By Rona Train, Partner, Michael Ambery, Head of DC Provider Relations, Laura Andrikopoulos, Head of Governance Consulting, Kathryn Fleming, Partner and Kinna Patel, DC Investment Consultant from Hymans Robertson
It’s vitally important for trustees and other fiduciaries of DC schemes to understand the longer-term impact of climate change on the funds offered to members. We also see a role for them in using the good news stories of the positive impact that their members’ money is having to engage them properly in their pension savings, perhaps for the first time. Organisations like Make My Money Matter will only increase members’ interest in where their money is invested.
2021 sees the COP 26 UN summit on climate change take place in Glasgow. This is an ideal opportunity for us all to consider what impact we can have to slow climate change whilst continuing to put financial success for our DC members at the heart of everything we do.
New Consolidated Governance Code
Expected during 2020 but delayed by COVID-19, we expect the TPR Consolidated Governance Code to come into force over 2021 (following a consultation). The Consolidated Code should contain practical guidance on how the 2019 IORP II Governance regulations affect UK pension schemes, in particular the requirement to demonstrate “an effective system of governance”. Whilst we don’t anticipate major changes to the substance of the existing TPR guidance, there may well be some new language and a heightened focus on Risk Management processes and frameworks. Lots of schemes have already begun the process of reviewing their Governance and Risk Management during 2020, spurred on by the changes in Governance that COVID-19 has required. A ‘risk mindset’ has become the norm for all of us as we face the materialisation of a major, unexpected (for most) risk to business continuity.
For those who haven’t yet reviewed their Governance, early 2021 will be a good time to do this, preparing for increased focus on this area. Many schemes are now more ‘nimble’ as a result of COVID-19, and many are planning for a mixture of face-to-face and online meetings when more normal conditions return. In addition, recapping all the key areas of 21st Century Governance (for both Trustees and Governance Committees, who can view this as a guide to good governance principles) and reviewing best practice board composition will put schemes on the front-foot as we progress through 2021.
Master Trusts
The regulatory responsibility to evidence value for member and the cost of running occupational trust arrangements is behind the drive to guarantee that the highest quality of pension arrangement is provided. The focus being to ensure the best outcome is delivered for members of pension schemes. At the current time, Master Trusts in comparison to trust arrangements, or any DC arrangement that haven’t been reviewed for some time, may well offer greater value and experience in terms of engagement and tooling to members both pre and post retirement. It does not always mean that a Master Trust is right for every member and there may be particular benefits provided that mean the Master Trust could not be the most palatable option for members. It’s essential that any review of a pension arrangements considers member outcomes and achieves the best objectives for the sponsoring Company.
Investment reporting
Investment reporting, generally quarterly, have been synonymous with pension schemes since get go. It’s a great way for Trustees and Governance Committees to keep track of their scheme by looking at their managers and/or funds with regards to consistency of investment style and of course, performance.
However, as the marketplace has and continues to develop, so should our reporting. Whilst the above are important measures, there needs to be a greater focus on member outcomes. Indeed, the emergence of COVID-19 this year, its tragic consequences and the resulting economic turmoil is a reminder of just how quickly things can change. For some savers, this has meant changing their pension choices to plug a financial gap right now. This is completely understandable, however, it’s important to know how these decisions, which may seem insignificant now, could have longer term implications for their pension. This is why we developed the Member Outcomes Tracker (which evolves our Guided Outcomes modelling technology) – to illustrate the impact of market and/or member changes on longer term outcomes, our tracker can help you identify potential areas of focus when communicating with different groups of members.
Making the right decisions at retirement
Briefly looking back on 2020, we have seen the lack of confidence that UK savers have when it comes to discussing and managing their money. When you couple that with the increasing trajectory of the reliance being placed on DC pensions to provide a retirement income, and the evidence pointing to bad choices and under saving, it’s clear that employers and trustees all recognise the importance of providing more support for financial ‘life decisions’.
The focus for 2021 is about improving retirement outcomes through better education journeys, financial life point support and nudging savers to guidance or advice as appropriate. It’s also about making available the best of the retirement options, whether that is via an annuity broker, appointing a master trust, reviewing and refining the Investment Pathways or even designing the right decumulation journey for your members. A quick assessment of the retirement journey through the lens of your members will help you identify where you can improve financial outcomes as well as financial confidence.
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