What’s keeping me up at night as a Master Trust Trustee?

27 November 2023

Members are at the heart of the work we undertake as trustees. We consider the risks they face – both collectively and individually – and try to take steps to mitigate them.

Some of the issues in Defined Contribution pension schemes go beyond what we can tackle within the pensions industry alone. There are educational challenges around financial literacy, for example, and societal issues linked to home ownership and long-term care, along with market pressures such as the cost-of-living crisis.

However, trustees need to be brave enough to tackle the issues we can control and seek to bring pressure and influence to bear on the things we can’t.

Key risks for members

Not saving enough

Key risks for members currently stem from the fact that many aren’t saving enough. The Defined Benefit generation were able to retire on an income linked to their salary without having to make any decisions. A pension happened to them.

The Defined Contribution generation coming through to retirement have to make their pensions happen. Many of them won’t be aware of this distinction. I am concerned we will soon see a wave of retirees with inadequate savings and some of them won’t even know this is the case.

Public perception and changing regulations

The pensions industry faces significant mistrust. Pensions coverage in the mainstream press often includes negative headlines about pensions going bust, being stolen, or miss-selling scandals. The continually changing rules, requirements, and tax framework give little incentive for members to save for the long term when they don’t know what rules will apply at that point.

Making informed decisions

Pensions cannot be considered on their own and, for many, saving more into a pension is not going to substantially improve their financial position. Paying off expensive debt, for example, or saving for a house deposit, may provide much better longer-term outcomes. These critical decisions should be well informed, however, and cannot be made in isolation.

Retirement journey planning

The retirement journey for members causes me the biggest concern. The decisions facing people up to and through retirement are complex and often dependent on context. Members don’t know how long they will live, what their spending requirements will be in the long term, what returns they could achieve, and whether their family circumstances are likely to change in years to come. There is potential for actual detriment should members make decisions now, which could harm them in the future.

As a trustee working with a single scheme, we will not be aware of the other assets a member may hold or other pensions they have, which makes it difficult for us to guide members on a full financial plan for retirement.

So what should trustees do?

The size of the problem can make it daunting to address but we can all make steps to start to improve the things we can control:

Endeavour to make changes

Even incremental changes in the right direction mean we are moving forward.

How we talk about pensions is vitally important to addressing some of the issues above. Think about how we want a member to feel when they hear from us, rather than the messages we want to impart.

Support members in the decision-making process at retirement through tools, communications, and guidance. Provide advice in a format that is accessible. Think about how we can pull their wider financial picture together.

Make sure defaults are the best they can be to support members to maximise the outcome of the contributions they make. Ensure members are taking the right risks at the right stages.

Be bold. Try something new – test, learn, and evolve.

And, most importantly, keep members at the heart of your decision-making. This is the only way to ensure a laser focus on their needs and achieve good outcomes.

For more information on how ZEDRA’s team of Pension & Incentives experts help trustees, sponsoring employers and advisers, please contact Kim Nash.

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