Amongst concerns that the value of some defined contribution (DC) pots has fallen, The Pensions Regulator (TPR) released a statement in January 2023 stating that savers must be supported during economic volatility.
With the rising cost of living, savers under financial stress may be more susceptible to pension scams and fail to make long-term decisions regarding their investments. Depending on the investment strategy of the Scheme, members who are close to retirement could be impacted; helping savers to understand what a fall in their DC pension means for them and encouraging them to communicate their retirement plans avoids rash decisions being made. Trustees are reminded to encourage savers to seek free impartial advice through MoneyHelper and Pension Wise, as per the statement.
The guidance statement also reminds trustees to review governance structures, the characteristics of their Scheme’s saver profiles, and the Scheme’s investment arrangements and implementation.
The 20-point guidance statement is set out below.
Reviewing 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.
Through good governance and communication, members should have sufficient information to make informed decisions about their savings. To reflect the needs arising from the cost of living challenges faced by members, schemes should look to develop their management information and review the level of support being given to savers, as their active decisions are made as they near retirement.
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