I am sure readers can remember a once fabulously successful fund manager who backed small growth businesses until their illiquidity proved his downfall.
Both DB and DC are vulnerable to the notoriously bumpy ride that private equity markets are well known for. In the case of DB, losses will go straight onto the sponsor’s balance sheet. With DC, these higher risk investments can deliver immediate and highly visible hits to pot sizes.
Rather than berating DC schemes for not investing enough in illiquid high growth assets, the chancellor would be better advised to tackle the fundamental framework of today’s pensions.
It is the individualism of DC pots that constrain them so much.
We need to move to collective defined contributions, where the structure of the liabilities is much more suited to holding the assets geared to the intergenerational trade that must now be considered in the design of all pension provision.
More positively, if you look more closely at his Mansion House speech you find that the chancellor has understood this, and offers words of encouragement to the nascent CDC industry.
Adrian Boulding is director of retirement strategy at Dunstan Thomas
