Why we should be pensions positive in 2019
Despite the gloom around Brexit and all the challenges facing pensions, there are plenty of reasons to be cheerful. Top industry commentators tell Stephanie Baxter why there is cause for optimism
The start of January tends to be rather dismal as the cold winter bites, purses are lighter, and we challenge ourselves to make and keep New Year's resolutions.
But this year-start is particularly daunting with Brexit less than three months away, and the expectation of yet more changes to pensions. It is all too often easy to focus on the negatives and challenges this industry faces; the system is of course not perfect and issues such as scams have dampened public opinion.
But there is much to be positive about for 2019. Here, six experts give some reprieve from the doom and gloom:
Lesley Carline, president of the Pensions Management Institute
"The master trust authorisation process has to be one of the main positives for the industry at the moment, something which the PMI's recent master trust survey showed all participants were in favour of. The PMI is looking forward to continue working with the master trusts in 2019, looking at breaking down barriers to good service delivery.
"As the market consolidates, the master trusts staying the course will be the ones that can demonstrate scale and make the most of that to deliver services of quality and engagement to members.
"Another is the acknowledgement of the role fintech and technology have to play in delivering timely accurate benefits and aiding member engagement; investment in developing artifical intelligence solutions is gaining pace and will no doubt continue.
"A personal favourite is the development of the NextGen group, which we were very pleased to be able to host its launch. It's very important to ensure the industry is supporting people getting established and throughout their careers. We look forward to seeing how it develops and being able to provide support and mentoring for those that want it. Bring on 2019!"
Joe Dabrowski, head of DB, LGPS and standards at the Pensions and Lifetime Savings Association
"We believe there are many reasons to be positive about pensions.
"We're working hard to get our retirement income targets right; they will give savers an idea of the different levels of pensions income needed to live the type of lifestyle wanted. 2019 will see the targets launched as well as the simpler annual statement - a cross-industry initiative that aims to help schemes and providers give savers the most relevant information about their pensions. The government has also committed to delivering, with industry, a dashboard. It will give savers an accurate picture of all their pension pots in one place and in a simple format.
"With defined contribution (DC) pension participation at a record high, with over 9.5 million people being automatically enrolled since 2012, these initiatives are as salient as ever for savers.
"Elsewhere, the Cost Transparency Initiative promotes and encourages the use of new cost transparency templates, standardising costs and charges information for institutional investors - improving governance and helping investors to make informed decisions - for better results for savers.
Last, but not least, with over 11 million UK savers still reliant on DB schemes for retirement income, we look forward to helping the government usher in superfunds as a much-needed consolidation option, to help protect members' benefits."
Kim Gubler, chairwoman of the Pensions Administration Standards Association
"While there are still many questions around pensions, in 2019 we'll be making some really positive steps to give both the industry AND members more clarity. The dashboard is finally becoming more than just a pie in the sky idea. 2019 is when important details will be thrashed out, we are a step closer and in 2019 we will be able to plan how to interact with it. At last, people are beginning to talk about pensions. It might not be everyone - but it's a start and the dashboard will open up the conversation to a wider group.
"DB consolidation is another significant and positive shift. The different models give both employers and trustees valuable options. If they can protect members and give companies opportunities to focus on their futures, that must be a good thing for everyone. With the equalisation cat out of the bag, we're coming to the end of the guaranteed minimum pensions conundrum. So I see 2019 as a period when we can begin to look to the future with hope and optimism - even if we don't have all the answers yet."
Simon Kew, director for financial advisory, pensions, at Deloitte
"It is all too easy to focus on the bleak, so I'm pleased that Professional Pensions is starting the year with some reasons to be cheerful in 2019 - and there are many.
"The 7,800 index shows that there are still over 5,500 DB schemes, providing retirement income for their beneficiaries, with around £1.6tn in assets.
"Not all of these schemes will survive until the last person receives their final pension payment but, for those that see their sponsor suffer insolvency, there is the Pension Protection Fund. While I appreciate that, in this event, not everyone will receive compensation from the PPF to fully replicate their pension promise, they will receive considerably more than they would have done prior to the PPF's creation - a pension success story if ever there was one.
"Broadly, the relationship between schemes and sponsors is improving to the benefit of member outcomes. The increasing number of schemes that are seeking advice on the challenges and opportunities presented by the employer covenant are able to approach dialogue from a more informed position. Likewise, employers are more aware of the pressures faced by scheme trustees and are becoming more involved in meaningful discourse.
"With both parties focussed on the ‘journey plan' for the scheme, rather than entrenched positions, innovative and creative funding solutions will benefit members, schemes and their sponsors for many years to come."
Paul McGlone, president of the Society of Pension Professionals
"There are many reasons to be positive. For me, the over-arching reason is the amount of industry innovation that is happening right now.
"All around the industry we can see industry-led innovation. DB consolidators and DC master trusts are set to change how schemes are structured, with regulation now catching up. In governance we have the Professional Trustee Standards Working Group due to launch a trustee accreditation scheme.
"For individuals, new retirement products are being developed, and the dashboard was resurrected by the industry after government seemed about to drop it. And with collective DC we have a new design of pension scheme set to come alive, again industry-led rather than by government or regulators.
"Some will say that commercial interests drive innovation. True, but the ultimate test is whether there is buyer demand. If the innovation is relevant then it will thrive (e.g. fiduciary management, longevity swaps, liability-driven investment). If it isn't then it will fail. Looking at the ideas above, it's easy to see how all of them will ultimately be good for members, improving outcomes in a range of ways.
"So, roll on 2019. And roll on continued innovation."
Hugh Nolan, director at Spence & Partners
"There are plenty of reasons to be positive about pensions as we start 2019, particularly for the members that pensions are designed to look after.
"Firstly, there are over 4 million people receiving a pension from a private sector DB scheme in the UK reliably and in full every month and there are another 6 million people who will receive such a pension in future. That's 10 million people who rely on our industry for their financial security in retirement who are able to afford a better standard of living than they could without their occupational pension. In the relatively few cases where schemes cannot afford to pay benefits in full when the employer goes bust, the other schemes pay levies to the Pension Protection Fund (PPF) to protect a large part of those benefits and the PPF has robust reserves that means they are more than 90% likely to be able to pay the promised benefits from existing assets.
"On the DC side, 2019 will see us hit 10 million people auto-enrolled and therefore not completely dependent on their State Pension for retirement income. Happy New Year!
Alan Pickering, chairman of BESTrustees
"Although the state pension age is increasing, the amount paid to new recipients of that pension is above the absolute poverty line so it genuinely pays to save. Most recipients of DB pensions are on course to draw an entitlement which exceeds the promise originally made. Funding levels, buy-ins, buy-outs, consolidators and the Pension Protection Fund are all reducing the reliance on sponsor covenant.
"The intellectual firepower traditionally aimed at DB arrangements is being transferred to defined contribution land. Meeting the needs of DC members should put a spring in the step of all pension professionals. At long last, the importance of good quality pension administration is appreciated. Value for money and not cheapness is key. Service level agreements are no longer seen as the litmus test. Member experience is increasingly being recognised as the key criterion. Having a job in pensions is once again something to be proud of when you go down the pub."
Colin Richardson, director at PTL
"2019 has many reasons for optimism: Auto-enrolment contributions rise to more meaningful rates in April and opt-out rates remain low so far. The master trust market is being improved through authorisation by The Pensions Regulator (TPR). There will be a choice of several good trusts.
"DC investment design continues to evolve and new retirement pathway solutions are around the corner. DC value for money assessments are causing schemes to consider how they can improve.
"Investment costs and charges continue to fall for DC and DB pensions - they are far smaller than even five years ago. Sophisticated investment strategies are available at lower costs than ever before.
"Communication standards are improving as is member engagement. A long way to go but improvements are happening. New style annual member statements are a step forward. Member feedback is listened to by most governance bodies.
"The highest levels of legacy charging are now almost history - not quite but nearly. Standards of trusteeship are set to rise with new TPR standards. If consolidation takes off it may be a medium-term improvement to the pensions landscape.
"OK, there are economic and investment threats out there - but plenty of reasons to be cheerful! Happy New Year!"