Illiquid investments are likely to have materially improved net outcomes for members, analysis from Hymans Robertson has found, revealing that the average returns from these investments would have improved net returns for members by 1-2 per cent per year over the past decade.

The analysis indicated that member outcomes have largely reverted to pre-pandemic levels, although they are now under pressure from other factors, such as the war in Ukraine, the cost-of-living crisis and recent turmoil in bond markets.

Despite these challenges, the analysis found that there is a "compelling case" for bringing alternative asset classes, such as illiquid investments and private equity into default strategies, where these are expected to drive significant improvements in member outcomes.

However, it argued that, in order to unlock this potential, the race to the bottom on charges needs to stop, emphasising that the cheapest option does not always offer the greatest value.

The review suggested that over half of the commercial master trust market is already embracing the cost to value shift in some way, with many making a move towards investing in illiquids.

Given this, the provider highlighted 2023 as a "milestone year", with the authorisation of the first long-term asset fund, and more asset managers also looking to launch solutions.

Hymans Robertson head of DC investment, Callum Stewart, commented: “We need a forward-looking mindset when considering investment strategies to counter-act the effect of those pressures on member outcomes.

“Providers should also assess investment platform capabilities given the integral role these perform in facilitating access to illiquid investments. Based on our analysis, the current low charge environment is limiting the potential to materially improve outcomes.

"For example, a 10 basis points increase in charges could support a 10 per cent allocation to illiquid investments and at least a 10 per cent improvement in retirement outcomes for younger savers.

“Value and outcomes should drive decisions, not cost.”

The analysis in the report looked at the three main stages of the savings journey – growth (more than 15 years from retirement), consolidation (5 to 15 years from retirement), and pre-retirement (within 5 years of retirement).

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