Viewpoint 1 2024

VIEWPOINT The official journal of the Pensions and Lifetime Savings Association

Issue 1 2024

PENSIONS AND GROWTH NURTURING THE FUTURE

FIVE STEPS TO BETTER PENSIONS REACTIONS TO THE BETTER PENSIONS CHARTER INTERNATIONAL PERSPECTIVES ON DASHBOARDS AWARE SUPER: LESSONS FROM AUSTRALIA SPOTLIGHT ON THE GENERAL CODE

Contents

04

06

08

10

CEO WELCOME: NEW YEAR, NEW DEVELOPMENTS

FIVE STEPS TO BETTER PENSIONS: A REFORM BLUEPRINT

PENSIONS DASHBOARDS: LESSONS FROM EUROPE

RETHINKING INVESTMENT RISK PROFILES

12

14

16

19

EVOLUTION IN THE ERA OF RESPONSIBLE INVESTMENT

IS A LIFETIME PROVIDER MODEL RIGHT FOR THE UK?

TAKING THE DE&I PULSE IN PENSIONS

PAUL JOHNSON: ECONOMIC HORIZONS

22

23

24

26

AWARE SUPER: PENSIONS INDUSTRY LESSONS FROM AUSTRALIA

28

PENSIONS AND GROWTH: A KEY AGENDA

HOW YOUR FEEDBACK SHAPES OUR SERVICES

MASTER TRUST AND LOCAL AUTHORITY FORUMS

30

YOUR OPINION MATTERS!

SIGN FOR CHANGE: THE BETTER PENSIONS CHARTER

32

HAMMERING HOME THE ENGAGEMENT MESSAGE

PLSA Team:

Design

Maggie Williams, Editor Tel: 07876 823 716 Email: maggie.j.williams@ googlemail.com Twitter: @mrsmaggiew

Advertising

Edward Bogira Tel: +44 (0)20 7601 1733 Email: edward.bogira@plsa.co.uk Eleanor Carric Tel: +44(0) 7601 1718 Email: eleanor.carric@plsa.co.uk

arc-cs ltd www.arc-cs.com Adrian Messina Tel: +44 (0)20 7601 1722 Email: adrian.messina@plsa.co.uk Karim Uddin Tel: +44 (0)20 7601 1735 Email: karim.uddin@plsa.co.uk ISSN 2398-7626

THE PENSIONS REGULATOR: STANDARDS SAVERS DESERVE

34

THE NEW RETIREMENT LIVING STANDARDS UPDATE

Published by the Pensions and Lifetime Savings Association, a company registered in England and Wales. Comany number 1130269.

3rd floor Queen Elizabeth House 4 St Dunstan’s Hill London EC3R 8AD The views expressed in this publication are not necessarily the views of the Pensions and Lifetime Savings Association.

© Pensions and Lifetime Savings Association 2024. All rights reserved.

Viewpoint Issue 1 2024

3

New Year, new developments Julian Mund welcomes in 2024 – and the next 100 years of the PLSA – with a look at what we can expect this year

W

elcome to the first edition of Viewpoint for 2024, which explores some of the biggest challenges and developments in pensions for PLSA members.

Almost directly beneath the PLSA’s new office in London lies the remains of the Billingsgate Roman House and Baths, the foundations of which have survived 2,000 years of building, fires and bombings remarkably intact. I went with PLSA colleagues recently for a lunchtime tour, and it reminded me that what we build today will, hopefully, be around for a very long time – so we must build carefully.

For the pensions sector it underlines the importance of getting the blueprints right for the UK’s future systems, underpinning the work we have done on improving pensions adequacy, set out in our final report on the Five Steps to Better Pensions, launched in October.

At the same time, we announced that we were a signatory of a new charter demonstrating consensus support for reforms aimed at creating an adequate, fair and affordable pension savings system for everyone.

VISION AND GROWTH As the PLSA takes its first strides into a new century, our thoughts naturally turn to the future. This year, of course, the UK is readying itself for a General Election, igniting speculation about the potential implications on pensions policy. In preparation, we will be outlining our members’ expectations of any government regarding pensions by

4

Viewpoint Issue 1 2024

defining our vision for 2035 – more to come on this later in the year.

Take a look at the programme on the PLSA website to find out more.

Pension funds’ investment in UK growth has been another area of intense debate for government, thinktanks and the media since early 2023. While ultimately it’s essential that pension schemes have the freedom to invest in the best interests of their members, last year we identified specific policy reforms that could result in further investment in the UK, and this will continue to be a strategic focus for us.

EXCLUSIVE MEMBER AREA

Throughout 2024 we’ll also continue looking at the areas of better DC, the future of DB, tomorrow’s LGPS, engagement, responsible investment, governance and administration.

These crucial topics will be at the heart of the PLSA’s vibrant events programme this year. From the upcoming PLSA Investment Conference in Edinburgh to the Local Authority Conference, Annual Conference, ESG Conference, interactive forums, lively webinars, and trustee training sessions – our aim is to empower and enlighten.

At Investment Conference we will explore the whole gamut of pensions investment, with sessions on macroeconomics, the government’s growth agenda, a panel with CIOs, election insights, and future trends including consolidation, with some inspiration from outside pensions.

Networking will, again, be at the heart of the event, and we’re making the exhibition space even more of a focal point for delegates. We’re hoping to see as many members as possible in Edinburgh for the largest event in the UK dedicated to pension fund investment.

Excitingly, we’re also moving further forwards with our ambition of launching an exclusive member area on the PLSA website later this year, promising a refreshed experience for members, with a focus on content, community and conversation.

It will be a comprehensive communications hub where members can access topical content, practical guidance and thought leadership. And it will offer members a way to provide feedback on policy, events, and your experiences. Ultimately, we can only fulfil our objective of being the voice of workplace pensions – and help build a system where everyone achieves a better income in retirement – if we listen to what members need to run better pension schemes and support clients.

I’m really excited about the enhancement we’re bringing to member benefits this year, and I look forward to hearing your thoughts at our events – or perhaps in a few months’ time in our new online community!

As always, if you have any feedback on the topics raised in the magazine, or on any PLSA member benefits, please do get in touch.

Best wishes,

Julian Mund

THIS YEAR, OF COURSE, THE UK IS READYING ITSELF FOR A GENERAL ELECTION, IGNITING SPECULATION ABOUT THE POTENTIAL IMPLICATIONS ON PENSIONS POLICY

We do.

With more than $255 billion in AUM* across real estate, private equity, private credit and more, we offer a comprehensive range of alternatives solutions.

Visit www.franklintempleton.co.uk/alternatives

|

|

|

|

|

*As of September 2023.

For Professional Clients only – not for distribution to retail clients. All investments involve risk. The value of investments and any income received from them can go down as well as up, and you may get back less than you invested.

Issued by Franklin Templeton Investment Management Limited (FTIML). Registered office: Cannon Place, 78 Cannon Street, London EC4N 6HL. FTIML is authorised and regulated by the Financial Conduct Authority. © 2023 Franklin Templeton. All rights reserved.

Five Steps to Better Pensions: a comprehensive reform blueprint

A

Without reforms to pensions policy, most people in the UK are set to retire without an adequate income – so what are we doing to help? Jordi Skilbeck reports

utomatic enrolment has transformed the pensions landscape and has resulted in millions more saving for retirement. However, our research finds that without policy changes to the current regime less than 50% of the UK population are likely to achieve the Pension Commission’s 2005 retirement income targets, and as many as 20% of people will fail to meet the PLSA’s Minimum Retirement Living Standard. It’s clear that more action is required to ensure more people can enjoy a comfortable retirement based on their savings.

FIVE STEPS TO BETTER PENSIONS: THE FINAL REPORT Since first publishing our Five Steps to Better Pensions report in 2022, we’ve deepened our collective understanding of pensions inadequacy. Our consultation process received engagement from key stakeholders, including Sir Stephen Timms MP, Chair of the Work and Pensions Select Committee.

These insights have led to the evolution of the PLSA’s Five Steps – and, at our Annual Conference in October 2023,

6

Viewpoint Issue 1 2024

we published updated proposals in Five Steps to Better Pensions: Final Report that could improve retirement income for people on all levels with practical, implementable targets.

The report draws on new research on adequacy and the positive steps taken by the government since the last report, such as maintaining the triple lock on state pensions and the passing of legislation which enables ministers to expand automatic enrolment coverage.

The headline numbers are based on a median income household, although important further research was done into

the impact the steps would have on low earners.

The steps include pension contributions rising gradually from 8% to 12% over the next decade, with employees putting in an extra 1% and employers adding the other 3%, and the pensions industry and employers taking action to increase engagement.

If these steps were implemented, the projected retirement income for a median earner who completed a full working life without career breaks would increase for men from £17,672 to £20,609 and for women from £17,177 to £19,825.

THE UPDATED FIVE STEPS TO BETTER PENSIONS:

STEP ONE

STEP TWO

Set new goals for the UK pensions framework: adequate, affordable and fair.

The state pension should protect everyone from poverty and its value should be maintained by keeping the triple lock.

WITHOUT POLICY CHANGES TO THE CURRENT REGIME LESS THAN 50% OF THE UK POPULATION ARE LIKELY TO ACHIEVE THE PENSION COMMISSION’S 2005 RETIREMENT INCOME TARGETS LOWER EARNERS The Five Steps call for new goals for the UK pensions framework, to make it affordable, adequate and fair, but there are trade-offs. While the changes proposed would benefit low earners and offer them more protection, there is a group of 300,000 people that could be worse off, making up 10% of the lower earner population. A new set of test interventions included removing the £10,000 trigger alongside the wider proposals. Policymakers will need to consider their needs alongside those of the people who stand to benefit from the proposals.

IT’S ALL ABOUT TIMING The rising cost of living has impacted everyone, and these policy recommendations aim for gradual

change. The proposals were developed with a conscious effort to avoid placing additional financial strain on savers and their employers in the near term.

We also know that savers do value pension saving and want to be sure of achieving a reasonable standard of living in retirement. We conducted a survey of 1,600 non-retired UK adults,

which found 85% think workplace pensions should give people an adequate income in retirement, 87% believe pensions should be fair for all, and 88% agree paying into a pension should be affordable for all savers. We believe that now is the time to create a roadmap for reform for long-term savings.

The PLSA’s Five Steps to Better Pensions: Final Report presents a blueprint for reforming the UK’s pension system. It highlights the importance of collaborative efforts, comprehensive policy considerations, and practical measures to bridge the gap between current provisions and the world which we’d like people to retire into in the future.

Our research has highlighted that the overwhelming majority of people would benefit from the proposed reforms included in this report. But there is still work to be done, and the PLSA will continue to encourage and support industry and governmental efforts on adequacy.

THE RISING COST OF LIVING HAS IMPACTED EVERYONE, AND THESE POLICY RECOMMENDATIONS AIM FOR GRADUAL CHANGE

STEP THREE

STEP FOUR

STEP FIVE

More people should be saving into a workplace pension and at higher contribution levels. Over the next decade contributions should rise gradually from 8% to 12%. While employees should only be required to put in 1% extra, we believe employers should put in 3% extra, with the result that by the early 2030s each will be paying 6%, totalling 12%.

Additional help should be given to under-pensioned groups such as women, the self-employed, gig economy workers and others.

Some of these will require changes to automatic enrolment or other interventions.

The pensions industry and employers should take action to help people engage with pensions, receive higher contributions, or get better pension outcomes.

This includes maintaining initiatives such as the Retirement Living Standards and the Pay Your Pension Some Attention campaign.

Viewpoint Issue 1 2024

7

Pensions dashboards: lessons from five European countries

I

Last summer, independent pensions dashboards consultant Richard Smith visited five dashboards teams in continental Europe. Here he reports five key findings.

t was a huge privilege to visit the teams who operate pensions dashboards in Belgium, Denmark, Norway, Sweden and The Netherlands. The teams in Brussels, Copenhagen, Oslo, Stockholm and The Hague were all very generous sharing their experiences to help us make a success of dashboards here in the UK.

In 2022, there were 2.22 million unique visitors to mypension.be. Out of a Belgian core working age population of just over 6 million, that’s 36%.

Very consistently in all countries, active usage is in the high 30s percent, or just shy of 40% of working age adults using dashboards at least once a year. Usage increases with age as shown.

2. THEY LOVE COMMERCIAL DASHBOARDS Norway allows commercial apps to retrieve and display consumers’ pensions.

The extensive findings from my research trip are all written up on my independent pensions dashboards blog: DashboardIdeas.co.uk. Below are just five of the highlights.

1. PEOPLE LIKE DASHBOARDS In 2023, these apps were used nearly 32 million times to retrieve pension data, by a Norwegian core working age population of about 3.5 million.

By contrast, the two other access routes (the central norskpensjon.no portal and the Norwegian Government’s state pension online service) were used less than 1 million times each.

Norwegians love the ease of being able to see all their different pensions together on their phone on an app they already use and trust, like their banking or pension app.

8

Viewpoint Issue 1 2024

3. MOST PEOPLE JUST WANT TO SEE WHAT TOTAL INCOME THEY MIGHT GET IN RETIREMENT Most dashboard users aren’t that interested in pensions. They mainly want to see just one thing: the total monthly income (TMI) they might get, across all their different pensions added up, when they retire (ideally net of income tax, but gross is a good first step).

That’s why the Dutch dashboard shows net TMI right on the Welcome page. Sweden similarly leads with gross TMI, and Denmark and Norway both lead with gross total yearly income.

Also, instead of just one total income figure, the Danish, Norwegian and Swedish dashboards show a retirement timeline, to help users comprehend the recurring nature of their total income:

4. SOME USERS WANT TO DO MORE, LIKE MODEL DIFFERENT RETIREMENT AGES For the minority who want to do more, the Danish dashboard, for example, enables users to drag a slider to show how estimated retirement income figures change at different retirement ages:

That’s pretty cool. But remember, the Danish dashboard is now 25 years old. Which brings us to the final – and probably most important – lesson…

5. ITERATING DASHBOARDS IS KEY The dashboards continental users see today are nothing like the versions originally launched. Here’s the Belgian iteration ‘story’ since 2010:

The key point is that once you’ve launched “version 1” dashboards, you get live user feedback which tells you what needs to be done to better meet different users’ needs – so launching version 1 as soon as possible is key.

CONCLUSION As we all prepare our schemes’ data to be made available for dashboards, we should bear in mind these findings to help make UK dashboards the same success they’ve been in continental Europe.

If you have any questions about dashboards, please contact ruari.grant@plsa.co.uk

Viewpoint Issue 1 2024

9

Rethinking risk profiles As DB schemes get closer to their endgame, the mix of assets in their portfolio may change – with knock-on effects for investment risk profiles.

Pádraig Floyd explores some key trends.

F

or many defined benefit (DB) schemes, the endgame has been one of those long-awaited, far-off events for many years.

And so it would have remained, but for the liquidity/gilts crisis in 2022. This led to drastically improved funding levels and an acceleration in journey times to that final destination, be it buy-in, buyout or even consolidation into a multi-employer master trust or superfund.

Better funding levels may even convince some schemes – whose rules allow for it – to consider the alternative of runoff, with the possibility of generating a surplus.

“Some argue that DB schemes, especially those not aiming for endgame in the near term, should reconsider their investment strategy and embrace a more ambitious outlook,” says Joe Dabrowski, Deputy Director – Policy at the PLSA. “By adjusting their risk profiles, these schemes could pursue moderate growth, potentially yielding significant returns that benefit savers, schemes, and the broader UK economy.”

NATURAL REDUCTION IN RISK As schemes get better funded on technical provisions and buyout, they will tend to reduce risk in any case, well aware of the dangers of falling back into deficit. Risk reduction will typically reduce returns as growth assets are sold in favour of ‘safer’ ones. But this needs to be considered within the context of hedging in terms of gilts, liability-driven investment (LDI) and corporate bonds.

10

Viewpoint Issue 1 2024

“Schemes may retain growth assets,” says Lucy Barron, head of investment risk settlements at Aon, “but liquidity must be closely considered, to determine whether they are moving into cost-effective assets.”

Data remains important and investing in assets that drive insurance pricing is essential, she says, and it is also important to discuss not only which assets with advisers, but what success will look like.

“Some have targeted self-sufficiency,” says Barron, “but I would test if anything changes that might affect the sponsor view, the funding level and whether they want to buy out at all.”

A PURPLE PATCH FOR FUNDING LEVELS Things have definitely been shaken up in the past year, according to the latest data from the Pension Protection Fund’s (PPF) Purple Book 2023.

This shows a significant improvement in the net funding position of the DB pension schemes the PPF covers. That position on a section 179 basis – roughly equivalent to the cost of a buyout – improved to a surplus of £358.9 billion in the year to 31 March 2023.

This placed more than 80% of schemes in surplus, with the increase largely the result of rising gilt yields driving down liability values. This improvement has also accelerated a surplus of £193 billion compared to £47 billion in 2022. This has also pushed up the aggregate funding ratio from 113.1% in 2022 to 134% in 2023.

John Nestor, a professional trustee with Capital Cranfield, agrees that improved funding may encourage some sponsors to accelerate towards the insurance market. However, some will appreciate the scheme is closer to self-sufficiency and may want to reduce

their funding. That has a dramatic effect on the cashflow dynamics. Either way, you must focus on cashflow first and foremost, says Nestor, if you are to avoid becoming a forced seller.

GO WITH THE FLOW This means that cashflow management must become an absolute discipline to target sources of liquidity within a horizon of at least six to nine months if you’re paying pensions.

The second major consideration is that while your scheme may be in valuation surplus, it is unlikely to be in a position where you don’t need to take any risk.

That is not sustainable if you are to become less reliant on the employer and ultimately achieve a solvency valuation.

That means taking a rather more asymmetrical sort of risk to avoid going backwards, says Nestor. “You must be a bit more circumspect about your investment ambitions,” he says, “so, notwithstanding the ambition to achieve self sufficiency, you’ll have more in corporate bonds than you do now.”

This ‘planning mindset’ requires an urgent look at hedging, perhaps an 85% hedge with a blend of corporate bonds and some equities used to achieve growth ambitions.

This is also a good time to consider your whole risk position and whether you can afford to do some more top-slicing, because it’s no longer about making the funds work as hard as they can.

This is what Nestor calls “right sizing” to match your ambitions, and it involves having some serious conversations with managers about achieving stated returns, and not targeting outperformance. It requires more finesse, says Nestor, as outperformance brings unknown risks that could destabilise the balance set

within the fund: “This may be difficult for some managers to embrace, because they’ve been conditioned to tell us how well they are outperforming.”

SHIFTING MINDSETS Managing changing risk on the journey towards endgame does require a mindset shift, but not a radical one, says James Fermont, an investment partner at LCP. “Many schemes already allocate to credit so it’s about extending the strategy but with a much closer focus on cashflow management and shift in risk,” says Fermont.

“The focus was previously on value-atrisk models and how to manage risk, how to invest in a portfolio of fixed-income instruments to deliver income for benefit payments. But in an environment of reduced growth, close management is required to deliver these cashflows.”

Part of that mindset shift is to try and get some certainty about how closely trustees want to match cashflows, how certain they are the assets will deliver, and the default risk.

To be an attractive partner for a buy-in or buyout, schemes should focus on matching momentum in buyout pricing.

“This often comes down to having the right amount of credit and then the type of credit you have in your portfolio,” says Fermont.

Determining the right size is problematic, as pricing is sensitive to credit spreads and equity prices. In addition, each insurer has a different level of appetite for credit – some will use a lot, others very little – and this changes over time.

As Fermont says, “You need a clear understanding of the variables in the market from your consultants and where you might choose to sit in the range.”

Of course, sitting in the middle of what insurance companies may or may not

be interested in may turn out to be the wrong thing to do, which is why the type of credit is important, says Fermont.

“It’s very important to have a good match to the insurance pricing and what insurers want. Many will want blue chip companies, but some will have an appetite for less liquid credit, particularly if it’s from a big scheme. This means attractive, global investment-grade credit from the UK, Europe and elsewhere – and don’t forget to hedge against currency movements.”

In reality, this doesn’t happen overnight, but Fermont adds that small steps will help put the fund on the optimal pathway. At a later stage, that speed may be increased when you get closer to the transaction.

OUTSIDE INFLUENCES The PPF data shows that while schemes have continued to invest a large proportion (69%) of their assets in bonds, the equity allocation has decreased to 18% (19.5% in 2022, the first substantial move in this split since March 2020). Only 7.6% remains invested in UK quoted companies, a new low. However, the proportion allocated to private equities has risen to 29.5% (21% in 2022).

That does not necessarily indicate the beginning of a wave of transfers into private assets. All private assets are less liquid and some schemes are letting theirs reach maturity because quotations from the secondary market are not very attractive for those thinking about buying out, says Jos Vermuelen, head of solution design at Insight Investment.

run-off, but the concept of increasing PPF protection levels to 100% of scheme benefit levels – in exchange for a higher lens, naturally.

“Now, if that new world does materialise,” says Vermuelen, “then there wouldn’t be as great an incentive for schemes to go to buyout, if the PPF was to provide a backstop that’s 100% of pension benefits.”

MAINTAINING CONTINUITY OF GOVERNANCE In focusing on liquidity, schemes shouldn’t lose sight of other major risks, say the experts.

Longevity is going nowhere, transition risks will hinge on prevailing levels of credit spreads, and a further move away from listed equities may impact a scheme’s ability to fulfil its reporting requirements.

“As DB schemes approach buyout, a comprehensive evaluation of risks and opportunities becomes crucial, particularly in terms of their cashflow requirements, their liquidity profile, and any identifiable credit and ESG risks,” adds the PLSA’s Dabrowski.

Other new factors will also influence the directions that schemes may take, particularly in the case of a proposed new UK solvency regime for insurers or new market entrants who could drive down buyout costs over the next few years.

Vermuelen points out that the outcome of consultations announced in the autumn statement may have a greater influence on risk management. This includes not only those covering scheme

Viewpoint Issue 1 2024

11

Evolution in the era of responsible investment Cali Sullivan, PR Manager at the PLSA, reports back from our 2023 ESG Conference.

A

s the global community geared up for COP28, the pensions industry convened at the PLSA’s ESG Conference 2023. The conference served as a pivotal platform to dissect the everevolving landscape of responsible investment, emphasising the imperative for enhanced practices to secure better outcomes for pension savers worldwide.

The event offered a comprehensive exploration of ESG considerations for pension funds. Topics spanned emerging markets, biodiversity, stewardship, and the intricacies of the investment chain.

NET-ZERO COMMITMENTS The PLSA opened the day with its recent climate change member survey. Emma Douglas, Chair of the PLSA Board, unveiled the results, which showed a notable increase in pension funds aligning with net-zero objectives. The statistics revealed 68% of pension funds committing to net-zero alignment, up from 57% in May 2022. Moreover, nine out of 10 funds with such commitments are striving for net-zero compliance by 2050. Among those, some aim to be compliant earlier, with one in seven by 2035 (14%) and one in five working towards 2035-2040 (18%).

12

THE UK PENSIONS INDUSTRY COULD INVEST £1.2 TRILLION IN CLIMATE SOLUTIONS WITH APPROPRIATE REFORMS on the UK’s efforts to meet carbon budgets, underscoring the urgent need to “quadruple the pace” in emission reduction efforts across sectors like building and transportation to hit future targets.

Premier Miton’s Fiona Manning brought an interesting take on emerging markets to the conference, discussing with the PLSA’s George Dollner how investing in these opportunities can help pension funds meet their sustainability objectives.

Another session with Alyshia HarringtonClark of the PLSA and Nikesh Patel of Van Lanschot Kempen Investment Management focussed on strategic asset allocation and biodiversity. Nikesh’s key takeaway was that there can be bigger impacts from organisations which stop doing something harmful rather than investing in the next big thing.

DIVERSE ESG INSIGHTS

Another panel – which included Mark Hill from The Pensions Regulator, Adam Gillett from Railpen, Tegs Harding from IGG and Maria Espadinha from the PLSA – discussed the frameworks, regulation and reporting impacts on trustees and funds. This session focussed on what good ESG reporting looks like and the mechanics involved. Adam highlighted the need to always treat data for what it is.

The conference showcased a diverse agenda of topics, featuring experts such as Dr James Richardson, Chief Economist of the Climate Change Committee (CCC). He shed light

Some numbers are ‘imperfect’, but you can come to learn what these numbers can and can’t tell you. Tegs added that targets should be set for the actions that can be taken by the board.

Viewpoint Issue 1 2024

James Walsh from the PLSA conducted a session alongside Claire Curtin from the Pension Protection Fund, Laura Hills from the Church of England Pension Board and Diandra Soobiah from Nest.

The panel discussed the significance of engagement and stewardship for pension funds embarking on their netzero journey, illustrated through a series of case studies highlighting various approaches.

On a more granular level, Julius Pursaill from Cushon shared some valuable insights on the challenge of decarbonising pensions, having already begun this journey.

There was an insightful session with Aegon’s Hilkka Komulainen and the PLSA’s Joe Dabrowski, who both sit on the DWP’s Taskforce for Social Factors.

They gave a whistle-stop tour of the work of the Taskforce and the recently released guide for consultation, with more than 30 recommendations on how social factors can be better incorporated into investment decisions and stewardship policies. The PLSA will be publishing case studies on social factors at the PLSA Investment Conference in February 2024.

The final panel session of the day was hosted by Tiffany Tsang of the PLSA who was joined by Matthew Cooper from PwC, Shirpa Gupta from Scottish Widows Master Trust, Ewa Jackson from BlackRock and Sarah Wilson from Minerva Analytics. This session focussed

on the need to align values across the investment chain and on how to achieve that commonality. There were also discussions on opportunities and risks in both the investment and trustee space.

MACROECONOMICS AND THE IMPACTS Lord Gavin Barwell, former Chief of Staff to Theresa May and now Strategic Adviser at PwC, provided insights into macroeconomic and geopolitical landscapes. He also delved into the root causes behind soaring inflation rates.

He attributed this economic surge to disruptions caused by the pandemic, characterising it as a global reset following the widespread lockdown.

Barwell said the imbalance between escalating consumer demand and constrained supply chains was a direct fallout of the halted production during the pandemic. He also noted that the war in Ukraine made what was already a problem much, much worse.

The question Lord Barwell hears the most is, “have interest rates peaked?”

His answer? They probably have, particularly in the United Kingdom and the Eurozone. His analysis depicted the intricate interplay between pandemicinduced economic resets, imbalances in supply and demand, geopolitical tensions, and their collective impact on global inflation and interest trajectories.

NAVIGATING THE CLIMATE EMERGENCY A passionate panel session at the conference examined pensions’ progress toward net-zero goals. Make My Money Matter’s Tony Burdon stressed the urgency of addressing the climate crisis, urging immediate action by engaging

companies to divest from oil and gas and invest in climate solutions. He emphasised the need to hold companies accountable, and to divest if they fail to change. Jacqueline Jackson from London CIV prioritised the entire investment portfolio over individual company shares, highlighting industries’ inadequate focus on future solutions, impacting global biodiversity and supply chains.

Analysis by Phoenix Group and Make My Money Matter proposed that the UK pensions industry could invest £1.2 trillion in climate solutions with appropriate reforms. UN Envoy Mark Carney hailed the transition to net zero as a significant commercial opportunity. Tony Burdon sought Mark’s collaboration to drive reforms necessary for this substantial investment scale.

REDEFINING FIDUCIARY DUTY The concept of fiduciary duty was also discussed during the conference. Natalie Winterfrost of LawDeb Pension Trustees urged the industry to reevaluate its meaning, suggesting that progress is impeded by an outdated interpretation unfit for addressing the climate emergency. Other experts echoed the sentiment, emphasising the need to consider global-scale impacts rather than solely focusing on individual risks and returns.

Challenges with consultants’ scenario analyses were also highlighted, with frustrations surrounding the narrow focus on financial impacts within an evolving world. Calls for a shift toward qualitative data over quantitative predictions were voiced, urging the industry to move beyond rigid numerical models towards more comprehensive narratives reflecting the truth.

A SUSTAINABLE FUTURE The PLSA’s commitment to enabling responsible investment spans diverse pension schemes, bolstered by recent publication of our annual Stewardship and Voting Guidelines and focused efforts to enhance the ‘S’ in ESG. Looking ahead, the PLSA will continue to lobby for significant government action on the green finance strategy, including the release of a green taxonomy for consultation, Taskforce on Naturerelated Financial Disclosures implementation, and heightened attention to social factors and ESG ratings, signalling a pivotal shift towards sustainable investing.

Viewpoint Issue 1 2024

13

Is a lifetime provider model right for the UK?

F

Jordi Skilbeck gives the PLSA’s view on a potentially major shift in DC pension policy.

ollowing the Chancellor’s Autumn Statement in November 2023, the Department for Work and Pensions (DWP) released a Call for Evidence over the proposal that the UK should move to a more individualised form of pension provision, here called the “lifetime provider” model.

WHAT IS A LIFETIME PROVIDER MODEL? A lifetime provider model would be a significant departure from the current automatic enrolment model.

It would allow a new employee to have the right to direct their own – and, importantly, their employer’s – pension contributions to a scheme of their choice. When employees change jobs, they would be able to request that their new employer’s contributions go into their existing selected pot.

The table below highlights proven benefits and risks of the lifetime provider model.

SUMMARY OF LIKELY BENEFITS OF THE LIFETIME PROVIDER MODEL

PROVEN RISKS OF THE LIFETIME PROVIDER MODEL

• Potential economies of scale (though the level of the value chain at which this is felt is unproven)

• Loss of employer link:

• More agency and flexibility for engaged savers • Prevents future proliferation of small pots

14

Viewpoint Issue 1 2024

• Complex choices for savers, and increased need for support • marketing costs • loss of employer level bargaining power • loss of saver cross subsidy within schemes

We’re very concerned at the proposal that the UK should move to a more individualised form of pension provision.

Workplace pensions form the vast majority of private pension provision in the UK, and our system of automatic enrolment is widely admired around the world. We’re not aware of any evidence that moving to a lifetime provider model would deliver better outcomes for members – but it might undermine the essential link between employers and workplace pensions, and result in higher costs and worse outcomes for some savers.

Read more: The PLSA’s submission to the Call for Evidence

• Loss of provider support delivered through employers

• Increased cost for savers:

THE PLSA VIEW

Moving from a whole workplace to a more individualised system will disproportionately affect less wealthy and less informed savers who are currently benefiting from the bargaining power and good governance of their employer.

A lifetime provider model is – for example – likely to disadvantage the low-paid and women as compared with the current model of automatic enrolment. This effect could be exacerbated by the loss of the benefits of collectivisation and cross subsidy for small pots, and the comparative weighing of retail-like charging structures which currently tend to be more expensive, and notably even more so for smaller pots.

• Potential loss of contributions above the AE minimum

• Vast implementation costs • Risk of stapling to first pot, which may not be the best value • Added complexity of decisionmaking, were CDC added to the system

SUMMARY OF FURTHER EVIDENCE REQUIRED 1. Market structure impact 2. Impact it might have on the level and engagement of savers, and the eventual magnitude of saver switching 3. Cumulative impact assessment of ‘in flight’ policy proposals 4. Interactions with productive finance agenda 5. Advice, support and information needs for savers to effectively compare value of different schemes 6. Assessment of a new regulatory and supervisory regime, the structure and burden of this (including on Government and Regulators) and whether it is proportionate to the likely impact 7. Evidence from employers on the impact of the proposals, included the expected impacts on savers

TRUSTEE TRAINING LEARN FROM EXPERT TRAINERS AND ENHANCE YOUR SKILLS Our trusteeship courses have been expertly crafted to support trustees of all levels through high quality pensions education and training.

Enhance your trustee skills and gain the knowledge you need with dates available throughout 2024.

TRUSTEESHIP - PART 1: THE THEORY 14 March I 4 June I 12 September Gain a comprehensive understanding of your role, what is expected of you and how to apply good scheme governance.

TRUSTEESHIP - PART 2: THE PRACTICE 16 April I 2 July I 5 November Apply your knowledge and skills in boardroom simulations and gain first-hand experience on how to approach the issues you will face in your role.

TRUSTEESHIP - PART 3: THE EXPERT DISCOVER MORE AT WWW.PLSA.CO.UK/ TRUSTEE-TRAINING

20 November Further enhance and refine your skills to become an expert in your role.

Viewpoint Issue 1 2024

15

Taking the DE&I pulse in pensions Sarah Smart, Chair of The Pensions Regulator, and Gavin Lewis, Managing Director at BlackRock, answer questions about the industry’s progress on diversity, equity and inclusion (DE&I).

Q. WHY SHOULD PENSION SCHEMES TAKE ACCOUNT OF DE&I IN THEIR INVESTMENT STRATEGIES? A. Sarah Smart: Diverse perspectives,

skills and experiences on the trustee board support robust decision-making. Through effective DE&I, trustees are better equipped to weigh issues and consider aspects important to those impacted by their decisions – including in the design and implementation of the scheme’s investment strategies.

As researchers begin to recognise DE&I as a relevant factor in business performance, and that the same benefits of DE&I apply to the companies that schemes invest in, trustee boards are increasingly including DE&I in their stewardship policies.

Trustees, through voting and engagement, are increasingly seeking to improve the DE&I practices of investee companies with the aim of seeking better returns for savers over the long term.

Q. HOW WOULD YOU ASSESS THE PENSIONS INDUSTRY’S CURRENT PROGRESS ON DE&I IN INVESTMENT (FOR SCHEMES, CONSULTANTS AND ASSET MANAGERS)?

A. Sarah Smart: Industry focus

has been on gathering DE&I data, to understand how DE&I is applied in investment decision-making. Progress is being made, but there is still a long way to go.

While most trustees have made a start on evaluating their ESG beliefs and policies on voting and engagement, only a few have begun to dig deeper into how DE&I policies in investee companies can impact financial outcomes.

Consultants are also starting to assess the DE&I policies of asset managers and how they are integrated into investment decisions, and beginning to highlight this to trustee boards.

However, progress depends in part on where some of these firms are based.

The degree of materiality being placed on DE&I, and the level of data available, differ across different geographies.

Gavin Lewis: Mixed. Policies

are making progress on diversity but progress still needs to be made on the day-to-day experience and inclusivity.

16

Viewpoint Issue 1 2024

Positively, the issue is now firmly on the agenda, data collection has improved, policies and procedures have been put in place, some firms have even stated objectives, and evidence would point to increasing gender representation prepandemic and increased ethnic minority representation post George Floyd at junior levels.

However, gender representation has stalled post pandemic, and there has been very little progress in ethnic minority representation at mid to senior levels.

Q. WHAT COULD PENSION SCHEMES AND ASSET MANAGERS BE DOING BETTER? A. Sarah Smart: Trustees and asset

managers should look to collaborate more closely to understand DE&I data, and the potential financial materiality of these factors in identifying risks and opportunities. This should be used to align future DE&I objectives and stewardship priorities, with a clear framework for measuring progress. Industry initiatives, such as the Diversity Project’s Asset Owner Diversity Charter, can provide a common framework for trustees and asset managers to work together.

Gavin Lewis: While data collection has improved there are still obstacles, which may indicate a trust deficit.

Schemes should revisit commitments made, and either recommit or evolve them as a first step. They should also be focusing on culture, particularly middle levels of leadership, who are often responsible for implementing C-suite commitments.

Also, DE&I objectives should be aligned with business outcomes, rather than this being a solely HR issue.

Q. WHAT IS GOING WELL – COULD YOU GIVE AN EXAMPLE OF GOOD PRACTICE? A. Sarah Smart: Pension schemes

now consider a broader range of ESG factors beyond environmental and climate-related risks. While a lot of attention has been paid to these aspects of the ‘E’ in ‘ESG’, there is now a growing recognition of the importance of social and governance factors as well (with DE&I being a good example of this). This shift in focus indicates industry is broadening its view of ESG to encompass social and governance considerations. By incorporating these aspects into their investment decisionmaking process, pension schemes are improving resilience to ESG risks and

seeking opportunities to enhance value for savers over the longer term.

Gavin Lewis: Pay gap reporting for gender is a clear improvement, but also some firms are now publishing the same data for ethnic minorities – ahead of any legal requirement.

Also, the imposition of DE&I metrics in sales processes is a positive move.

Q. WHAT ONE CHANGE WOULD YOU LIKE TO SEE SCHEMES AND/OR ASSET MANAGERS MAKE IN 2024?

A. Sarah Smart: We have seen focus

primarily centred on gender and diversity metrics, notably the representation of women on company boards. While this is a step forward, trustees and asset managers should consider diversity and inclusion across a wider range of areas – including cognitive diversity, age, ethnicity and socioeconomic background – in addition to gender. Incorporating these dimensions will allow trustees and asset managers to better assess risks and opportunities and shape their future stewardship priorities.

MORE ON DE&I Sarah Smart and Gavin Lewis will be continuing the DE&I debate in a panel session at the PLSA Investment Conference 2024:

Driving DE&I: Why you have to get it right: Thursday 29 February, 9-10 am More on DE&I at the Investment Conference:

Social Factors: its time has come?

Wednesday 28 February 12.20-12.50 pm Further reading on DE&I from the PLSA:

Stewardship and Voting Guidelines 2024 Look out for our new Social Factors case studies online after the Investment Conference.

Gavin Lewis: There should be

greater focus on the economic case for DE&I, as this moves the discussion from one based on values and beliefs to one based on economic rationale.

Viewpoint Issue 1 2024

17

Human-led, tech-powered It all adds up to The New Equation Everyone deserves a secure, confident financial future.

At PwC, we have a refreshingly different approach to pensions advice. We use our breadth and versatility to deliver tailored and practical advice to trustees and corporate sponsors. We do not have house views; instead we will come up with the best solution for your situation and leverage technology where we can to create better outcomes for stakeholders. We will deploy our independent, unbiased position, giving you confidence that you have the best strategy and plan for your arrangements.

Be a part of The New Equation To find out more, visit: pwc.co.uk/pensions

18

Viewpoint Issue 1 2024

To get the latest insights from our pensions specialist teams please join us for our Virtual Ideas Exchange.

Economic horizons Paul Johnson, director of the Institute for Fiscal Studies, shares his views on key macroeconomic trends for 2024 with Maggie Williams.

Q. WHAT ARE SOME OF THE BIGGEST MACROECONOMIC TRENDS THAT WILL AFFECT PENSION SCHEMES THIS YEAR? A. Firstly, we’ve got lots of macroeconomic uncertainty at present, including the situation in the Middle East, the effect on shipping costs, and what will happen to energy costs. There is also the question of whether we will see another shock to the economy. These uncertainties will underlie almost everything over the next year.

Assuming we don’t have another shock, inflation and interest rates are another area of concern. The market is betting on the Bank of England bringing inflation down more quickly than the Bank itself is suggesting at the moment. Inevitably, bringing interest rates down more quickly will affect the wider economy. Returns on gilts are already starting to fall, and that will set a benchmark for other investments.

Based on best estimates, we are looking at another year of economic stagnation – the Bank’s forecast, the Office for Budget Responsibility’s forecast and most of City expectations are that the economy will pretty much flatline this year and it will be yet another poor year for the economy.

How that affects the stock market remains to be seen. I don’t think the central expectation is of a big recession at least, but it will not be much growth either. And then of course there is whatever happens post the General Election and its impact on economic policy.

Q. DO YOU THINK THE GENERAL ELECTION WILL DRIVE MORE UNCERTAINTY FOR SCHEMES? A. We always see some uncertainty around an election – but much of the political

upheaval that we’ve experienced since 2016 has begun to dissipate. We don’t have the same turmoil in Parliament that we saw between 2016 and 2019, we don’t have Covid lockdowns, or the chaotic period at the beginning of this Parliament with multiple Chancellors and Prime Ministers. And we have an opposition party that looks very different from the one we saw in the run-up to the previous election.

So, my sense is that there is less uncertainty politically than there has been for at least the last eight years. There is more stability than there has been for a while. For example, this doesn’t look like the 2019 election where there were dramatically different manifestos being put in front of the population. If Labour had been elected then, there would have been a dramatically different path for policies and the economy. At that time, we also had a Conservative leader who was not very focused on the economy. I don’t think that is where we are now.

However, there is a good deal of uncertainty about the direction of fiscal and economic policy post-election because the choices and challenges facing the new government will be hard: the NHS, the social care system, local government, the justice system and others are really struggling. The current fiscal economic forecasts are based on incredibly tight spending plans over the next Parliament, and no-one wants to talk about raising taxes from what are already very high levels by historic UK standards.

So, the question of how whoever wins the next election will square that incredibly difficult circle is certainly a source of uncertainty. Will they have to borrow more than they are telling us about, and will debt therefore be higher? And will that create economic problems? Will the next government increase taxes which might cause a drag on the economy? Or will they do what’s pencilled into the spending plans and slash investment spending, which would be bad for the long term of the economy? Whoever wins will have to make these choices.

Q. HOW DO YOU THINK THESE TRENDS WILL AFFECT PENSION SCHEMES? A. I’m not really in a position to advise pension schemes on their strategies, but different people having different views on what will happen to interest rates creates an odd situation in which the market view is really quite different from what the Bank of England is suggesting in terms of the path of interest rates. I presume that different views about that path will result in different views and approaches for schemes.

SEE PAUL JOHNSON AT OUR 2024 INVESTMENT CONFERENCE Paul Johnson is director of the Institute for Fiscal Studies (IFS) and a member of the Committee on Climate Change. The IFS is widely considered to be the leading independent economic research and analysis organisation in the country.

As well as analyses of the economy and future of government spending, Paul also considers the economics of climate change and the path to net zero, the effects of inequality, and the long- and short-term impacts of shocks including Brexit and Covid-19.

He is the opening speaker at the PLSA’s Investment Conference in Edinburgh from 27-29 February 2024 Economic Horizons: The UK’s Macroeconomic Landscape and implications for pensions 27 February 2.15 to 3pm

Viewpoint Issue 1 2024

19

PLSA EVENTS 2024 FEBRUARY

MARCH

INVESTMENT CONFERENCE 2024

TRUSTEESHIP - PART 1: THE THEORY

27 - 29 Feb I Edinburgh

14 March I 09:30 - 16:00 I PLSA, London

Conference

Trustee Training

21 March I 11:00 - 11:45 I Zoom

MAY

JUNE

DB FORUM

TRUSTEESHIP - PART 1: THE THEORY

16 May I 09:30 - 14:30 I London

04 June I 09:30 - 16:00 I PLSA, London

Forum

Trustee Training

OCTOBER

NOVEMBER

MASTER TRUST FORUM

ANNUAL CONFERENCE 2024

TRUSTEESHIP PART 2: THE PRACTICE

17 Sept I 09:30 - 14:30 I London

15 - 17 Oct I Liverpool

05 Nov I 10:00 - 16:00 I PLSA, London

Forum

Conference

Trustee Training

POLICY INSIGHTS WEBINAR: LGPS, POOLS AND THE FUTURE 30 April I 11:00 - 11:45 I Zoom Webinar

DECEMBER

20

ESG CONFERENCE 2024

DB FORUM

28 Nov I London

12 Dec I 09:30 - 14:30 I London

Conference

Forum

Viewpoint Issue 1 2024

POLICY INSIGHTS WEBINAR: POT FOR LIFE - PLSA UPDATE Webinar

APRIL

TRUSTEE FORUM

TRUSTEESHIP - PART 2: THE PRACTICE

DC FORUM

26 March I 09:30 - 14:30 I London

16 April I 10:00 - 16:00 I PLSA, London

23 April I 09:30 - 14:30 I London

Forum

Trustee Training

Forum

JULY

SEPTEMBER

LOCAL AUTHORITY CONFERENCE 2024

TRUSTEESHIP - PART 2: THE PRACTICE

TRUSTEESHIP - PART 1: THE THEORY

11 - 13 June I Gloucestershire

02 July I 10:00 - 16:00 I PLSA, London

12 Sept I 09:30 - 16:00 I PLSA, London

Conference

Trustee Training

Trustee Training

LOCAL AUTHORITY FORUM

DC FORUM

TRUSTEESHIP - PART 3: THE EXPERT

07 Nov I 09:30 - 14:30 I London

14 Nov I 09:30 - 14:30 I London

20 Nov I 10:00-16:00 I PLSA, London

Forum

Forum

Trustee Training

The PLSA’s popular Policy Insights Webinars, Forums that dive into the heart of pensions policy and innovation, as well as our industry-leading conferences and expert trustee training are taking place throughout the year. More Policy Insights Webinars will be added soon.

Increase your knowledge, gain insights, enhance your skills and expand your network with the PLSA in 2024. View the full programme of events and secure your place at plsa.co.uk/events

Viewpoint Issue 1 2024

21

PLSA Local Groups Special Event – pensions industry lessons from Down Under

O

The PLSA’s Local Groups, operating throughout the UK, are the place for members to build regional networks, share experiences, gain insight and enhance CPD hours.

Cheryl Wilkinson reports on a memorable event from last year.

n 24 November 2023 the PLSA London Regional Groups were privileged to be joined by the Australian superannuation fund, Aware Super, for a special event for PLSA members, kindly hosted by Schroders.

The session included an overview of the Australian system and an interactive panel session where delegates put their questions to Aware Super’s Deanne Stewart, CEO, Sam Mostyn, Chair, and Damien Webb, Deputy CIO and Head of International.

Coincidentally, it was the same week that the Chancellor of the Exchequer, Jeremy Hunt, revealed in the Autumn Statement his proposal for the UK to move to a more individualised form of pension provision, known in the UK as the “lifetime provider model” or “pot for life” – and similar to the Australian model known as “stapling”.

THE AUSTRALIAN SYSTEM The Australian superannuation pensions system has grown from A$170 billion in 1992 to A$3.5 trillion today, and is projected to grow to A$6 trillion by 2030.

The objective behind superannuation is to ensure that not just the comfortable and wealthy get pensions, but that “all working Australians have dignity in retirement,” said Stewart.

There are five core elements to the Australian system: it’s mandated, predominately defined contribution (DC), preserved until retirement, allows for choice, and there is life insurance within the pension.

KEY MILESTONES In 1992 the Superannuation Guarantee was introduced with a mandatory 3%

22

Viewpoint Issue 1 2024

contribution rate (or 4% for employers with an annual payroll above A$1 million), requiring employers to contribute into a super fund on their employees’ behalf; over the years, the contribution rate has been ratcheted up to 11%.

In 2021 the Australian government introduced Your Future, Your Super.

One of the core elements is “stapling”, which Stewart likened to the Chancellor’s proposal for UK savers “having one pot for life”.

Also, the Australian Prudential Regulation Authority (APRA) is required to perform an annual performance test for superannuation products, intended to hold funds to account if they are underperforming by more than half a percent over a ten-year period.

APRA publishes an annual paper containing underperforming funds. If a fund underperforms two years in a row, it is not allowed to be open for new members.

AWARE SUPER Aware Super is Australia’s third-largest superannuation scheme, with more than 1.1 million members, and a projected growth trajectory from A$150 billion to A$250 billion in the next few years.

Originating in 1992 from the New South Wales State government’s shift from a defined benefit system, the fund – initially called First State Super – mainly serves key workers like teachers, nurses and emergency staff.

SUPER HELPFUL Aware Super’s primary objectives revolve around simplicity, memberfirst services, digital accessibility, and a robust tech infrastructure, emphasising a commitment to empowering members

to plan and manage their retirement effectively.

The fund has received top ratings and awards from the industry’s leading rating agencies. “Part of that is really strong returns,” explained Stewart, “but part of it is also the way that we’re serving our members and digital interaction, and the advice that we’re providing.”

Over the last three years Aware Super has undertaken a digital transformation, making nearly all transactions (97%) digital and automated, providing members with immediate accessibility and reducing administrative costs by approximately 30%. It has also implemented stringent security measures to safeguard member assets, particularly during vulnerable points such as pension withdrawal phases.

The fund has also introduced a retirement planning tool, which has seen substantial member engagement, with 30,000 members using it within 12 weeks of launch, resulting in 10% taking action based on the advice received.

• Watch the recording of the session.

• Learn more about the PLSA’s Local Groups on the PLSA website.

• Read the PLSA’s thoughts on the lifetime provider model in this issue.

Forums in focus Marcin Stepan, Events Content Manager, presents some highlights from recent PLSA Forums.

LOCAL AUTHORITY FORUM 14 DECEMBER 2023

Tackling securities fraud

MASTER TRUST FORUM 19 SEPTEMBER 2023

Issues facing the industry

• Securities fraud (when an issuer misleads investors or withholds information that is material to the value of an investment) is a major cost to institutional investors, with an estimated $830 billion lost every year. Recovery rates are low, ranging between $4 billion and $5 billion a year.

• Government support for increasing automatic enrolment contributions could increase the size of the master trust market. Employers and trustees are taking note of the advantages of master trusts, including regulatory support and investment expertise.

• Taking reasonable efforts to recover losses is part of the fiduciary duty of any institution investing on behalf of members, including UK local authority pension funds.

• The development and expansion of collective defined contribution (CDC) is a major talking point. Master trusts also spoke of how the ongoing consolidation of smaller DC and DB schemes could drive further growth of the sector.

• Class actions in US courts are now part of the investment landscape. Local authority pension funds need to be proactive in protecting their interests and ensuring they recover losses wherever possible. But pooling across funds is a potential complication and has yet to be tested in US law.

Shrinking the gender pensions gap • LGPS Scheme Advisory Board (SAB) research found the gender gap in local authority schemes is 46%, and among members already receiving their pension it is 49%. However, across the UK population, women’s pensions are worth only 33% of men’s.

• Historic pay inequalities are a partial explanation, but the high level of women in part-time local authority work, limited career paths and other life events all impact earnings and pension accrual.

• SAB has established a working group to look at possible solutions, including financial education, policy changes for schemes, and whether employers can provide more opportunities and career paths for women.

Tightening cyber security • Aon research found that most funds rely on their sponsor authority to provide cyber security, with just 19% of funds having their own dedicated policy.

• Assessments of third-party risks are also lacking, with just 22% of funds having assessed cyber risk that might stem from their investment manager.

• Aon proposes a four-stage approach for funds: understanding potential exposure; shielding systems from risk; establishing solutions for when problems arise; and regular risk reviews.

• High-quality master trusts can demonstrate best practice to the rest of the pensions industry and help scheme members achieve their retirement goals.

Delivering value for money • Although there are many examples of how master trusts have delivered great outcomes for scheme members, data is often inconsistent and not comparable.

• The Value for Money framework may drive further consolidation in the industry. Smaller schemes wishing to join larger trusts can use metrics such as investment performance and costs to compare them.

• The industry is making steady progress in improving value for money and comparability, but some schemes need to catch up. Regulators may resort to enforcement if engagement is ineffective.

Future-proofing defaults • Master trusts discussed how they are future-proofing their default options, including members’ views on ESG factors.

The debate also heavily featured the Mansion House Compact.

Some master trusts have already signed up, but more are still considering what it would mean for their members.

• The Compact reforms could impact the risk profile and diversification of master trusts’ investment portfolios. Some schemes are happy to make greater allocations to private equity due to higher expected returns; others prefer to adopt a wait-and-see approach.

• Default strategies are becoming increasingly sophisticated to cater to a range of risk appetites and desired member outcomes. Some master trusts report that members prefer flexible strategies that allow them to change their minds, rather than committing to specific outcomes.

The PLSA Forums bring together a community of top-tier pensions professionals to share invaluable insights, network and tackle current challenges and emerging trends. With several taking place across 2024, you can attend our Forum events to help shape the pensions landscape. View all Forums.

Viewpoint Issue 1 2024

23

Using your feedback to shape our services

I

Listening to PLSA members is the firmest foundation for the future, says James Walsh.

t’s a cliché that looking back helps us to look forwards, but – like many clichés – there’s plenty of truth in it.

I’ve just polished off my own ‘looking back’ exercise – a report for colleagues on the insights we’ve gleaned from our meetings and conversations with members throughout 2023. There’s plenty to draw on: 106 (yes, we count ’em!) one-to-one meetings with our members, 15 meetings of our ‘Network’ groups for CEOs, CIOs, Chairs of trustee boards and others (144 attendees precisely at those occasions), and plenty more informal interactions.

Our notes from these meetings are a rich seam to mine, and the whole point is to help us to provide even better services to our members in the future. It’s a lookingback-to-look-forward exercise of which Janus himself would be proud.

The key findings of my report, each of which should help us in 2024, cover everything from policy issues to our events and information services.

On the policy front, the issues that cropped up most frequently in our meetings with members were DB funding and strategy, member engagement and pensions dashboards, although the dashboards mentions tailed off in the second half of the year as schemes awaited information about the ‘reset’ of the programme.

Of course, a member raising an issue with us doesn’t necessarily mean it’s a problem; in the case of DB funding (the most significant ‘riser’ in our 2023 league table of issues), the typical conversation was about how the scheme’s funding had improved sharply, prompting the trustees to review their endgame strategy

24

Viewpoint Issue 1 2024

and consider moving towards buyout more quickly than previously expected.

We had a positive set of conversations about member engagement as well.

Many schemes are strongly focused on raising their game in this area and have used our Retirement Living Standards to help them do so. We’ll be keeping these updated – watch this space.

I’m pleased to say that each of these issues – DB funding, member engagement and dashboards – is firmly inked into the 2024 work programme for our Policy team and is now well underway.

That work programme also focuses on the pensions adequacy issues we’ve been working on over the last two years and ‘Pensions and Growth’, where the initiatives kicked off in the Chancellor’s Mansion House speech last year will continue to be prominent.

My ‘look back’ report also summarises feedback on the PLSA’s wider services – events, publications, training etc. It’s mostly positive, but there would be no point in these conversations if we didn’t invite constructive criticism and our members’ steers on where we should do more.

One theme that comes through loud and clear is that our members want more PLSA tools and guidance to help them with practical challenges. Watch, for example, the webinar we ran recently on the abolition of the Lifetime Allowance and its many ramifications (‘A lot to be bottomed out in very short order’, as one member put it to me in a meeting).

Read too our guidance on how best to use our Stewardship and Voting Guidelines as the corporate voting season approaches.

YOUR OPINION MATTERS! One final point I draw from my review of member feedback is about how we deliver our services. Our members have plenty of different ‘wants’. For many, our in-person conferences are just the ticket for networking and getting updated. But there are plenty of other members who want their PLSA services exclusively online, so we’ll be looking to do more in this area. We’ve built up a decent following for our Policy Insight Webinars, which I enjoy chairing, but we need to do more. Fortunately, we have plans – watch this space…

I’m a strong believer that listening to our members is the best foundation for the PLSA’s future. If you want to help us shape our plans, then please get in touch and let’s talk!

IT’S A LOOKINGBACK-TO-LOOKFORWARD EXERCISE OF WHICH JANUS HIMSELF WOULD BE PROUD

COMING SOON… NEW AND EXCLUSIVE MEMBERS AREA OF THE PLSA WEBSITE

e PLSA Connect with th ork w et N y. communit ith w nd ou online year-r e th om fr s professional ent m st ve in d pensions an industry.

Content at your level.

Everything from highlevel overviews, to in-depth reports, best practice and practical support.

Centralise d hub of content. In cluding resources, su pport, networking and knowled ge for the full p icture of pensions.

Continue the Discuss conversation. d share an es the big issu nd PLSA perspectives beyo nvenience. events, at your co

Viewpoint Issue 1 2024

25

Delivering standards savers deserve

O

Louise Davey, TPR’s Interim Director of Regulatory Policy, Analysis and Advice, introduces the new General Code of Practice.

ur new General Code of Practice has now been laid in Parliament and is expected to come into force in late March. Bringing together and updating existing codes of practice into one set of clear, consistent expectations on scheme governance and administration, the General Code sets out the standards we expect – and savers deserve.

While the new code looks different, with expectations set out in short, focused modules, many of the standards set out are not. The new format makes it easier for governing bodies to find TPR’s expectations and ask themselves whether, and how, they are meeting those expectations.

According to our research, there remains a subset of disengaged trustees who fall short of the standards expected or are unaware of the existence of such codes.

This new General Code is an opportunity for governing bodies to make sure their schemes meet the standards of governance we expect. It means there is no excuse for failing to know what TPR expects of them. Some governing bodies have already grasped this opportunity and carried out analysis to ensure there are no gaps in their governance.

However, we believe there are many who have not done so.

CLEAR PLANS NEEDED We want to see those that do not meet the code’s expectations take action to improve governance. If they can’t improve, trustees will need to work with the employer to consider other options.

In the case of defined contribution schemes, they’ll need to consider whether savers would be better off in a larger, better-run scheme. And, in the case of defined benefit schemes, they should consider whether savers would see higher standards of governance in a consolidation arrangement.

At the very least, governing bodies should be aware of where they fall short of our expectations, and have clear and realistic plans in place to address those shortcomings.

The results from our annual survey of trustees of DC trust-based pension schemes, published in July 2023, showed trustees of four in 10 (40%) micro and small schemes were either unaware of TPR’s codes of practice or had never used them. And despite extensive industry engagement during the consultation on the new code, fewer than a quarter (23%) of the trustees of these schemes were aware the new code was set to be introduced – with trustees

of small and micro schemes the least likely to report being aware, at just 19% and 9% respectively.

EFFECTIVE SYSTEMS OF GOVERNANCE One area I’d like to focus on is effective systems of governance (ESOG). The new code sets out in detail what we expect of governing bodies of schemes in terms of maintaining an ESOG. This brings together many key aspects of running a scheme, not least in terms of risk management.

The detail of what constitutes an effective system of governance will be dependent on the size and complexity of the scheme.

There is a new requirement that governing bodies should document the policies and procedures they have in place forming the ESOG, but in many cases the ESOG is largely a rebadging of things well-run schemes are already doing. However, there are some new requirements most schemes won’t yet have in place, such as a remuneration policy.

Rather than a tick-box approach, our intention is that the code’s expectations will act as prompts to start a dialogue on whether, and how, expectations are being met, and whether processes are operating as intended, or could be improved.

GET READY

OUR INTENTION IS THAT THE CODE’S EXPECTATIONS WILL ACT AS PROMPTS TO START A DIALOGUE 26

Viewpoint Issue 1 2024

The General Code is expected to come into force on 27 March, which gives governing bodies the chance to start getting ready now. We challenge governing bodies to grasp this opportunity to ensure their scheme is fit for the 21st century. There are no excuses.

The evolving investment landscape for UK defined benefit schemes Our paper provides an overview of the LDI crisis and identifies the key investment actions that UK DB pension schemes should consider to re-position their investment portfolios to adapt to the changing market environment, including duration management, diversification, liquidity management and the transition to net zero.

To know more scan the QR code below

Your capital may be at risk.

LV-JPM54286 | 11/23 | 091w232311171127

Viewpoint Issue 1 2024

27

Pensions and growth George Dollner, Policy Lead, explains how the PLSA is helping to shape the debate around pensions’ role in supporting UK growth.

‘Pensions and Growth’, ‘Productive Finance’, ‘Private Market Investment’ – however you refer to it, over the last year we have seen the government ramp up its call for pension schemes to play a bigger role in providing additional capital to support growth in the UK economy.

In the ‘Mansion House Reforms’ on 10 July, the Chancellor outlined the government’s key objective to enable greater investment in illiquid assets to achieve both growth in the UK economy and greater returns for pension savers.

It was a comprehensive package which we have been actively involved in responding to.

WHAT HAS THE PLSA DONE? The pensions and growth agenda has been a key priority for us over the last year, and we have engaged with many government initiatives to remove barriers preventing schemes investing in growth-orientated assets. In June, we published our pensions and growth report, A paper by the PLSA on supporting pension scheme investment in UK growth. With many suggesting rapid and radical consolidation as the best way to achieve additional investment, our paper highlighted that there are, in fact, many other things that can be done.

While we recognise the benefits of consolidation, providing it is done in the right way, we wanted to demonstrate the range of opportunities for making an impact more quickly. This included measures ranging from introducing fiscal incentives and increasing policy certainty to tackling issues in the automatic enrolment (AE) market, increasing AE contributions, and ensuring adequate LGPS resourcing.

Since the publication of our report in June, the landscape has developed significantly. The Chancellor’s Mansion

28

Viewpoint Issue 1 2024

House speech announced an ambitious package of proposals in the form of several consultation responses as well as a raft of new consultations for the pensions industry to consider. We have responded to the following five Mansion House consultations: 1. Options for Defined Benefit Schemes 2. LGPS ‘Next steps on investment’ 3. Ending the proliferation of deferred small pots 4. Pension trustees’ skills, capability and culture 5. Helping savers understand their pension choices.

The proposals set out in our responses involved extensive member engagement.

We ran a policy insights webinar, which attracted around 150 member responses to two detailed member surveys and, through roundtables with the British Business Bank (BBB), helped members to build their understanding of how they can develop and find suitable UK growth investment opportunities.

Throughout our work on pensions and growth, we have been committed to ensuring the voice of our members has been heard across government. We have regularly engaged with the regulators and the Office for Investment, as well as influencing the Department for Work and Pensions (DWP) and HM Treasury through several meetings with the Minister for Pensions and the Chancellor. We not only attended each of the three main party conferences, but we also hosted and took part in roundtable events.

WHERE DO WE STAND? In his Mansion House speech, the Chancellor announced the ‘Mansion House Compact’, an agreement signed initially by nine of the UK’s largest DC pension providers committing them to allocating at least 5% of their assets to unlisted equities by 2030. Since July,

Aon and Cushon have joined, meaning there are now 11 signatories. We support this, and in addition have developed our position in relation to what we want to see the government do to encourage pension funds to invest in UK growth. Our Autumn Statement representation called on the government to: • Ensure there is a stream of highquality investment assets • Amend DB regulations to allow for greater flexibility over investments • Introduce fiscal incentives, like dividend tax relief, to make UK investment more attractive • Adopt primary legislation to establish a regime for the growth of DB superfunds • Reform the auto-enrolment DC market so there is less focus on cost and more on performance • Increase auto-enrolment pensions contributions from 8% to 12% to increase the flow of assets into pensions.

The Chancellor’s Autumn Statement contained 110 growth measures with pensions reforms aimed at driving forward growth in the economy.

Most notably for the pensions and growth agenda, we saw a series of announcements that supported some of our key asks, including: • Pipeline of assets: Following positive feedback from industry, the government confirmed its intention to establish a growth fund within the BBB. We are pleased to see this progressing.

THERE ARE POSITIVES AND NEGATIVES TO TAKE FROM THE AUTUMN STATEMENT • DB regulation: The DWP will launch a consultation this winter on the appropriate regime under which surpluses can be repaid, including new mechanisms to protect members, and whether this could incentivise investment by well-funded schemes in assets with higher returns. We were pleased to see that the DWP has made positive revisions to the DB funding regulations which enhance flexibility, especially for open DB schemes.

Importantly, it also now clarifies that DB schemes can take appropriate levels of investment risk where supportable by the employer covenant.

• Taxation: The government has pledged to commit £250 million to two successful bidders in the Long-term Investment for Technology and Science (LIFTS) initiative, as well as favourable tax treatment regarding the release of surplus from DB schemes.

• Consolidation: Although the government declared its intention to carry on with the rapid transfer of assets from LGPS pension funds to the asset pools, it has introduced a comply or explain element that should provide some necessary flexibility; similarly, although the government appears to be pressing ahead with using the PPF to act as a DB consolidator, it has listened to concerns that the new fund should be separate and that it should only focus on pensions that are noncommercial for the buyout providers.

announcements made to explain how auto-enrolment contributions would be applied from the first pound of earnings and from age 18, in line with government policy. Increasing the flow of assets into pensions is vital to increase the volume of saving in UK shares and other growth assets.

We want to take the opportunity to recognise and thank our members for the hard work that has allowed us to play a leading industry role on this agenda. But of course, there is more to do. The theme of pensions and growth isn’t going away.

Now that we are in a possible election year, and as we prepare for Spring Budget on March 6th, it is vital that we continue to promote the interests of our members and engage both the government and the opposition.

• DC market for auto-enrolment schemes: The government has stated that prioritising long-term pension investment performance over low fees

(The authorised surplus repayment charge will be reduced from 35% to 25% from 6 April 2024.)

OUR KEY NEXT STEPS 1. Look to increase the investment opportunities available for our members, notably through member engagement on the development of the growth fund.

2. Examine further potential tax relief options.

is important. TPR will also provide further information for employers on what factors should be assessed when they are selecting a pension scheme.

There were positives and negatives to take from the Autumn Statement. We are encouraged by the commitment to deliver a British growth fund and the proposed reduction in the pension surplus tax.

However, we are disappointed that among other things, there were no

3. Continue to influence consolidation developments across DC, DB and the LGPS. 4. Ensure regulator alignment on rules for implementing the VFM framework.

5. Campaign for the adoption of AE increases as introduced by the Gullis Bill and develop our proposals to raise AE contributions from 8% to 12% over the next decade.

Viewpoint Issue 1 2024

29

Sign for change

HETTY HUGHES

TIM MIDDLETON

SAMANTHA O’SULLIVAN

MANAGER, LONG-TERM SAVINGS, ASSOCIATION OF BRITISH INSURERS (ABI)

DIRECTOR OF POLICY AND EXTERNAL AFFAIRS, PENSIONS MANAGEMENT INSTITUTE (PMI)

POLICY LEAD, CHARTERED INSTITUTE OF PAYROLL PROFESSIONALS (CIPP)

Q: Why did the ABI commit to the Better Pensions Charter?

To help everyone save for their future and enjoy the best possible retirement, it’s important to have a long-term strategy built on consensus. It’s important that savers and those who are the custodians of their investments have certainty on the future policy direction so that they can effectively plan. The Better Pensions Charter sets out what’s needed to secure a good standard of living for all in retirement and we’re pleased to be a signatory to help collectively drive forward further change.

Q: How will the Charter influence your policies over the next year?

We have long advocated for the pensions policy reforms which would meet the outcomes envisioned under the Charter.

Much of our work has looked to address the UK’s under-saving crisis and to help the UK’s ageing society to thrive in retirement. The Charter speaks to our existing work in these areas. Whether this be through our Pension Attention campaign, or increasing the evidence base on how best to support customers to make important retirement decisions, we stand ready to work with government and other signatories to help reach the goals of the Charter.

30

Viewpoint Issue 1 2024

Q: What are the most important points within the Charter from the PMI’s perspective?

For us, the most important points within the Charter are: • Ensuring that the interface between state and private provision remains effective • Identifying key areas for improvement, such as providing effective coverage for the selfemployed and those working within the gig economy • Making the case for higher rates of contribution in a sector where private sector provision is now dominated by defined contribution (DC) arrangements • Helping DC members through the hazards of decumulation.

Q: How will the Charter influence your policies over the next year?

The Charter will help us focus on those areas of policy that will require the greatest emphasis. In a year which is going to see a General Election, it is inevitable that the government will put less emphasis on developing pension policy. If the PMI, along with the rest of the industry, is able to unite around the Charter, we will be able to maintain momentum through the rest of this year.

Q: Why did the CIPP decide to commit to the Better Pensions Charter?

As the professional body for payroll professionals acting on the behalf of employers throughout the UK, it’s key to educate people on the benefits of saving into their pensions, but it’s also currently about getting the balance right. Amid a cost-of-living crisis, many people are focusing on making it through each month, which could arguably be more important to them right now than investing in their futures and ensuring a comfortable retirement.

Q: What are the most important points within the Charter from the CIPP’s perspective?

The Charter looks specifically at getting more people saving into workplace pensions, and this is something the CIPP supports entirely. The Charter, alongside The Pensions (Extension of Automatic Enrolment) (No. 2) Bill gaining Royal Assent, will ensure younger workers, gig economy workers, multiple job holders and low earners will be able to save for their retirement. The CIPP does however understand the implications for employers, and will be working alongside members and policymakers to ensure all views are considered and fed back through future consultations, prior to implementation of new legislation.

Signatories of the PLSA’s Better Pensions Charter explain how its proposals will influence their strategies over the next year.

CHARLES COTTON SENIOR REWARD ADVISER, CHARTERED INSTITUTE OF PERSONNEL AND DEVELOPMENT (CIPD) Q: Why did the CIPD decide to commit to the Better Pensions Charter?

The CIPD recognises the important role pensions play in the workplace, such as a recruitment or retention tool, a key part of improving employee financial wellbeing, or supporting the organisation’s culture. As well as good workplace pensions, we also want to see good state pensions, because together they play a vital role in helping people enjoy their retirement. We also want to see action to improve the situation of those who often find it hard to build up an adequate pension, such as low earners, multiple job holders, women, and ethnic minority groups.

Q: What are the most important points within the Charter from the CIPD’s perspective?

From our perspective, it’s the creation of a national pensions strategy that’s adequate, fair, and affordable. This strategy will allow employers, the government and the pensions industry to assess how near we are to achieving these objectives and what steps we might then need to take. Pensions can be a source of conflict; we have seen industrial action about workplace pensions and arguments about the affordability of the state pension. Having a consensus about the objectives for the UK pension system should help to reduce these tensions.

STEPHEN BUDGE

PARTNER IN LCP’S DC TEAM Q: Why did LCP decide to commit to the Better Pensions Charter?

Because we support the ultimate goal of the Charter: ‘to enable the UK’s ageing society to thrive in retirement’. This objective is fundamental to the support we give our clients on a day-to-day basis to help them improve outcomes for their members. It’s also key to our wider engagement in industry and government initiatives across the sector, like the Productive Finance Working Group. The beauty of the Charter is that it sets out a series of clear and measurable deliverables that can be used to hold policymakers and the broader industry accountable – and, as a result, it’s a valuable tool that can help raise standards across the board.

Q: What are the most important points within the Charter from LCP’s perspective?

The overall ambition to make the UK pension system adequate, fair, and affordable is essential to ensure that it can deliver outcomes that enable members to thrive in retirement. Within this, the Charter’s focus on creating solutions for traditionally underpensioned groups is a particularly important feature, given the wide disparities we see across the market (e.g. the gender pensions gap). We welcome the fact that the Charter recognises the essential link between short-term financial wellbeing and better retirement outcomes, as financial difficulties preretirement are all too often the driver of poor outcomes in retirement, particularly for under-pensioned groups.

KIM GUBLER CHAIR, PENSIONS ADMINISTRATION STANDARDS ASSOCIATION (PASA) Q: What are the most important points within the Charter from PASA’s perspective?

Being the window to any pension scheme, administrators are the first point of contact for any scheme member or pension saver. We feel administrators are best suited to support how people are communicated with and guided along their pensions journey. Layers of historical complexity have made this job harder for everyone involved. In all PASA’s responses to consultations we’ve urged government to think about how new policies can be executed to enable people to better understand what’s available to them, and so make better decisions.

Q: How will the Charter influence your policies over the next year?

Designing policies that are simple to communicate and execute is vital to build the trust people need in the pension system. We’ll continue to engage with government and the DWP to ensure administrators can deliver on the promises the pension system makes. In particular, we are keen for government to articulate more clarity over the difference between advice and guidance, allowing administrators to remain the ideal conduit to deliver guidance to people when they most need it.

Viewpoint Issue 1 2024

31

Hammering home the engagement message – with a Mallett!

Cali Sullivan, PR Manager at the PLSA, reports from inside our latest high-profile engagement campaign.

F

rom the UK grime scene to a vibrant throw-back gameshow set, the Pension Attention megaphone has been on an unexpected journey.

With more than a splash of colour and bags of children’s television enthusiasm, our latest collaboration took the Pay Your Pension Some Attention campaign on an energetic journey back to the 80s and 90s.

32

Viewpoint Issue 1 2024

Teaming up with beloved childhood icon Timmy Mallett, we infused a dash of Wacaday wisdom into the realm of pension planning, adding some nostalgic charm to boost awareness and encourage engagement.

The campaign led viewers to wonder, “Have I really been putting off decisions about my pension for that long?”, urging them to look back to yesterday and uncover those long-forgotten pension pots.

85%

ACTED AFTER SEEING THE CAMPAIGN

Led jointly by the PLSA and the ABI, and backed by household names in the pensions industry, this unique initiative took us back to Timmy’s “utterly brilliant” television heyday with a pensions quiz. Contestants took part in a quickfire round of pension questions to highlight the need to improve savers’ confidence and understanding when it comes to their pensions.

The day of filming in the studio was so much fun. The couples had a great time being part of the nostalgic and educational journey through pensions, especially with Mallett’s Mallet and Pinky Punky. This take on the 80s gameshow encourages people to do the Pension Playback in three easy steps. Look back to all their previous pensions, lean in to their current pensions to understand the value, and move forward by planning how much they need to save for their desired retirement.

NOT JUST AN ITSY-BITSY TEENY-WEENY SUCCESS Timmy reached millions of people through TikTok, Instagram, Facebook and Twitter, and many, many more through digital billboards at UK train stations and radio ads on 80s and 90s stations. We’re proud the campaign earned significant coverage in national and regional newspapers, on the radio, in the pensions trade press and in glossy magazines like Heat and Good Housekeeping.

But where the campaign could be found was not as important as how it impacted behaviour. Our post-campaign survey revealed one in four people recalled seeing our campaign, which could equate to more than 10 million people — impressive for a campaign of this size.

Timmy has been a colourful ambassador, bringing an entertaining and enjoyable approach to pension engagement which has resulted in a campaign to be proud of.

This collective brand approach has demonstrated how successful a single, simple message can be when engaging with pensions. Together, we’ve successfully shown savers how taking three steps to look back, lean in and move forward can vastly improve knowledge and understanding of an especially important topic – their financial future.

OF THOSE WHO ACTED:

51%

LOGGED INTO THEIR OWN PENSION ACCOUNT

44% SPOKE TO FAMILY OR FRIENDS

40%

LOOKED FOR PENSION INFORMATION ELSEWHERE

CARRYING ON THE CAMPAIGN Building on the campaign’s achievements, our focus now shifts to envisioning the next steps. Similar to last year, timing remains critical! Although the news cycle was quite different this time last year, we were still faced with a couple of high-profile news stories which took centre stage.

Finances have been in the limelight significantly over the last 12-18 months, and the rising cost of living has put everyone’s finances under the microscope.

Considering the current financial landscape and the ever-changing world around us, we’re evaluating strategies for our next initiative, starting with our commitment to enhancing industry support. We’re hoping to bring some additional resources to the Pay Your Pension Some Attention brand and slogan. This step will be pivotal in extending the reach of our campaign and fostering more engagement across the various audiences.

It has been another enjoyable year, and the collaboration has proven its value in unifying the industry and advocating for enhanced pension engagement. This year, the campaign aligned with the Pension Geeks and the National Pension Tracing Day to amplify our unified key message: pay your pension some attention.

The campaign has been made possible thanks to the generous support of our sponsors: Aegon, Aviva, Cushon, Fidelity, Legal & General, Nest, NOW: Pensions, Pru, Royal London, Scottish Widows, Smart Pension, Standard Life, and the People’s Pension. If you’re interested in becoming part of this initiative, please reach out to joe.dabrowski@plsa.co.uk or info@pensionattention.co.uk to learn more.

The PLSA and the ABI are looking forward to what’s next for the pensions megaphone, but for now do the Pension Playback to stop feeling so “bleurgh” about pensions.

WE’VE INSPIRED MORE THAN 3.5 MILLION EMPLOYEES TO PAY THEIR PENSION SOME ATTENTION

Viewpoint Issue 1 2024

33

Update: Retirement Living Standards

T

A refreshed version of the PLSA Retirement Living Standards takes account of emerging trends in retirement living, reports Simon Sarker, Head of Research, PLSA.

he PLSA can now reveal its updated Retirement Living Standards (RLS).

The new levels reflect a shift in the public’s expectations of retirement as well as incorporating the impact of increases to the cost of living, especially in food and energy use.

Savers’ priorities have changed following the Covid lockdowns, and people are now putting more emphasis on spending time with family and friends outside the home. The RLS have been updated to take account of these trends.

Calculated by the Centre for Research in Social Policy at Loughborough University on behalf of the PLSA, the RLS describe the cost of three retirement lifestyles: Minimum, Moderate, and Comfortable.

The research is based on multiple indepth discussion groups with members of the public from all parts of the UK.

Costs have increased across all levels:

MINIMUM: • From £12,800 to £14,400 for a single person • From £19,900 to £22,400 for a couple.

MODERATE: • From £23,300 to £31,300 for a single person • From £34,000 to £43,100 for a couple.

COMFORTABLE: • from £37,300 to £43,100 for one person • from £54,500 to £59,000 for a couple.

MAIN DRIVERS FOR COST CHANGES ACROSS THE THREE RETIREMENT LIVING STANDARDS EXPENDITURE

MINIMUM

MODERATE

COMFORTABLE

HOUSE

• Energy costs

• Energy costs

• Energy costs

FOOD

• Grocery costs

• Grocery costs • Increased budget for meals out and takeaway food • Added a monthly meal out with family

• Grocery costs • Increased budget for meals out and takeaway food

• Increase in motoring costs

• Increase in motoring costs, but smaller car, larger increase for singles as couples now share 1 car

TRANSPORT

CLOTHING & PERSONAL

• Clothing budget increased • Hairdressing budget increased

HELPING OTHERS

• Increase in budget for family support

Viewpoint Issue 1 2024

Every saver will have their own expectations and requirements when it comes to visualising their retirement.

The RLS provide an important first step in retirement planning, helping individuals to identify elements of their preferred retirement lifestyle and to provide insights into associated costs.

Many pension providers now offer tools and calculators on their online platforms to allow savers to pick and mix elements of each Retirement Living Standard, so that they can leave out the things they don’t see as part of their life and tailor the Standards to their individual circumstances and preferences.

Savers can use the three living standards to judge whether their current savings levels are going to enable them to reach their desired lifestyle, which may fall between the given standards.

The state pension triple lock acts as a crucial safeguard against rising retirement living costs. This, alongside improved annuity rates, will help average earners to achieve most aspects of the Moderate level.

The RLS are not intended as prescriptive targets, but are a tool to help savers engage with the type of spending they think they will have in retirement – and to help them plan for it.

• Holiday costs increased, now 1 holiday abroad (was 2 abroad) and added 3 long weekends in the UK

HOLIDAY & LEISURE

34

DIFFERENT SAVERS, DIFFERENT PRIORITIES

FIND OUT MORE www.retirement livingstandards.org.uk/

Practical guidance and support for Local Authorities A roundup of the latest PLSA activities to support the Local Government Pension Scheme.

F

or more than a decade the Local Government Pension Scheme (LGPS) has seen significant policy developments, including the advent of LGPS pools for England and Wales – and the sands continue to shift.

In 2022 the PLSA carried out a major research project – LGPS: Today’s Challenges, Tomorrow’s Opportunities – which recommended areas where existing good practice can be fortified and where action can be taken to address the everincreasing regulatory and environmental challenges facing the scheme.

We’ve been working on implementing the report’s recommendations. As part of this, we’ve developed a number of practical guides to help those working in the largest DB scheme in England and Wales, which faces unique challenges relating to governance, membership and costs.

the significant financial commitments, administrative responsibilities and regulatory requirements associated with the scheme.

Last year new sections were added on the benefits of being an LGPS employer and the Internal Dispute Resolution Procedure (IDRP).

This guidance will help employers to adopt: • A sound HR strategy for employees in the scheme • A good governance process for managing participation in the scheme • Robust financial and risk management with respect to contributions and liabilities within the scheme • Good contract management if they have come to participate in the scheme as an admission body • The ability to evidence this best practice to stakeholders.

THE INSIGHT SHARING PENSIONS AND LIFETIME SAVINGS ASSOCIATION

THE INSIGHT SHARING PENSIONS AND S LIFETIME SAVING ASSOCIATION

LGPS REGU MAPPING LATORY

TING IN THE LGPS OYERS PARTICIPA GUIDE FOR EMPL

BEST PRACTICE

JU NE 20 23

This best practice guide – updated in 2023 – helps employers participating in the LGPS to understand and fulfil

VIEWS FROM INSIDE THE SCHEME The PLSA’s 2023 survey of our LGPS members was designed to capture and assess the issues that significantly impact Local Authority pension funds.

The results show the vast majority of respondents (85%) remain positive about working within the scheme. However, concerns about resourcing persist, with a quarter (23%) not feeling they have the right staff in place; and almost half of respondents noting Tier 3 employers (45%) expressed a desire to leave. There are further important findings in areas including key stakeholders, resources, employers and members, working environment, and views for the future.

PLSA LOCAL AUTHORITY EVENTS 23 20 NE JU

BEST PRACTICE: A GUIDE FOR EMPLOYERS PARTICIPATING IN THE LGPS

Scotland, and Northern Ireland. It also contains a heat map of some of the most pertinent issues that funds are facing, matching these topics with the entities responsible for these areas, showcasing the complexity involved in the development of consistent, coherent and clear LGPS policy and regulation.

LGPS REGULATORY MAPPING The LGPS Regulatory Map helps members and external stakeholders understand and navigate the complexities in which the LGPS operates. This is especially necessary, since there’s currently no entity looking at the whole of the LGPS. The map is divided into three sections, according to the geographic distribution of the LGPS: England and Wales,

Our Local Authority members have access to a range of PLSA events throughout the year, including our market-leading Investment, Annual and ESG Conferences, webinars and forums.

In addition, we also have a series events geared specifically to the intricacies of the LGPS to help those who work within it: • Webinar: LGPS, pools and the future – 20 April, Zoom • Local Authority Conference 2024 11-13 June, Gloucestershire • Local Authority Forum 1 November, London

Viewpoint Issue 1 2024

35

LEGAL UPDATE

Spring 2024: Pensions law round-up Loreto Miranda, Thomson Reuters’ Practical Law Pensions service.

KEY RECENT LEGISLATIVE AND REGULATORY NEWS •

36

Codification of retained EU law cases. Draft regulations have been laid before Parliament to retain the effects of certain EU law judgments and restate them in UK legislation (otherwise the Retained EU Law (Revocation and Reform) Act 2023 provides that after 31 December 2023 retained EU law will cease to have effect in domestic law).

Two judgments relate to equality law: Allonby v Accrington and Rossendale College and others,1 where the ECJ held that a notional opposite sex comparator may be used in an equal pay claim; and Walker v Innospec Ltd,2 where the Supreme Court disapplied a statutory exemption that permitted a scheme to restrict the pensionable service for calculating same-sex survivor benefits. Two relate to PPF compensation: Hampshire v Board of the Pension Protection Fund,3 where the ECJ found that former employees should receive at least 50% of the value of their accrued pension benefits on their employer’s insolvency; and Secretary of State for Work and Pensions v Hughes,4 upholding the High Court decision to disapply the PPF compensation cap applying to members below their scheme’s normal pension age.5

Viewpoint Issue 1 2024

•

Auto-enrolment changes enacted. On 18 September 2023, the Pensions (Extension of Automatic Enrolment) (No 2) Bill 2022-23 received Royal Assent, granting regulation-making powers to reduce the lower age threshold for auto-enrolment and reduce or repeal the lower end of the qualifying earnings band.

•

Pensions Regulator fines scheme for failing to publish required climate change report.

The scheme’s administrators had uploaded the report by the legislative deadline, but a faulty URL meant that the report was not published on a publicly available website until later. The Regulator highlighted that while administrators support schemes with their duties, the trustees are responsible for meeting the climate reporting requirements.6

PENSIONS OMBUDSMAN •

Pension Ombudsman’s ‘Pensions Dishonesty Unit’ in action. This specialist unit was launched last year. Recently, a trustee was found to have committed multiple breaches of trust and maladministration. The respondent sole trustee-director could neither rely on the scheme’s exoneration clause nor shelter behind the ‘corporate veil’ of the trustee company, being found to have acted

dishonestly. He was directed to pay £738,768.60 into the scheme and ordered, together with the administrator, to pay the members £6,000 each for the exceptional distress and inconvenience caused.

1. (Case C-256/01) 2. [2017] UKSC 47 3. (Case C-17/17), EU:C:2018:614 4. [2021] EWCA Civ 1093 5. DWP: The Pensions Act 2004 and the Equality Act 2010 (Amendment) (Equal Treatment by Occupational Pension Schemes) Regulations 2023 (19 September 2023) and DWP: The Pensions Act 2004 (Amendment) (Pension Protection Fund Compensation) Regulations 2023 (19 September 2023).

6. Pensions Regulator: First climate change reporting fine issued by TPR, as use of powers continues (28 September 2023).

For more information on Thomson Reuters’ Practical Law knowhow service for pensions professionals visit https://uk.practicallaw. thomsonreuters.com/Browse/ Home/Practice/Pensions or contact Editorial Director loreto.miranda@thomson reuters.com.

www.plsa.co.uk

THE ME BACK MBER PENS ING LIFETIIONS AND ASSOCIME SAVINGS ATION June 20

22

CYBE RISK R MADE SI MPLE

CYBERR

ISK MS

GUIDE

2022.in

dd 1

27/09/20

22 10:1 3

EXPLORE OUR MADE SIMPLE GUIDES Each guide is impartial and jargon free, and will help to enhance your pensions knowledge.

New members BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP Bernstein Litowitz Berger & Grossmann LLP prosecutes class and private actions on behalf of individual and institutional clients. Since our founding in 1983, we have obtained many of the largest monetary recoveries in history – over $40 billion on behalf of investors.

Working with our clients, we have also used the litigation process to achieve precedent-setting reforms which have increased market transparency, held wrongdoers accountable and improved corporate business practices in groundbreaking ways. BLB&G is widely recognized as a leading law firm worldwide advising institutional investors on issues related to corporate governance, shareholder rights, and securities litigation.

Contact: Geneviève Labbé E: genevieve@blbglaw.com

BIG SOCIETY CAPITAL Big Society Capital is the UK’s leading social impact investor. Our mission is to grow the amount of money invested in tackling social issues.

Since 2012, we have helped build a market that has directed more than £9 billion into social purpose organisations tackling issues spanning homelessness to mental health.

Part of our role is to work with pension funds to help them allocate to impact.

Many already allocate to private market impact opportunities largely driven by the diversification benefit – alongside the potential to create impact for the communities they serve.

We want to help more pension funds invest for impact.

Contact: Linda Carmody E: LCarmody@bigsocietycapital.com

38

Viewpoint Issue 1 2024

GCTRUSTEES gcTrustees prides itself as a leading industry-recognised provider of accredited pension trustee services dedicated to proactively utilising our decades of legal, trustee and problemsolving experience solely for the benefit of smaller schemes.

We partner with sponsoring employers and trustees alike to: • simplify complex issues, • ensure scheme providers offer value for money; and • improve member outcomes through improved governance, clear communications and ultimately by successfully insuring and winding up pension schemes.

If you would like to have a no obligation discussion to learn more about how we can help you please contact gcTrustees Director Suresh Bhatt, accredited member of the Association of Professional Pension Trustees.

Contact: Suresh Bhatt E: suresh.bhatt@gctrustees.com

KNADEL SOLUTIONS Knadel Solutions is a specialist consulting and software company. We advise pension schemes on the selection, management and oversight of suppliers to meet business, stakeholder and regulatory obligations.

Our team advise on supplier tendering, operating model design, development of robust processes and procedures and the deployment of technology.

In addition we can also give pension schemes access to our leading supplier management technology (SupplierVision) to ensure on-going best practice supplier management.

SupplierVision helps pension schemes manage supplier risks, automate tasks like supplier due diligence, monitor supplier service performance, track incidents, manage contracts and automate stakeholder reporting.

Contact: Dean Lumer E: dean.lumer@knadelsoftware.com

MONDRIAN INVESTMENT PARTNERS Mondrian Investment Partners manages assets on behalf of approximately 250 institutional clients worldwide in both equities and fixed income markets.

Founded in 1990, we have employed a rigorous fundamental research process that is the foundation of our success in managing investment portfolios across developed and emerging markets. All of our strategies utilise a defensive value discipline adapted to evolving market dynamics. Our investment strategies place an emphasis on capital preservation in difficult markets.

Contact: James Arnold E: james.arnold@mondrian.com

ODDO BHF ASSET MANAGEMENT ODDO BHF Asset Management is a leading independent European asset manager with EUR 57bn assets under management (end November 2023) over 20% of which we manage on behalf of pension schemes across Europe. A family-owned company with a culture driven by taking a long-term view and building long-lasting partnerships with our clients. Responsible investment is a business imperative making us more effective at finding sustainable opportunities and generates potentially better outcome for our clients across tailor-made solutions within Equities, Fixed Income, Asset Allocation, Thematic, Private Equity and Private Debt to institutional clients and distribution partners.

Contact: Joe Riddaway E: joe.riddaway@oddo-bhf.com

SPEAKERS INCLUDE:

PAUL JOHNSON

INVESTMENT CONFERENCE THE UK’S LARGEST EVENT FOCUSED ON PENSION FUND INVESTMENT

KELLY BEAVER MBE

TOBY NANGLE

27-29 FEBRUARY I EICC, EDINBURGH 2024 is set to be another year of huge change, challenge and opportunity for pension funds. At the first PLSA conference of the year, we will bring the full investment chain together to discuss the future of pensions investment in a programme rich with content, expert speakers and networking opportunities.

Discover cutting-edge solutions, influence the pensions conversation, and network with an elite cadre of pension funds at the PLSA Investment Conference 2024.

LYNDA GRATTON

FIND OUT MORE AND RESERVE YOUR PLACE AT PLSA.CO.UK/INVESTMENT-CONFERENCE

Viewpoint Issue 1 2024

39

Powering a Sustainable Future Our objective is to contribute to the decarbonisation of the energy sector whilst continuing to deliver sector leading returns for our investors. In doing so we have attracted over £1 billion into our renewable investment strategies since our inception in 2009.

Our investment team is supported by the wealth of wide-ranging talent across the Bluefield Group, from investment professionals to technical engineers and asset managers. This expertise enables us to effectively enhance each asset across its full life cycle.

This communication is not intended for retail investors and is not an offer or solicitation to buy or sell any securities or an inducement to enter into any contract or commitment or investment whatsoever in relation to any securities. No part of this communication is intended to be, and should not be construed as, investment, financial, legal, tax or other advice, and is not a recommendation, endorsement or representation as to the suitability of any investment, fund or any other financial product.

Issued in the UK by Bluefield Partners LLP (Bluefield or the Investment Adviser), which is authorised and regulated by the Financial Conduct Authority (the FCA) in the United Kingdom with FCA Firm Reference Number 507508. Bluefield is a Limited Liability Partnership registered in England and Wales with registered company number OC348071. Bluefield’s Issue 1 2024 registeredViewpoint office address is 40 Queen Anne Street, London, W1G 9EL and its VAT registration number is GB 157803494.

40