Pensions: January Monthly Overview

By Gareth Jones

The prospect of a recession still is very much alive with the International Monetary Fund (IMF), reporting that Britain will be the only leading economy likely to slide into recession this year. Schemes are still suffering following the liability driven investing (LDI) crisis and the BoE has raised interest rates to 4%, the highest in 14 years. Although, on the positive side, the global economic outlook appears to slightly more promising that forecasters were predicting a few months ago.

Last week, we saw a series of announcements taking place in pensions which will add further to the long list of things for Trustees to think about. On Wednesday, it was reported to the House of Commons work and pensions select committee that as much as £4bn of losses from the LDI strategies to UK pension schemes resulted from the forced selling of gilts back in September. We’ll await measures set by the BoE next month as to next steps. This should be top-of-mind for Trustees as more evidence and measure come to light.

Pensions Minister’s, Laura Trott announced a raft of new defined contribution (DC) measures to help close the pensions inequality gap, aiming to create "fairer, more predictable, and better-run pensions”. This included: extending collective defined contribution (CDC) to multi-employer schemes, a call for evidence on small pots solutions, as well as a consultation on proposals for a new value for money (VFM) framework.

The plans set to introduce value-for-money tests for pensions funds is said to raise disclosure standards, driving better outcomes for retirement savers and boosting economic growth. Laura Trott said: “The ‘value for money framework’ and our new measures will improve security and create better returns for savers, so they can enjoy the retirement they’ve worked so hard for.” It has been argued by some that it will involve a cultural shift given the focus on low charges rather than value and investment returns.

Research has suggested that a total value of lost pension pots has risen to £26.6bn in 2022. The consultation on small pots solution is to help counter this and establish a default consolidator model.

With ESG still very much high on the agenda, this month the UK’s long-awaited net zero review was published – named the “Skidmore Review” found that the UK is “falling behind” on many of its net zero targets, calling for a “new approach”. It stated that the UK’s leadership on the climate had been too “stop-start” and needed a more consistent and ambitious approach. The government will be looking to regain momentum on this topic, with the revised Green Finance Strategy set to be published in March, which will be of relevance to pension schemes and investors pursuing net zero strategies.