With the scope of reforms to the pensions industry becoming apparent, John Flynn of the Association of Member-Nominated Trustees (AMNT) sets out some key priorities for his organisation and policymakers.
Sometimes it feels as if we are only just getting to grips with the 2020s, and yet already the 2030s are becoming our focus.
There is so much activity. We have environmental, social and governance (ESG) issues to iron out, a Pension Schemes Bill going through parliament, proposals about targeted support from the Financial Conduct Authority (FCA) and, of course, the Pensions Commission.
What will this bring for pension scheme members and trustees? Allow me to dig a little further into some of these issues.
ESG and responsible investing
The focus on responsible investing in the UK seems to be strong, not least because we can see so much systemic risk to portfolios.
However, we are struggling with simplistic ESG scoring data and over-burdensome TCFD reporting, which makes it difficult for trustees to hold the strategic discussions that would help us to address those systemic risks and sustainability.
For the next decade, please can we have some internationally recognised indices and less compliance reporting to enable us to take action, not simply handle data?
Address pension adequacy now
The current Pension Schemes Bill has many aspects that everyone would applaud: value for money, legislation on small pension pots, multi-employer collective defined contribution (CDC) schemes, defined benefit surplus release, and more.
However, the sad part about the current Pensions Schemes Bill is the issues that are missing.
Adequacy for pensioners is required now, not in some far-off year, yet to be determined.
As an important first step, adding pre-1997 inflation increases to all pension schemes – as well as the Pension Protection Fund – through this bill would make a real difference to those remaining, poorly treated, pensioners. These should be the very first beneficiaries of any surpluses.
The bill also does not address a key issue that can affect how surpluses are distributed. If sponsors hold the power to block any discretionary trustee proposals, will they also block any sharing of surplus with members? This could be an issue, however well-crafted the bill may be to ensure that trustees’ consent is needed before surplus distribution to sponsors.
Supporting the Pensions Commissions, past and present
The government revived the Pensions Commission in July to address pension under-saving, with a final report expected in 2027.
The new commission aims to ensure future pensioners have adequate and fair retirement incomes, addressing issues such as low savings rates, the large number of self-employed people not saving, and inequalities. It builds on the work of the original 2004 Turner Commission, which introduced automatic enrolment. We wish them well with this difficult task.
The AMNT continues to support the findings of the 2004 Turner Commission, which concluded that people on an ‘average’ income would need the equivalent of two-thirds of their pay as a pension to enjoy a comfortable retirement. We are calling on the current Pensions Commission to set this as a benchmark for the future. It is a sad fact that millions of workers will not achieve this level.
Additionally, society has changed since the 2004 commission reported. We remind the current commissioners that the figure of two-thirds is based upon a society in which most people own their homes. As ‘generation rent’ begins to reach retirement age in the next 30 years, then even two-thirds may not be sufficient to keep that generation’s elderly out of a diminished retirement.
Any projections given for required savings rates or minimum standards in the future should bear in mind this fundamental generational change.
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It is now widely recognised that savers in whole-of-life CDC schemes could retire with a pension 30%-50% bigger than those in individual DC schemes for the same contributions. Legislating for multi-employer CDC schemes could therefore be a good starting point.
So much to be done and so little time to do it if we are to help tomorrow’s retirees avoid substantially worse outcomes than today’s pensioners.
The case for independent, member-focused trustees has never been stronger. AMNT will continue to fight for members’ interests now and well into the future – whatever that might look like.
John Flynn is co-chair of the Association of Member Nominated Trustees.
