From market volatility to the cost-of-living crisis; pension schemes are having to deal with a range of new challenges as the great moderation has come to an end. BlackRock’s Henry Odogwu, Penfold’s Chris Eastwood and PLSA’s Joe Dabrowski discuss the factors they believe are having the biggest influence over the retirement landscape.
Over the past decade, pension schemes have benefitted from a sustained period of benign market activity, which has allowed many to achieve double digit growth year-on-year. Yet given current economic climates, the future of pension scheme investments and returns are likely to be very different.
Henry Odogwu, Head of Defined Benefit sales at BlackRock, outlines that alongside a new macro regime, which has already seen rising inflation reduce the value of pension pots in 2023, a focus on affordability, demographic changes, an elevation of social issues and sustainability will all fundamentally change the future of retirement.
Much of this should not be a surprise; markets have been volatile over the past year with the Bank of England struggling to curb inflation and rates having risen or stood still. Meanwhile, the UK's population is projected to increase to 69.2 million in mid-2030, and the number of older people aged 85 and over is forecast to almost double to 3.1 million by 2045.[1] The result of such growth is that a number of different pension solutions will be needed for them.
There is no guarantee that any forecasts made will come to pass.
Christ Eastwood, Co-Founder and Co-CEO of Penfold, the digital pension company, explains on the podcast that schemes need to offer other tools in combination with DC savings, such as access to annuities, equity release, complementing portfolios with cash generating assets.
"The current thinking and design of drawdown strategies is not really fit for purpose in [this] new era. So, a solution that looks to exhaust a savings pot is fundamentally flawed."
Meanwhile, a new challenge for the sector is dealing with the impact of the cost-of-living crisis. Joe Dabrowski, Deputy Director of Policy at the Pensions and Lifetime Savings Association, notes that the group's analysis shows lots of people are not on track to receive an adequate pension and the sector could be "storing up a problem" if it is not addressed soon.
"We need to be sensitive to the kind of immediate pressures that people are under. We need to think about the timescale for how to improve contributions over [and] what impact will that have on millions of savers who really do need more support in order to get a good outcome."
Listen to BlackRock's full audiocast here
[1] National population projections: 2020-based interim, 12 January 2022, Office for National Statistics
[WG1]Hyperlink: https://www.blackrock.com/uk/professionals/institutional-investors/uk-retirement-audiocast
