Two trustees and a consultant offer their predictions on the challenges and opportunities that lie ahead. 

 

Maggie Rodger, co-chair, Association of Member Nominated Trustees: The biggest challenge for trustees is likely to be checking the strategic direction of the scheme against the new Treasury expectations, blended with the potentially re-re-revised, if at all, Defined Benefit Funding Code. 

Interestingly, there is much discussion, and ideas are emerging about how to support running on rather than buying out, to benefit both sponsors and members. This would require various levels of insurance against future market reversals through sponsor covenant insurance, longevity insurance, and possibly enhanced Pension Protection Fund support in return for an increased levy. And most importantly, much thought needs to be given to whether it still makes sense for members once this cocktail of options works itself through – or indeed if there will be a choice and the buyout market will be able to cope with volumes anyway!

Kim Nash, managing director, Zedra: The responsibilities and expectations of trustees continue to grow. This does pose a challenge in how best to use time and resources as we navigate through all the areas of consideration. However, there is also a real opportunity. Trustees have the opportunity to really drive change and be at the heart of delivering sustainable pensions for members. This is genuinely exciting. Top of my personal professional action list for 2024 will be supporting members through decumulation.  

Matthew Arends, head of UK retirement policy, Aon: The pace and volume of regulatory change. This message rang out clearly among UK DB pension scheme stakeholders in Aon’s 2023/24 Global Pension Risk Survey as a key risk. For example, respondents commented that “regulatory updates can be a drag on time and resources” and “resourcing additional regulatory obligations is a challenge”. 

These comments were collected ahead of the various reforms to pensions announced as part of the chancellor’s Mansion House speech in July and subsequent consultations – which served simply to add to the likely volume of future regulatory change.   

This leaves trustees facing implementation of a plethora of new requirements in 2024, including the General Code, new funding regulations and associated code of practice, and new guidance from the Pensions Regulator on investing in private assets and on employer covenant assessment – on top of existing change such as GMP equalisation, dashboard readiness and the value for money framework.  And this is before further potential change which could come in the form of the DC lifetime provider concept or extending the PPF to act as a central consolidator – either of which could be big disruptors. 

Rodger: One of the biggest risks on the horizon is not from markets but from cyber criminals. Trustees have a duty to ensure the safety of members’ funds – and the risks from hackers continue to increase. Pension funds are attractive to these criminals not only for the substantial assets they hold but also because of the host of personal information about members, which can potentially be harvested and used to commit further crimes upon these individuals. But in financial terms, I think the biggest risk comes from ongoing and seemingly constant change and uncertainty.

Nash: There is a real risk that the volume of proposed changes will mean investment and innovation into areas which are deemed developmental, rather than meeting a regulatory need, may be postponed or scaled back due to resources and uncertainty.  

Arends: Pensions in the UK are generally highly protected in law, funding is ring-fenced from the employer, and investments are highly diversified and relatively conservatively invested.  All of which makes UK pensions relatively robust to risks.   

Having said that, the biggest risks to members arguably arise from crime, whether that is the blight of pension scams affecting individual members, or the risk that cyber attacks expose member data or allow assets to be stolen. 

Rodger: In the short term, we will probably see very little change to the current direction. Hopefully we might see more parliamentary focus on pensions with a pensions bill and, if we are really fortunate, there might be greater emphasis on encouraging the beginning of collective defined contribution, which could offer much better value to members than DC. Hopefully the Labour party, which has always viewed itself as the champion of workers’ rights and protections, will take the opportunity to try to move this important development forward.

Nash: Rather than predicting I’d like to focus on what I’d like to see maintained through any potential change in government. The key priority, regardless of political outcome, should be to maintain a focus on member outcomes. From the raft of consultations and proposed policy change we MUST keep coming back to members’ needs and what is going to support them to make the most from their retirement savings.