The Kübler-Ross Change Curve shows the various emotions experienced by someone who is going through a major life change. First coined by Swiss psychiatrist and humanitarian Elisabeth Kübler-Ross, it can also be applied to DC pension investment strategies.

Shock and Denial

The time since the introduction of auto-enrolment has coincided with strong investment markets. We have seen double digit annual returns from passive global equities*. Members invested in riskier investments and, reading their annual benefit statements, are likely to be happy with the rate of growth of their pension pot.

Unfortunately, things might get a little bit more difficult from here. Backed by geopolitical instability and slowing rates of growth, there is evidence building that we are entering a downturn.

Over the last year, we’ve been telling our clients that we feel conditions are turning and we were indeed met by the first stage in the curve: shock and denial. After all, this change comes after the majority of quarterly Trustee meetings in recent memory have been spent discussing how much funds have risen by, with Trustees keen to maintain the high returns their investment strategies have earned them in recent years.

At a recent Trustee meeting, when discussing markets since the start of the year, one of my Trustee clients said, “oh yeah, markets can go down as well”. Whilst he was being humorous, there’s a serious point in there: we’ve gotten used to the long bull run we’ve been in until recently (even forgetting falls in the summer of 2015).

Negative investment returns pose a challenge for DC schemes. Recently auto-enrolled members could start to see a fall in their savings. This would likely have the biggest impact on the main target of auto-enrolment; younger investors, who tend to be more invested in riskier assets.


Whilst not entirely surprising, studies show members react badly to any reduction in their pot size**. Members feel angry, cheated or robbed by the evil bankers who stole their money. By contrast, an absolute gain but real loss (e.g. investment return of 1% when inflation is 5%), is shrugged off as a low, but acceptable return.

Trustees also get angry, fuming over the latest move by Donald Trump, or a lack of progress in Brexit negotiations.


Anger gives way to bargaining as Trustees and members consider what they can do now to reduce the impact of losses after they have occurred.

But schemes don’t need to bargain. A member needs focused investment strategy means systems are in place to mitigate investment losses. Once member needs are met (first and foremost), we can ensure schemes are well prepared for tomorrow’s markets in terms of any upcoming falls.


As a result of this, depression hasn’t happened this time around, but what could we expect if we fail to protect? Depression might be a strong word, but the idea is right. Members might reduce or stop contributions, or sell riskier funds after a loss, because further losses are just too depressing.


Instead we go straight to the final stage of the curve: acceptance. It is the point at which members and Trustees begin to embrace the reality of the situation and consider opportunities for the future.

Whilst downside protection is great, ultimately the aim is to achieve good member outcomes, which means we must also generate enough investment return.

Defensive assets are relatively easy to identify, but finding the right means to best capture a bounce can be more difficult. Different equity regions, styles or other opportunistic investments can all work, but timing is key.

The ability to react quickly to changing investment markets is crucial, as well as having a sufficiently large toolkit to get access to the actual drivers of investment return.


As part of the investment process, schemes shouldn’t only be concerned with the total pot size at retirement. The journey along the way is also important.

With members becoming more exposed to the world of pensions and seeing regular benefit statements, returns over the shorter term are important and may be used to make financial decisions.

Schemes should closely monitor investment strategies, aim to minimise the risk of large falls in value, and create as smooth a journey as possible for members, whilst also leaving open the upside to achieve good member outcomes.

Elisabeth Kübler-Ross once said “should you shield the valleys from the windstorms, you would never see the beauty of their canyons”. Rather greedily, we will do both.

Key messages

+ Auto-enrolment came at a time of strong investment returns, but as we experience a likely downturn, members may disengage.

+ Therefore, we need investment strategies to protect on the downside.

+ However, we also need to generate enough return to provide good member outcomes first and foremost.

+ The ability to react quickly to changing investment markets is crucial, as well as having a sufficiently large toolkit to get access to the actual drivers of investment return.

* Source: MSCI All Country World Daily Total Return Net Local currency from 31/10/2012 to 06/11/2018.

** Source: NEST Corporation: Understanding reactions to volatility and loss (link).

Niall Alexander

Head of DC – River and Mercantile Solutions


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