PENSION PILLAR The #1 pensions blog by Dale Critchley Policy Manager, Aviva
2019: A YEAR IN PENSIONS AND A 2020 PREVIEW 2019 was a big year for pensions. But the way the British public took it in their stride, you would be forgiven for forgetting all about it. Cast your mind back to April. Spring was in the air, the days were getting longer and warmer, and auto-enrolment (AE) minimum contributions were about to rise for the second time in 12 months, from 5% of earnings, up to 8%. We watched with bated breath to see what people would actually do. We had some precedent of course. Since AE was introduced in 2012, only around 1 in 10 people have opted out, and this remained stable in 2018, when contribution levels increased for the first time, from 1% to 3% for employees and to 2% for employers. But 2019 was looking like a much sterner test. In little over a year, employees were moving from 1% contributions, to 5%. However, once again, employees and employers rose to the challenge. The opt-rate has remained stable and there’s a recognition from all quarters that pension saving is the right thing to do. The other major event for pensions in 2019 was slightly ‘under the radar’the Pensions Regulator (tPR) carried out its Master Trust authorisation process. Master Trusts are multi-employer occupational pension schemes, with one central board of trustees. They’ve become increasingly popular since the advent of automatic enrolment
leading to around 90 schemes at the beginning of the year.
governance standards might also add to the expectations of trustees.
All Master Trusts were asked to submit an application and evidence for authorisation (imagine a stack of the old Yellow Pages!). The aim was to prove that each scheme met the regulator’s governance standards and was financially secure. A high benchmark meant that the number of Master Trusts is now down to 37 with the remainder deciding to wind up and transfer their members’ benefits elsewhere.
Consolidation - we might see the Department for Work and Pensions implement their proposed “consolidate or explain” policy to encourage those schemes who can’t meet their governance targets to wind up. This will mean more work for master trusts which will be the destination of choice for many trustees.
Now, I did promise a sneak preview of 2020. Well, one thing that isn’t happening is hat-trick of auto-enrolment increases. Minimum contributions will remain at 8% for the foreseeable future. This is an issue that will need to be addressed at some point, but the promised consultation on mid2020 changes to the calculation of contributions hasn’t materialised. 2020 will be a big year for responsible investment. There’s an increased focus on how and where the billions of pension savings are being funnelled and there are regulations to require trustees to report of what they’ve done to turn their policy on responsible investment into reality by October. The other big themes for next year are: Improved governance - a new tPR code 9 is due at the end of the year, which will lay out expectations around risk management within the scheme. A response to the regulator’s consultation on improving
AP 43
Pension freedoms - change is already afoot for personal pensions. Changes to retirement wake up packs, improved disclosure and the introduction of ‘retirement pathways’ (packaged investment choices based on how people expect to access their pension funds) are all designed to reduce the risk of unadvised drawdown. We could see mirror requirements for trustees. Member engagement - through pensions dashboards, which we expect to become a reality next year, and the wider adoption of simper annual benefit statements that concentrate on answering 3 questions, “How much do I have?”, “How much could I have in retirement?” and “What can I do to make a difference?” I look back on 2019 and feel pretty satisfied. The AE contribution increase went smoothly, and millions of people are now saving more for their retirement in well-run schemes. 2020 promises lots more change, but we wouldn’t have it any other way! Have a Merry Christmas and Happy New Year.