“Many working-age people may not realise just how much risk they are facing when it comes to ensuring financial security in retirement.” – Jonathan Cribb
Becoming a data-led and digitally enabled industry is more important as we begin introducing the newest generation to pension saving. The shift towards a predominantly defined contribution (DC) industry has borne new challenges; compared to the previous generation, saving for retirement has become riskier and bears more responsibility due to many factors:
- The State Pension provided by the Government, which was previously based off of salaries, is now set at a flat rate;
- Retirees no longer have to convert their retirement pots into annuities. As the average life expectancy increases, savers are more at risk of completely depleting their retirement pots (longevity risk);
- DC Schemes do not provide a “promised retirement pot”. Savers rely on value for money as they save;
- Riskier investments are being held as a result of many savers losing large amounts of their retirement pots.
Since 2020, following the events of Covid-19, higher interest rates have forced pension schemes to invest in matching assets rather than growth assets; while this benefitted members who were still saving, members that were close to retirement were unlikely to see their retirement pots recover, which was reinforced after the September 2022 “Mini-Budget” depleted the bond market.
TPR takes pride in working with their partners to provide the best possible outcomes for their savers. According to its Corporate Strategy, TPR have used a broad range of data from the last 18 years (since establishment in 2005) to tailor approaches to the needs of savers based on:
- Social and cultural variables such as gender, ethnicity, and age
- Preferred outcomes when reaching retirement age
- Auto-enrolment and how often people change jobs
It has been shown that the majority of defined benefit (DB) savers are typically elders with high incomes, and those with a heavier reliance on DC pensions are predominantly younger savers that have been auto-enrolled into DC master trusts. In 2022, 90% of pension savers were invested in DC Schemes, but this increase in auto-enrolled savers means savers now commence with a low level of engagement. Following this data, Trustees must take action, support their DC members, and help them make informed decisions as they near retirement. More information regarding this can be found on our blog: Supporting DC Members.
Data collection will help diversify trustee boards, ensure that Schemes are meeting their environmental, social, and governance (ESG) standards, and improve saver outcomes in ways that TPR has not done before. Charles Counsell at The Pensions Regulator (TPR) created a Digital, Data and Technology directorate to help deliver better services, regulate more effectively, and have the scope to innovate to meet the new challenges that will emerge in the future.
At Assure UK, we’ve assisted a lot of Trustees in ensuring that their processes are operating effectively and efficiently.