Savers must be supported during current economic volatility amid concerns the value of some defined contribution (DC) pots has fallen, The Pensions Regulator (TPR) says.
In a guidance statement aimed at DC trustees issued today (12 January), the regulator said that while those who are early in their saving journey can take a longer-term view on their investments, savers who are close to retirement could be impacted depending on the investment strategy of their scheme.
It said savers in so-called lifestyle funds need to understand whether the strategy they are in, as they approach retirement, is consistent with their plans on how they intend to access their retirement benefits.
TPR's statement sets out how trustees should communicate with savers to help them understand what a fall in their DC pension means for them, depending on their personal circumstances, and to avoid making hasty decisions that could lead to risks such as being scammed.
It also explains how trustees should strengthen the governance and oversight of DC schemes and ensure their investment strategies support stronger saver outcomes.
TPR executive director of regulatory policy, analysis and advice David Fairs said the current economic environment introduces new challenges for DC trustees.
He said: "Pensions are a long-term investment and so for many DC savers, any losses caused by current challenges can be corrected. But for those nearing retirement, the impact could be more significant. Now is the time for trustees to act.
"Our guidance statement aims to ensure trustees are communicating properly with savers about their options, and to encourage them to seek free impartial guidance from MoneyHelper, and to ensure their current governance and investment structures are appropriate."
Fairs added: "There is no one-size-fits-all answer in these difficult times, and scheme specific circumstances are important. However, we expect all trustees to consider the issues raised in this statement and take appropriate action as part of their ongoing governance responsibilities.
"We continue to monitor the situation in financial markets closely to assess the impact on both defined benefit and defined contribution schemes. We are speaking to trustees and their advisers about how schemes are responding to current market volatility, as well as industry representative bodies, including how they can support savers through this period."
The guidance statement reminded trustees they should be reviewing governance structures, investment advisers' remit, the characteristics of their scheme's saver profiles and their scheme's investment arrangements and implementation.
It also highlighted that communication with savers was "vital" to ensure savers have enough information to make informed decisions about their savings, and to avoid hasty decisions that could impact retirement outcomes or leave them vulnerable to scammers.
The regulator also said that trustees should review the level of support being given to savers - noting that, for many savers, the first time they make an active decision about their pension will be as they near retirement.
TPR said trustees can direct people to the Money and Pensions Service's MoneyHelper service, which offers free, independent help and guidance for people of all ages - including free guides, a pension calculator and for those over 50, free appointments with an expert via Pension Wise.
MoneyHelper could, it said, also help people find a regulated financial advisor, if they needed one, to make a final decision.
Commenting on the guidance, minister for pensions Laura Trott said: "It's essential that people have the support and information they need to make informed choices about their financial futures, particularly in challenging economic circumstances, so I welcome TPR's guidance statement. I'd also encourage all savers to take advantage of the free and impartial guidance available via Money Helper and Pension Wise, especially those approaching retirement."
Money and Pensions Service head of money and pensions guidance Carolyn Jones added: "TPR's timely and welcome statement will provide crucial guidance during these challenging times.
"Pensions can be complex and the decisions people make can have long term effects, so it's important for them to seek help before rushing into anything, no matter how large or small their pension pot is."
She continued: "Trustees can help by promoting this message and signposting people to the support they need, such as our free, independent MoneyHelper service. With the right resources and information, everyone can make the decision that works for them and their individual circumstances."
An enormously challenging year
Pensions and Lifetime Savings Association deputy director of policy Joe Dabrowski, said: "The past year has been an enormously challenging one for many households in the UK given the rise in inflation levels and the continued increase to the cost of living, so it's therefore vital that savers have a good understanding of their pension provisions as they plan for their retirements.
"The launch of this guidance by TPR is both extremely helpful and timely. We'd urge schemes to take note of this important document and engage with it for the benefit of savers."
The PLSA said its Retirement Living Standards - updated to reflect the latest cost of living increases today (12 January) - would also help savers plan.
Pensions Administration Standards Association board director David Pharo also commented on TPR's guidance - noting the importance of the issues highlighted by TPR, particularly in the context of schemes ensuring savers receive sufficient information to enable them to make informed decisions about how they fund for and plan their retirement.
He said: "As well as considering the investment aspects of this statement, we would encourage schemes to consider the issues highlighted by this statement with their pensions administration providers both in terms of what information is currently available to savers and whether additional information, guidance or access to planning tools would be helpful."
TPR's checklist for trustees
The guidance statement provides the below checklist for trustees to develop an action plan:
Review your governance and investment arrangements:
- Ensure your scheme has sufficient scale to support savers.
- Dedicate enough time to govern the DC arrangements effectively.
- Review investment advisers against agreed objectives and consider the proactivity of their advice.
- Use member data and trends in behaviour to inform decisions and input into investment strategy.
- Ensure investment options remain suitable and consider how market conditions might present new risks and opportunities.
- Monitor performance against objectives and industry benchmarks and consider how different groups of members have been impacted.
- Assess how investments protect against high inflation and review the use of cash funds.
Supporting your savers:
- Strengthen your member support capability and target your efforts towards those most affected and in need of help.
- Use insights to inform your guidance and saver engagement plans.
- Review communications to ensure savers can make informed decisions about their investments.
- Review and inform savers about the support, guidance and modelling tools which may help them navigate current market conditions.
- Help savers understand what recent performance means for their individual circumstances.
- Encourage savers to inform the scheme if their retirement plans change.
- Highlight the importance of seeking advice and taking a long-term perspective on pension saving.
- Highlight the risk of potential scams.
- Consider your savers' communication journey, including additional information to supplement annual benefit statements.
- Be specific in your guidance, to the circumstances faced by savers at different points in their retirement plans.
- Tell them how certain actions can protect or boost their savings.
- Guide them through the trade-offs that they will need to make and the risks involved.
- Monitor member action / inaction and adjust and evolve your engagements plans accordingly.