Freedoms still have industry in their grip: Top DC stories from 2017

As policymakers engaged in battle over the effects of freedom and choice, some DC schemes were still adjusting their default options to the freedoms, three years after they were first announced.

The effects of the policy could not be ignored last year, with many savers making seemingly irrational retirement choices, and a study showing those who had bought an annuity were most likely to regret their retirement decision.

More worryingly, an economic downturn after Brexit could mean more people taking their pensions early, warned Gina Miller, the banker known for challenging the government in court over its right to trigger Article 50.

LafargeHolcim reconstructs DC scheme

January 16

The trustees of the £54.1m DC section of the Lafarge UK Pension Plan decided to make a number of changes “to improve good value” for members following a review.

This involved a change to the default fund. The new default lifestyle option has a lower level of risk in the growth phase and focuses on providing cash lump sums upon retirement.  

Two more lifestyle strategies are being introduced for members who wish to use income drawdown or purchase annuities. The new options will replace the default annuity lifestyle and annuity and cash lifestyle currently offered.

Chris Roberts, professional trustee at Dalriada Trustees, said one of the most difficult aspects is “defining what value for money is”.

Roberts emphasised the importance of being thorough. “If you’re not going to do a value-for-money review right, don’t do one.”

Annuity purchasers regret decision as confusion remains rife

April 26

Most DC savers are happy with the retirement choices they have made, with the exception of those who have purchased an annuity, a survey by mastertrust The People’s Pension and investment manager State Street Global Advisors found in April.

The longitudinal study showed that 19 out of 30 people who had accessed part or all of their pension were either “happy” or “very happy” with the decision they had made.

But the study found that many annuity purchasers were questioning whether they could have received more money if they had waited longer, or whether the inflexibility of the annuity is really right for them.

Kate Smith, head of pensions at provider Aegon, said people's regrets over choosing an annuity were to be expected as they now understand the flexibility available.

Given that the proposals for a secondary annuity market were scrapped last year, “they’ve got that annuity for the rest of their lives, whether they want it or not”, she said.

Bayer latest to move to mastertrust

August 14

Pharmaceutical company Bayer closed the DC section of its pension plan in June and transferred members to a mastertrust, a move experts say has become increasingly common in recent years.

Affected employees were offered the opportunity to contribute to a new mastertrust arrangement, to which their retirement accounts were transferred.

Mark Harvey, human resources business partner at Bayer, said the company wanted to give members access to the pension freedoms that came into force from April 2015.

Bayer also said it gave employees a wider range of funds in which to invest, and “lower management charges for the default investment strategy and competitive charges overall”.

An internal Bayer governance committee was established to monitor the operation and performance of the new mastertrust.

Lee Hollingworth, head of DC consulting at Hymans Robertson, said that while moving to a mastertrust is not a new concept, “it has been an increasing trend, particularly over the last 12 to 18 months”.

Orchestra votes for lower pay rise to up pensions

October 9

In March, members of the Royal Opera House orchestra voted in favour of taking a lower pay rise to fund an improved pension scheme for new and future members. The move could be seen as a positive example of intergenerational fairness in an economy often described as heavily skewed towards baby boomers and against millennials.

Four years ago, the ROH had introduced a new scheme with lower contributions, citing increased pension costs.

Having previously had pay rises of 2 per cent, in March 2017 members of the Musicians’ Union voted in favour of helping to fund an improved pension scheme by taking a 0.5 per cent lower pay rise than other ROH staff.

This, it said, will enable the ROH to boost pension contributions for new members from a maximum of 4 per cent to 8.5 per cent.

Stephen Scholefield, partner at law firm Pinsent Masons, called the decision “a fantastic example” of positive engagement.

Gina Miller: Brexit could change retirement attitudes

November 17

Economic turmoil induced by the UK’s exit from the EU might tempt savers to draw from their retirement pots sooner, said Gina Miller, founding partner at wealth manager SCM Direct.

The auto-enrolment policy, hailed as a success by the government, is potentially under threat from Brexit-induced inflation, according to Miller.

In the event of a downturn, “you’d have more and more employees who’d be saying, ‘Can we really afford to opt in, when there’s a spike on the impact of how much we’re taking home, and our expenses?’,” she said.

Lower incomes and redundancies brought about by Brexit could lead to savers making greater use of their pension freedoms. “Rising prices could actually see more and more people in retirement drawing down,” she predicted.

Steve Webb, director of policy at provider Royal London and former pensions minister, said if Brexit damages the economy it would be more likely that policymakers keep interest rates lower for longer.

“That feels to me a much, much bigger impact on pensions,” he said.