Trustees of occupational defined contribution pension schemes are increasingly failing to meet governance requirements due to excessive regulatory change, a panel of industry figures has said.
Industry jargon was also identified as posing a major challenge to the success of DC by speakers at the Barnett Waddingham event held in London this week.
If we don’t get some basic economics and money management into the curriculum we’re always going to be faced with this problem of people just not saving enough early enough
Julie Richards, Walgreens Boots Alliance
Illustrating the scale of the problem, Paul Leandro, the consultancy’s head of employee benefits in the north of England and Scotland, pointed out: “Fifty-five per cent of the members in trust-based schemes are in schemes which are failing, or not meeting the requirement around the core financial controls.”
He said that this, drawn from the Pensions Regulator’s DC survey earlier this year, was something of a “taboo subject” within the industry, and a growing problem.
“Poorly run schemes [have] a direct effect on member outcomes,” he said, adding: “We’ve seen some horror shows.”
The DC landscape has shifted significantly in the last decade. Auto-enrolment, the decline of defined benefit and the introduction of freedom and choice have all contributed to mounting pressure on trustees.
“We’ve had too much change put on to us as an industry,” said Chris Parrott, head of pensions at Heathrow Airport Holdings. “In the last three years there have been just shy of 70 consultations and calls for evidence for pensions. Now to the outside world, that may feel that we’re an industry in turmoil.”
Pensions jargon-busting
Sustained regulatory change can make it difficult for less engaged members to understand their savings, but experts also suggested that the industry’s reliance on jargon would put people off pensions.
“Why on earth have we ended up with a scenario where we use words like accumulation and decumulation [and] UFPLS?” asked Parrott, calling for simplicity in member communications.
But he also lamented a wider shift away from saving in society as a whole, commenting: “I think the big issue is saving versus instant gratification.”
Julie Richards, group director of pensions at pharmacy conglomerate Walgreens Boots Alliance, agreed that a culture of long-term saving can only be encouraged using clear language, free from jargon.
“If we’re going to get a sustainable savings culture we need to get away from some of those words,” she said.
More calls for education as lump sum figures raise questions
Pensions education and default funds must be improved to ensure the success of auto-enrolment, experts have said, as findings raise questions about the risks members are taking.
Commenting on freedom and choice and the Lisa, she said: “We talk about these but we don’t really explain what they mean to individuals.”
Despite this, she added that the Department for Education also has a role to play in ensuring that adults have adequate financial education to engage with any form of saving.
“If we don’t get some basic economics and money management into the curriculum we’re always going to be faced with this problem of people just not saving enough early enough."
