s call it the starting point of the next phase.”
Retirement has historically been treated as the point at which growth investing ends. But members increasingly spend decades in retirement, so their assets can be committed to generating returns over a longer period. “We’re trying to keep these customers for another 30 or 40 years,” he said. “The only thing that’s really changing is that they’re not saving as actively as they were previously.”
That perspective has influenced how Aegon has approached private markets. The firm has already deployed around £600 million into private assets and has structured its allocation so different private market strategies can be used at different stages of the glidepath.
Aegon has introduced separate exposures that can be adjusted over time, reflecting the different roles private markets may play before and after retirement. “Private markets really can have different applications at different points in the lifestyle [strategy],” Aitken said.
The implication is that retirement may not require a wholesale exit from private assets; the question is then which assets should remain and for how long.
[L-R Helyne Slade (chair), Emma Pittaway, Rahil Ram and Niall Aitken]
That was a theme picked up by Rahil Ram, head of investment strategy at NatWest Cushon, whose scheme maintains an allocation to private markets through an LTAF structure for around three years. “We are not coming at it from an asset [class] point of view,” he said. Instead, he asks: “What is the retirement challenge?”
Some private assets appear particularly well suited to this task, said Ram. Infrastructure and real estate can provide contractual and inflation-linked cashflows, while private credit may offer income characteristics that align naturally with decumulation objectives. Such features could support spending through retirement while maintaining exposure to long-term growth. “Every asset class has to work hard to be in the portfolio,” Ram said.
While the panel broadly agreed that the investment case for holding private assets beyond retirement is becoming stronger, the discussion also highlighted why implementation remains difficult.
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Emma Pittaway, professional trustee at LawDebenture, argued that trustees are increasingly comfortable with the investment rationale but remain focused on the practical implications. “The direction of travel is clear,” she said. “And the investment case is clear.”
While institutional investors can take a long-term view to benefit from the illiquidity premium, DC members likely need to retain the ability to change strategy, transfer providers or alter their retirement plans.
Pittaway highlighted the areas of reversibility and portability. “We’re talking about individuals’ pots of money and there’s really no backstop here, it’s not like DB,” she said.
The governance challenge runs throughout the decumulation debate. Trustees need to be able to explain the potential outcomes to members, especially during periods of stress. “Would we be able to stand in front of them and justify what we’ve done?” Pittaway asked.
The speakers also challenged some of the assumptions around liquidity. Aitken argued that concerns about members accessing their money often overlook how large-scale retirement solutions can typically manage flows at the portfolio level, with withdrawals offset against contributions and other cash movements. The challenge is more about the design of the overall solution. “We won’t have to sell” underlying assets to meet withdrawals, he added.
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Providers are now grappling with the practical realities of portfolio construction, liquidity management and member outcomes. “Implementation, implementation, implementation,” Aitken said. “It’s that important.”
The emergence of collective defined contribution schemes (CDC) could provide one possible solution. By pooling assets and reducing the risk of large individual outflows, CDC structures may make it easier to hold illiquid assets for longer.
Ram argued that CDC can help schemes maintain private market allocations over extended periods, while Pittaway suggested the structure removes some of the reversibility and portability concerns present in traditional DC arrangements. However, none of the panellists suggested CDC removes the need for careful governance or portfolio construction.
The debate is no longer whether private markets belong in retirement portfolios. It is how long they should remain there, and how schemes can balance long-term growth with the flexibility that retirement demands.