Pensions Expert 20th Anniversary: The future of pensions has never been less certain than it is today.
Interest rates remain low, leaving defined benefit schemes with gaping funding holes, and defined contribution retirees with rock-bottom annuity values.
The effect of the pension freedoms on those retiring solely on DC is still a major unknown; so is the impact the planned pensions dashboards will have on people’s saving behaviour.
With so many question marks, we are celebrating our 20th anniversary by looking ahead. Being prepared for tomorrow’s trials will be invaluable for schemes under pressure from every possible angle.
New challenges — and opportunities — appear almost daily. Schemes will have to look at constantly accelerating technological development. They face calls for greater trustee professionalism, and lately also proposals to consolidate, or at least collaborate.
While many savers value the pension freedoms given to them, others feel overwhelmed and might prefer defaults to take the burden of decision-making off them. We also often hear that savers are loss-averse and like the idea of guarantees.
A combined solution to all three seems to be gaining traction: control via drawdown, guarantee through a deferred annuity, and all that via default.
Collectivising longevity risk makes sense. Everyone knows life expectancy is impossible to predict with accuracy, yet people are required to ‘plan for retirement’ as though they could.
If further change does happen in this area, for schemes it would probably mean running another large-scale communications campaign.
But challenges can be opportunities, and pension schemes, being resilient institutions, will likely endeavour to seize them and manage to adapt; after all, they have been around for 427 years, and I have no doubt they can weather another 400.
For the past 20 of those years, trustees, scheme managers, consultants and many more have been readers of — and commentators for — Pensions Expert. I would like to thank you all for your interest and support, and look forward to informing you on whatever the future will hold for pensions.
