At a glance:
- Industry is in an ‘almost perpetual state of evolution and flux’ for both DB and DC
- This presents challenges but also an opportunity to ‘make pensions sexy’
- Views on how the industry will adapt are mixed and consensus is not guaranteed
The pensions landscape is full of change and opportunity, says a wide-ranging report. James Phillips explores some of the views on the changes afoot.
Pensions have been undergoing a lot of change over the last few year, with individual savers being handed more and more responsibility to build an adequate retirement income.
With Freedom and Choice enabling people to do what they wish for their retirement income, scams are on the rise and member outcomes are becoming more varied, while a surprisingly low number of people are seeking or heeding independent financial advice.
And, in the defined benefit (DB) world, consolidation is both happening and increasingly talked of. While the Local Government Pension Schemes (LGPS) are merging their assets into eight pools, DB consolidation vehicles are being set up.
These are just some of the themes discussed in a Burges Salmon report - Pensions: a time of change, a time of opportunity - unveiled last week, in which pensions partner Clive Pugh states:
"Everyone associated with the pensions industry knows it is complex and multi-faceted; it is also in an almost perpetual state of evolution and flux."
But, speaking at the report's launch on 3 October, Baroness Ros Altmann said throughout her career in the industry "there has never not been a time of change" with new challenges arising all the time.
"It is one of those issues that keeps changing - new laws, new regulations, new issues to occupy the industry," she said. "But it is also a time of opportunity. There have been some really tough years and the landscape itself has changed beyond recognition.
"We have a chance to make pensions sexy. I know it sounds crazy, but pensions are bland. It is now up to us to make people want more - make them want to build up a better pension."
The challenges facing the industry are varied. But the biggest on the horizon for pension professionals and sponsors is DB regulation while, for members, it is retirement income adequacy and good quality advice.
In a survey conducted by Professional Pensions, the law firm asked 154 leaders from across the pensions industry, including trustees, pension scheme managers, and independent financial advisers, for their views on some of the big pensions topics.
Among the changes envisaged for the DB space are new powers for The Pensions Regulator (TPR), as set out in the government's white paper, and there is broad consensus among trustees and scheme managers of DB and hybrid schemes that these should be given.
Indeed, 87% said TPR should be granted these new powers, although 45% of the sample said it should first focus on changing the way it uses its existing powers. And, when questioned on plans to strengthen the notifiable events regime - including introducing declarations of intent in relation to corporate transactions - 42% agreed this would strike the right balance.
Writing in the paper, Capital Cranfield professional independent trustee Jacqueline Wood said the rules could see sponsors refocus on their schemes: "Historically, the trustees' position has been very weak. TPR's more proactive stance is welcome and strengthens the trustees' position."
Conversely, KPMG partner David Clarke said "we need some clarity" in relation to TPR's role and expectations, noting some see the watchdog's past activity as not proactive or strong enough.
"That said, the regulator has significant powers, a number of which haven't been used historically," he said. "So before anything is changed, it would be best to confirm the role and remit of the regulator going forward."
A further survey of 2,000 respondents, conducted by YouGov, found that around three in five members of the public do not believe their workplace pension will provide sufficient retirement income, yet just over half also planned to retire in their 60s.
And, worryingly, two-thirds of respondents didn't understand how their fund was invested, while nearly half find it difficult to access good advice about pensions.
In the report, Burges Salmon dispute resolution partner Kari McCormick wrote: "This presents a great opportunity for the pensions industry to develop straightforward, useful, easy to use products for consumers, which will make retirement planning as simple and effective as it can possibly be."
The separate survey of pension professionals found TPR and the Financial Conduct Authority are not believed to be doing enough to make people aware of the risks of unregulated investments, often a sign of scams.
Pensions Administration Standards Association chairwoman Margaret Snowdon believes technological advances can help improve member awareness on this issue.
"I think that the industry will change as a result of increased use of technology and that it is an opportunity to both increase profitability and the quality of advice given as people can spend more time on quality tasks and computers take on the rest," she said. "We'll also see fewer scams pulled off as a result."
Yet, the survey participants are not convinced technology will take off majorly. Over half (56%) said they did not expect robo-advice to ever form the majority of the advice market, while 28% said this could happen in between five and 10 years.
These are just some of the themes identified in Burges Salmon's report which certainly highlights the constantly shifting environment pensions operate in.
But it is crucial these challenges find a solution that balances members' interests, protection and needs with those of employers.