Consolidation, by 2035, is anticipated to be the primary driver of change in pension fund strategies.
This was one of the main points highlighted in a panel discussion at the Pensions and Lifetime Savings Association (PLSA) annual conference. The panel included Gregg McClymont from IFM Investors, Carol Young PLSA board member, Sarah Smart from The Pensions Regulator (TPR) and Chris Curry from the Pensions Policy Institute.
The panel discussed their expectations for the 2035 pensions landscape. Delegates anticipate that firms will have met their emission reduction targets by then. They also expect increased consolidation and a greater emphasis on technology, especially as the industry prepares for the pensions dashboard.
Young highlighted the potential for consolidation in the industry, emphasising its ability to unlock new investment opportunities.
Smart agreed that the market will experience the effects of consolidation, particularly concerning large DB schemes, whether open or closed, which she anticipates will be overseen by skilled professionals while still receiving support from trustees. Furthermore, in line with industry expectations, she expects to see a reduction in the number of larger master trusts. Smart said: “I expect they will be competing directly to consumers based on the value that they present to them.”
She noted: “ As a result of the size of these schemes and to a certain extent, the similarities in what they’re trying to achieve at very high levels, how they behave and manage the assets will be systemically important across the whole of the UK financial landscape. That’s why the quality of the people looking after these assets and how policy impacts what these organisations do will be a consideration across the whole government.”
She added: “We recognise at TPR that we need to evolve and we see ourselves as being part of how the market develops to meet the needs of savers. We want to be an enabler of innovation. It’s the market’s job to do the innovating but we see it as our job to enable that innovation.”
Additionally, Young emphasised the necessity for regulatory measures that enable open DB plans to flourish. She stated that prioritising long-term savers is key to achieving the ambitions outlined in initiatives like the Mansion House compact.
Young said: “Open DB can provide long-term patient capital, it can be a decade-long view, it can be a win-win around innovation and critical infrastructure. I really hope the regulatory environment allows for that and lets that thrive.”
The discussion also touched upon responsible investment with Young emphasising that it falls upon the trustees to devise the appropriate approach. She expects that members will increasingly regard responsible investment as a standard but there will still be individuals who raise questions and challenges, and how this is addressed will significantly influence their level of engagement and confidence in their pension.
Young said: “I think trustees will have to get closer to what their investment managers are doing on their behalf around stewardship.”
Meanwhile, Curry emphasised the importance of offering investment opportunities without making them mandatory, as political direction in investment decisions can create challenges for trustees, necessitating a possible change in their roles.
Curry added: “I think it’s really important that these opportunities are made available. I think it’s really difficult when they start to become mandated. If we get to a situation where politicians are starting to direct where investment goes, that puts trustees in a very difficult position and it’s not in line with the funding code. It’s important to make that distraction about what is the role of the trustee. If the situation is different then the role of the trustee has to change.”
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