The Pensions Regulator has said savers must be supported during current economic volatility amid concerns the value of some defined contribution pots has fallen.
In a guidance statement published on January 12, TPR said that while those who are early in their saving journey can take a longer-term view on their investments, savers who are close to retirement could be impacted, depending on the investment strategy of their scheme.
The watchdog set out how trustees should communicate with savers to help them understand what a fall in their DC pension value means for them, depending on their personal circumstances, and to avoid making hasty decisions that could lead to risks such as being scammed.
The guidance also explains how trustees should strengthen the governance and oversight of DC schemes and ensure their investment strategies support stronger saver outcomes.
We are speaking to trustees and their advisers about how schemes are responding to current market volatility, as well as industry representative bodies, including how they can support savers through this period
David Fairs, TPR
David Fairs, TPR executive director of regulatory policy, analysis and advice, noted the current economic environment introduces new challenges for DC trustees.
He explained that pensions are a long-term investment and so, for many DC savers, any losses caused by current challenges can be corrected. However, for those nearing retirement the impact could be more significant.
Trustees urged to act now
“Now is the time for trustees to act,” he said. “Our guidance statement aims to ensure trustees are communicating properly with savers about their options, and to encourage them to seek free impartial guidance from MoneyHelper, and to ensure their current governance and investment structures are appropriate.
“There is no one-size-fits-all answer in these difficult times, and scheme-specific circumstances are important.”
The regulator said savers in so-called ‘lifestyle’ funds need to understand whether the strategy they are in, as they approach retirement, is consistent with their plans on how they intend to access their retirement benefits.
Fairs said it expects all trustees to consider the issues raised in the statement and take appropriate action as part of their ongoing governance responsibilities.
“We continue to monitor the situation in financial markets closely to assess the impact on both defined benefit and defined contribution schemes,” he said.
“We are speaking to trustees and their advisers about how schemes are responding to current market volatility, as well as industry representative bodies, including how they can support savers through this period,” he added.
Communication is vital
The guidance statement reminded trustees they should be reviewing governance structures, investment advisers’ remits, the characteristics of their scheme’s saver profiles and their scheme’s investment arrangements and implementation.
Minister for pensions Laura Trott said: “It’s essential that people have the support and information they need to make informed choices about their financial futures, particularly in challenging economic circumstances, so I welcome TPR’s guidance statement.
“I’d also encourage all savers to take advantage of the free and impartial guidance available via MoneyHelper and Pension Wise, especially those approaching retirement.”
Carolyn Jones, head of money and pensions guidance at the Money and Pensions Service, said TPR’s “timely and welcome statement” will provide crucial guidance during these challenging times.
“Pensions can be complex and the decisions people make can have long-term effects, so it’s important for them to seek help before rushing into anything, no matter how large or small their pension pot is,” she said.
Inflation drives 18% surge to ‘minimum’ cost of retirement
Retirees trying to achieve a basic standard of living will have seen their expenditure increase over the past year by almost 20 per cent due to high inflation, according to the Pensions and Lifetime Savings Association’s retirement living standards.
The regulator’s guidance follows the update of the Pensions and Lifetime Savings Association’s retirement living standards, which revealed that retirees trying to achieve a basic standard of living saw their expenditure increase by almost 20 per cent in 2022 due to high inflation.
PLSA deputy director of policy Joe Dabrowski noted the past year has been an enormously challenging one for many households in the UK, given the rise in inflation levels and the continued increase to the cost of living.
“The launch of this guidance by TPR is both extremely helpful and timely. We’d urge schemes to take note of this important document and engage with it for the benefit of savers,” he said.
