The looming DB skills gap: What can be done to slow the brain drain?

Earlier this week, Trafalgar House urged the pensions industry to make greater efforts to attract a new generation of industry advisers to the DB sector.

As dynamic developments such as auto-enrolment and freedom and choice give defined contribution a competitive advantage in the job market, fewer new advisers are likely to opt for a career in a comparatively torpid sector.

With the potential skills gap and the challenges of attracting talent, it is important to be aware that trusteeship can be cost effective at filling that gap

Roger Cooper, Pi Pension Trustees

Trafalgar House cautioned that even though most DB schemes are winding down they still need expertise to help them with outstanding challenges, which the current generation of advisers will not have time to solve before retiring.

The statement follows a survey conducted by the Pensions Management Institute that showed that while “the fall in the number of staff working in DB is not at a critical stage just yet, the trend is most certainly downward”.

The administration specialist concluded: “We would urge the industry to act before it is too late.”

A more balanced view of the future

Garry Wake, managing director at Trafalgar House, said its warning is about advice providers “having an appreciation that 80 per cent of UK pension schemes are still DB or have a DB element”, and must be catered to even as most are closing to accrual.

“A more balanced view about where the future lies” is essential, he said.

“DC is definitely the direction of travel,” he conceded, but there is still a burden on providers to encourage new staff to take examinations specifically in DB administration, as it is a more technically complex and specialised sector than DC.

A harder challenge to overcome than that of inexperience will be encouraging advisers already experienced in DB to stay in the field, as most feel that it is “an old horse that has already run”, Wake said.

He emphasised that it is trustees who must ensure their scheme has the right service provider, one that is “well-skilled in DB administration complexities”.

To mitigate the outflow of expertise and attract talent, he advised, trustees should offer more training and “be realistic about what individual advisers can achieve”, providing support networks for new advisers.

“I would call on trustees to be really comfortable with their service providers, whether this is a consultancy they are paying or an in-house team, and making sure they’re fit for purpose,” Wake said.

Not pulling out, but losing interest

Roger Cooper, head of trusteeship at Pi Pension Trustees, said that while DB in particular faces an expertise outflow, all trustee boards in both DB and DC schemes should be thinking about their succession planning, since they are all ageing.

“We are seeing some in the provider market investing more in DC; they are not pulling out [of DB], but their attention is elsewhere,” he said.

Cooper remarked that there is an increasing outflow of experienced trustees as well as of advisers. “There has been the start of a loss of experienced lay trustees,” he said.

Cooper pointed to specific areas in which DB schemes will need advisory assistance as they wind down. Trustees are making sure “they start with good-quality data, and that their investment strategy is in line with that”. Also, they are preparing, where possible, for buyouts, he said.

“With the potential skills gap and the challenges of attracting talent, it is important to be aware that trusteeship can be cost effective at filling that gap,” if it is provided in a transparent way, said Cooper.

As such, it would be very helpful if the regulator improved its oversight of how trustees operate, to help plug or prevent knowledge gaps within the industry.

Transferable skills will benefit all 

David Rae, head of client strategy and research at consultancy Russell Investments, said the outflow of existing talent “is not highly apparent at this point, as there is a recognition that DB will remain an important part of the landscape”. The challenges of recent market events have only highlighted this, he added.

He pointed out that the same changes that make the DC sector dynamic act as “a barrier to entry” into it by creating uncertainty through frequent changes, further stemming the skills outflow.

Moreover, this movement might have its benefits. DB and DC ultimately face many of the same investment challenges, he explained, so while DB advisers are moving increasingly into DC, there is also a reverse flow. “The industry will benefit from transferable skills being applied to both arenas,” he said.

He lauded DB trustees for having “become more discerning in the advice they’re taking”, seeking out more specialist skills tailored to their evolving needs.