Consolidation across defined benefit (DB) and defined contribution (DC) schemes is the most-anticipated trend for the UK pensions industry over the next five years, the Pensions and Lifetime Savings Association (PLSA) has found.
Data collated for the trade body's Facing the Future: UK Workplace Pension Schemes Survey - released today (12 October) to mark the start of its annual conference - also highlights climate change, the use of technology, and saver engagement as key future trends for the industry.
The PLSA conducted 129 interviews with member organisations representing a wide range of scheme type and size, while IFF Research also gathered the views of C-suites, trustee chairs, consultants, directors, heads of pensions, and pension managers.
Respondents were then asked about challenges and opportunities on policy issues relating to the UK economy, the impact of Covid-19 on the industry, the wider role of pensions in society, ESG, and auto-enrolment (AE).
After consolidation, more than a third of respondents said climate change and ESG was the most-anticipated trend for the UK pensions industry, while improving saver engagement (42%) was the most-anticipated impact of technology.
Almost half (48%) of the industry said consolidation was the most-anticipated trend in the pensions industry over the next five years. Fewer but larger pension funds are expected in the future as funds face tougher tests to prove their worth with value for money assessments and strict, costly measures including demonstrating climate awareness within their investment portfolios.
In the seven months since the start of the coronavirus pandemic in the UK, superfunds have been given the provisional regulatory greenlight by The Pensions Regulator, heralding the start of potential mass-consolidation across the DB landscape.
Meanwhile, continued issues over the proliferation of small pots in the DC industry and the cost of running small funds in light of the new pressures on scheme sponsors have confirmed master trusts as potentially the most cost-efficient choice for sponsors. In an effort to ramp up governance measures, pensions and financial inclusion minister Guy Opperman also confirmed schemes will be "nudged" into consolidation under new government plans.
The PLSA said it welcomed the current trend towards consolidation but stressed smaller schemes may also still be able to deliver some or all of these benefits of larger schemes.
Addressing climate change
ESG, including climate change, was identified by PLSA members as the second major key trend over the next five years; over a third (36%) of survey respondents said it was the most anticipated trend for pensions.
Almost two thirds (64%) of respondents agreed pension funds should be used to help tackle climate change and other ESG issues, while 54% said pensions should be used to invest in the UK economy through infrastructure and investment. Such investments offering high returns were also given as a key reason for the trend toward ESG.
Engaging the nation's savers
A major issue facing the UK's savers is the current AE contribution rate of 8% leaving the majority of savers are unlikely to have the standard of living in retirement they expect.
More than three quarters (76%) of PLSA members surveyed for the research said that the current contribution level is still too low.
"When asked, over the next five years, which initiatives could be the most effective in improving member engagement, over half (53%) of respondents identified the pensions dashboard," the PLSA said.
"The mid-life MOT (26%) and PLSA's Retirement Living Standards (24%) were identified as the next two most effective initiatives."
PLSA chief executive Julian Mund added: "Whether it is engaging with a trend towards consolidation, seeking ways of harnessing new technology to help savers understand retirement income or taking steps to deal with climate change, it is vital that workplace pension schemes face the future to drive better outcomes for savers when they reach full or semi-retirement.
"Against the backdrop of uncertainty brought by coronavirus, the changes our industry faces underscore the importance of developing good public policy to ensure we have a system which is fit to meet the challenges of the next five years and beyond."
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