The Pensions Regulator has called on trustees to strengthen the governance and oversight of DC schemes to ensure savers in lifestyle schemes are in strategies consistent with their investment objectives.
In a guidance statement aimed at DC trustees, TPR said current volatility around bond valuations meant trustees that 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.
Figures from CAPA-data.com show many savers in the run up to retirement saw devastating falls in their fund value in the year to state pension age or their stated retirement age.
The average of the funds in the CAPA universe saw a 9.08 per cent fall, after a typical 0.5 per cent charge in the year before state pension age, meaning a £100,000 pot would have lost £9,080. That compares to a 8.58 per cent fall for strategies for younger savers’ strategies. Some providers saw significantly worse returns for their pre-retirement strategies than for their younger strategies.
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.
David Fairs, executive director of regulatory policy, analysis and advice at TPR, 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.
“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.”
It also highlights that communication with savers is 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.
Trustees should review the level of support being given to savers; for many savers, the first time they make an active decision about their pension will be as they near retirement.
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.”
Carolyn Jones, head of money and pensions guidance at the Money and Pensions Service, said: “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.
“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.”
Joe Dabrowski, deputy director policy, Pensions and Lifetime Savings Association (PLSA), 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.
“To help savers plan, the PLSA launched its Retirement Living Standards back in 2019 and will be issuing the latest updates to these – to reflect the increased cost of living – shortly. The PLSA also intends to develop further supporting best practice guidance for the industry, to support savers during this period.”
David Pharo, Pensions Administration Standards Association (PASA) board director, said: “At PASA we recognise the importance of the issues TPR are highlighting associated with the current economic climate, 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. 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.
David Brooks – Head of Policy at leading independent consultancy Broadstone said: “The guidance from TPR suggests Trustees are not proactively addressing the issue caused by the volatility in the gilt market in September/October 2022.
“Any members in lifestyle funds or with self-selected funds which switch into gilts on the approach to retirement will have seen a dramatic reduction in the value of their fund at the worst possible time. The onus should be on Trustees to support members at this time to sensitively communicate the impact on their fund and signpost to the support of advisers or MoneyHelper.
“Trustees are increasingly also looking to bolster the financial education and support available to members as they go through their pension saving journey and are considering working with specialist advisers to provide expert and bespoke guidance to savers.”
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