Hot Topics for UK Pensions Professionals

So, let’s start with the Spring Budget. What do the announcements mean? Are they a bonanza for the industry?

The Spring Budget 2023 could have been bonanza time, but the fact that the Labour party have said they are likely to reverse the abolition of the lifetime allowance (LTA) if they come into power (and they’ve got a good lead in the polls at the moment with an election in under two years) is going to really confuse people as to whether they can actually put more money into their pension pot or not.  

I think you’ve got a handful of people over 55 who could afford to put lots of money into their pension pots, up to the new annual allowance (AA) amount of £60,000 (an increase from £40,000), and then withdraw it before the next General Election. But longer term, I have my doubts that this Budget will lead to significant change without political will from all parties. 

What about the Value for Money Framework?  Will the new value-for-money framework improve outcomes for members, and how do we actually shift the focus from cost to value?

If you think about the full member experience, it does include service, communications and engagement aspects. The risk is that we have become too focused on costs at the expense of administration and engagement.  

In principle, I agree with what the Value for Money (VFM) framework wants to achieve. However, I’m concerned about the scope of which schemes it covers. In phase 1, the framework covers the workplace schemes already covered by either independent governance committees or trustees of occupational schemes. But it doesn’t cover personal plans where there is already the least governance and oversight.  

In my view, this type of arrangement should have been prioritised for setting a new value-for-money regime, instead of changing what we have in place, albeit not perfect, in the trust-based and IGC worlds.  

I can see why the service and communications criteria in the consultation are focusing on some easily measurable targets to try and make objective assessments across comparator schemes, but then you risk excluding some of the additional work that actually improves the member experience. With engagement it’s particularly hard to compare what success looks like, because different schemes will have different demographics. For example, what looks good in engagement for an auto-enrolment scheme might be poor for a scheme with voluntary membership. 

What challenges to you see with Pensions Dashboards?

It’s clearly disappointing that there have been delays with pensions dashboards, but if it wasn’t ready to provide a good experience to members, then it’s right to delay. One of my biggest fears with dashboards is that something is launched, but when a member logs on and has a poor experience, they never try to log back on again. Instead they tell their family and colleagues that it isn’t worth bothering with.  

However, I don’t think we should take our foot off the accelerator at all, and the good thing for trustees is that it’s created a specific need to focus on our data. I think anything that helps to achieve that is good, in terms of checking what we’re missing and writing to our members trying to fill the gaps.  

Capacity in the administration market is a concern though, as explored by my colleague Alison Bostock in her recent article here. As trustees, we are very reliant on third-party administrators. I worry about the volumes of member queries that could follow the launch of the dashboards, and the ability of administration firms to handle the additional work. 

How do you think consolidation will affect the DC market, both at master trust and single-trust DC scheme levels? 

I think consolidation is a good thing up to a point, but you could reach the point where there are not enough master trust providers left in the marketplace to really allow the value for money discussion to thrive, and also where innovation becomes less important. Because why innovate, if there are only three or four providers left in the market? You have your captive audience. I hope that we don’t get to that point. There’s also scope for individual employer schemes to thrive in the future. I don’t think we should assume that they’re all going to move to consolidation.  

You can have good employer schemes where they subsidise the cost to members to provide better value for money for members, and of course, where they know their members, they can target communications and engagement far more efficiently and effectively than a master trust is able to do across the board. 

What’s the solution to the small pots issue?

We’ve been discussing this policy for so long that we need to start taking action, rather than discussing it for another ten years.  

I don’t think pension dashboards are going to be the answer. I expect we will find some consolidation as a result of it, but members already show a level of engagement by going on the dashboard to look at what they’ve got in the first place. Whereas the majority who are disengaged are the ones that need an automated route as soon as possible.  

My preference would be doing the ‘pot-follows-member’ (PFM) system because, to find a consolidator, we could spend years debating who that consolidator should be. 

Can members be expected to navigate the decumulation maze single handed?

Decumulation is probably the most unresolved area of Defined Contribution scheme management, in terms of how to help members make the right choices for themselves and their family.  

With decumulation, not only have you got the risk that lots of people may not be financially literate and don’t understand all the options available, but also that decisions may still be needed in the later years of their life when many people will suffer with cognitive decline.  

How are you going to work out your drawdown amounts as an 80-year-old if you haven’t got the mental capacity that you had as a 60-year-old? So, there are a lot of unresolved questions there, and I do think that both providers and trustees together should work on plans to help with this. 

The above extracts from the Defined Contribution and Master Trusts roundtable discussion originally featured in the May 2023 Pensions Age magazine found here.

How ZEDRA can help

With the shifting landscape of pensions legislation and regulation, and increasing risks and governance burden, our team is here to help guide you through the regulatory landscape, deliver good governance, and improve efficiency. 

Whether you wish to outsource pensions governance and secretariat, appoint us as professional trustees, engage us to carry out adviser reviews, or conduct discrete projects, we can offer as much or as little support as required for Defined Benefit, Hybrid, and Defined Contribution pension schemes. 

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