Most schemes neglecting Brexit contingency planning

This week's 78 Pensions Buzz respondents also answered questions on whether NEST was setting an industry benchmark for DC investment innovation, and if mid-life MOTs came too late to encourage saving.

Read the results in full.

This week's 78 Pensions Buzz respondents were fairly split on whether NEST was setting an industry benchmark for investment innovation in defined contribution (DC).

It comes after the auto-enrolment provider announced it would allocate 5% to private credit assets, having previously increased investments in alternatives, including commodities.

Nearly four in ten respondents disagreed with the suggestion, with one noting: "It is far too early to judge whether these innovations will work in the long term. Innovation in and of itself is not a virtue."

Another added: "It may be different but I doubt this complexity will lead to better outcomes - just higher fees all round and more onerous governance."

Yet, 30% did feel a benchmark was being set. One such respondent stated: "Given its scale, it arguably should do, as long as it operates within a low-cost charging structure."

Another suggested: "It may be setting a benchmark but, ultimately, trustee boards may remain cautious about following in its footsteps when dealing with members' options, particularly lifestyle choices."

Another 31% were unsure.

A narrow majority (51%) of schemes have not undertaken any contingency planning in order to prepare for the myriad potential Brexit outcomes, despite exit day currently in just over a months' time.

One respondent said it was a "complete waste of time", adding: "You cannot fetter a future trustee board, or a future corporate board, so the best you can do is discuss the sort of issues that might come up.

"With the current political and economic uncertainty, you are unlikely to predict the correct future circumstances."

Another said there was still not enough known about the outcomes to enable trustees to act, while another argued: "Short of dragging the mattress into the cellar and stocking up on tinned water, what should we be doing?"

And a further respondent said it was impossible to know how markets would react and then prepare accordingly.

Even among the 30% who had taken action, one said this was only on a superficial level, while another said: "But you can't foresee every eventuality."

Of those respondents who act as trustee for, or work with, a DC scheme, the majority (74%) were in the process of reviewing their investment strategy, or would do so within the next year.

One in the former group said their approach was a "continuous process, as factors affecting investment strategy change".

A further respondent said they monitored the strategy on a quarterly basis, while another added they were particularly focused on responsible investment and climate risk.

A commentator who was set to review the strategy in the next year said this was part of an annual review with the scheme's advisers.

The remaining 26% said they would review the strategy in the next 12 to 24 months, or thereafter.

One in the former camp had a focus on the long time horizon, adding: "Volatility is not your enemy if you are investing over the cycle."

A majority (56%) of respondents agreed pension schemes need to do more to pressure asset managers into doing more to tackle climate change risk.

"Although it is the correct political bandwagon to jump on at the moment, there are very drastic long-term consequences if we ignore this," one said. "This means that we have to be proactive and not firefight so anything for the former has to be acted upon."

Another said this could not be for "abstract ethical reasons" alone, but "environmentally-aware businesses are likely to grow better and be less risky than they would have been".

A further participant noted that the "financial case for investing in stranded assets is getting weaker by the day".

A quarter of respondents disagreed, with one arguing: "Asset managers have enough to worry about with having half-baked opinions thrust on them. Remember the path to hell is paved with good intentions."

One of the 18% who were unsure said: "I don't tell them how to manage money - they don't tell me how to run a trustee meeting."

Three in five respondents felt that mid-life MOTs, typically planned for those aged in their 40s, did come too late to encourage appropriate saving for retirement.

A respondent said: "Greater and clearer information and education about pension saving is required from the time people start work (or, even better, while they are still at school) and continue throughout their working life."

Another argued: "Pension saving should be mandatory, with no opt outs for all working people of all ages. The earlier that you start, the cheaper it is and the bigger the eventual pot."

"While they are good for some, they will be too late to be most effective for the majority," a further person said. "We need to encourage the 20-somethings to start, by persuading them it is actually important."

However, 28% disagreed, with one noting: "It is often not until mid-life that people are able to set aside enough cash to save for retirement."

The industry forgets that, despite the best will in the world, it is difficult to engage people before age 50, said another.

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• Topics
• Industry
• Pensions Buzz
• NEST
• National Employment Savings Trust
• private credit
• Brexit
• European Union
• DC investments
• Climate Change
• climate change risk
• ESG
• ESG RISK
• environmental, social and corporate governance
• mid-life MOT