Our commentary on key themes for DC in 2019
14 Jan 2019
Some of our DC experts give their views on the key themes that look set to dominate the news agenda in 2019.
Jesal Mistry, Head of DC scheme design and provider evaluation, comments on what 2019 may look like for the Master trust market:
“Master Trusts look set to continue to be big news going into 2019. With the six month Master Trust Authorisation window closing on the 31st March, the big speculation will be who has made the cut (or decided not to submit at all), unfortunately I don’t think we will find this out until much later in the year leaving some uncertainty in the market. For those forced to exit the market, what will the fallout be and where will the members go?
“Despite the uncertainty that the authorisation application process has brought, it seems to have only slowed activity very slightly. It remains critical, however, for employers and trustees considering a Master Trust to carefully consider who their most suitable provider partner may be and focus attentions on the capability and commitment to the Master Trust as well as other aspects such as price and features.
“Looking ahead further into 2019, with increased requirements on Trustees of DC schemes, it is likely that activity on considering or transferring to a Master Trust will ramp up and we see an already competitive market becoming even more competitive as the year goes by. With authorisation, the decision to transfer to a Master Trust should also be simpler, but trustees should exercise caution and carefully consider whether a transfer is in the interests of members.
“Overall, 2019 looks to be a pivotal year in the lifetime of the Master Trust, one which will shape the market for the future.”
Rona Train, Partner and senior investment consultant looks to the year ahead for scheme governance in workplace savings:
“I expect 2019 to see pension scheme governance become an increasing priority for single trust DC schemes and master trusts as ramped up requirements for the Chair’s Statement come into force. Some schemes have already produced Chair’s Statements under the new requirements and all other schemes should now be making plans as to how they will deal with the additional costs and charges disclosure requirements. Trustees should be warned that the Statement will need a lot more time to complete and will require significantly more information to be compiled and collated than in previous years. For many smaller schemes, rather than taking on the required additional layers of compliance and cost, we expect to see many throw in the towel and move into Master Trust arrangements where they can simply hand over the day-to-day governance responsibilities. The regulator has warned that any schemes that do not comply with the new regulations, or don’t include sufficient information on areas such as the processing of financial transactions and trustee knowledge and understanding in their Chair’s Statement will face a mandatory fine. So, it is clearly in Trustees’ best interests to be prepared for the extra work needed. In reality, these lengthy and detailed Chair’s Statements won’t serve their original intended purpose of updating members on the value their scheme is delivering. They will simply become compliance documents.”
Discussing the key themes for investment in 2019, Rona Train comments:
“2019 will bring a much greater focus for Trustees on environmental, social and governance issues, or “responsible investment” as we prefer to call it. They will need to reflect their views in their Statement of Investment Principles and it will no longer be good enough simply to include a line about how they have delegated decisions to managers.
“Historically, responsible investment has often been seen to be about ethical investment - or so called “values” investing- whereas now this has widened out to be a focus on “value” and risk management. Setting a clear set of investment beliefs in this area will be vital. There is still a lot of misunderstanding of what responsible investment actually means and significant education will be required to help Trustees get up to speed with the new regulations and the topic more generally. Trustees will also need to have a greater focus on what their managers are doing in this space and be able to tell members about the approach they are taking.
“And we’re starting to see a change in members’ attitudes to responsible investment. Several recent studies have shown that DC members already think their pension is being invested in a responsible way. In spite of this, we know that members seldom make active choices within their pension scheme so making sure the default strategy reflects the Trustees investment beliefs will be crucial. Also, if we can use this topic to engage more people in their pension savings, that can only be a good thing.”
Paul Waters, partner and Head of Guided Outcomes discusses what needs to be done to encourage greater saving in 2019:
“Although 2018 has seen auto enrolment continuing to be a success in encouraging employees’ pension savings, there is still a lot more to be done to ensure that they save enough. So, we’d like to see the Government endorse the PLSA’s suggested targets when they are announced as part of its ‘Hitting the Target’ campaign, and for the industry to fully support them. Helping individuals to understand how much they need to save by providing clear, meaningful and simple targets with a saving aim of 12% as the next target is vital, if people are to have a solid base to build from in retirement saving. We know from using a simple target in Guided Outcomes® the difference it makes, by providing people with the context they need to understand how much to save. 2019 should be the year that the British workers begin to understand that it is not enough to just save into their pension, but that they have to save enough to provide the income they’ll need.”
“We hope that there will be a simple dashboard in operation by the end of the year now that the government has now shown support for its development. For progress to happen, however, there must be pro-active guidance from the SFGB, and we’d also like to see full commitment from the dozen or so largest DC providers in the UK. The success of the dashboard will also need a program of enhancements to be developed alongside to deliver a complete experience for consumers. These will be across all elements including state pension, DB, public sector schemes. The result should be the simple window into people’s retirement saving, that the UK has been lacking for so long. ”