Trustees must not lose focus on protecting savers from economic volatility

Signs of recovery within some financial markets have emerged following last year’s economic turmoil; with the average loss in pension since the UK Government’s ‘Mini-budget’ being 4%, Trustees should remain focused on protecting their savers from economic volatility.

Recent months have seen UK equities balance in value, but rising interest rates and high inflation continue to affect long-duration bonds. Trustees should review their investment strategy and align their investments with the retirement age of their savers.

While early-career and mid-career savers are expected to see their losses recover soon, members that are closer to retirement are less inclined to see recovery momentarily. As Scheme Annual Reports are published subsequent to savers’ annual statements being sent, recovery is unlikely to be reflected to the member, leading to rash decisions being made. Trustees should use annual statements as an opportunity to:

  • Communicate with members about what a fall in their pension pot means for them.
  • Encourage savers to review and update their choices, being mindful of the risks involved.
  • Signpost savers towards help and independent advice.

In accordance with their fiduciary duty, Trustees must ensure that key requirements are met, including supporting members in lifestyle funds, and triennially reviewing the Scheme’s default investment strategy to reflect best interests and stronger outcomes for savings as members near retirement.

Following The Pension Regulator’s statement in October 2022 (updated in April 2023), defined benefit schemes have reportedly invested a higher percentage of their portfolio in diversified funds and liability-driven investments (LDIs). While the impact of interest rates on defined benefit investments has settled, Trustees must remain vigilant of defined contribution (DC) investments and their susceptibility to risks in a time of economic volatility.

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 substantially impacted. The Pensions Regulator released a guidance statement in January 2023 to help Trustees with supporting their DC members. At Assure UK, we have written a blog summarising the statement, which can be found here.

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