Pensions: October Monthly Overview

By Sara Neidle

A liquidity crisis. A new Prime Minister and Chancellor. A cost-of-living crisis. After a whirlwind of economic and political activity taking place last month, pension scheme trustees continued to have a lot on their hands.

With the fall in the price of gilts (which remain subject to high levels of market volatility), as well as Liability Driven Investment (LDIs) investment strategies being heavily scrutinised, the pressure placed on trustees is currently very high. Many schemes have had to dramatically alter their portfolios to ensure appropriate levels of liquidity and have subsequently had to rethink their investment strategies. This, in turn, has presented some major communication challenges – the most important of which, is to reassure their members that their pension scheme remains secure and that their benefits will be paid in full. At the same time, those in the pensions industry will want to avoid becoming the centre of attention during a period of sensationalist reporting by sections of the media and where the market and regulatory issues have become a ‘political football’ for policymakers.

The political and media scrutiny is likely to continue in the coming weeks and months. One example of this is the Work and Pensions Select Committee recently launched an inquiry into the regulation and governance of defined benefit pension schemes with liability-driven investments (LDIs). Given the high-profile nature of this, pension trustees should be prepared for the risk that they will be called to give evidence. If it is something that’s not on your agenda, then Trustees should be prepared, especially those that were affected by recent events.

If there was a time when communication was key, it is this moment. Communication is at the heart of member engagement. Several Schemes were first out of the blocks to provide a statement on their website to explain the current situation with pension gilts as well as reassure members about their benefits. In situations such as the most recent crisis, Trustees must be one step ahead of the game when communicating with members as well as other key stakeholders.

In negotiating these challenges, it is impossible to ignore the political dimension. The sheer level of political change in the past month has been immense. It was, of course, the infamous ‘mini budget’ in late September (less than six weeks ago) that sparked much of the market volatility in UK government debt. Since then, we have had a major intervention by the Bank of England, which then ended. A new Chancellor. An almost complete reversal of the measures in the mini budget – and finally, a new prime minister. Rishi Sunak has a lot of work to do to restore economic confidence, although his arrival and Jeremy Hunt’s initial acts as Chancellor seem to have gone a long way in settling markets. Sunak and Hunt will want to ensure that the upcoming Autumn Statement, scheduled for 17 November, will demonstrate the government’s commitment to fiscal responsibility as well as provide an opportunity to set out their broader economic agenda.

Other key developments following Sunak’s arrival in Number 10 include the appointment of Sunak-ally Mel Stride as Secretary of State for Work and Pensions. Stride had previously served as a Treasury Minister and Chair of the Treasury Select Committee and shown a key interest in ESG issues. Long-serving pensions minister Guy Opperman has also returned to his role in the Department for Work and Pensions, suggesting that there will be a degree of continuity in government pensions policy.

Now turning our attention to Pensions Awareness Week. Now in its 9th year, it provides an opportunity to talk about pensions, gain a greater understanding of managing your finances, ask questions about how much you should be contributing to your pension, and much more.

It’s unsurprising given recent events in the pension world and the continued pressures of the cost of living, which is resulting in people putting off their pension. Data from the Department for Work and Pensions (DWP) showed that 10.4% of newly enrolled employees opted out of their workplace pension provisions in August 2022, up from 7.6% in January 2020. Given this concern, the Pensions and Lifetime Savings Association (PLSA) has called on the government to reform the UK pension system due to concerns that more than 50% of savers will fail to meet pension saving targets set by the Pensions Commission in 2005.

If there’s a time to educate the nation, it’s now!

And maybe there’s still hope that pensions will be easier and more likeable. The pensions dashboard is getting closer (at long last). Regulations to enable millions of UK savers to access their pension information at the touch of a button have been put to parliament. This will be hugely valuable to consumers who for the first time will be able to access their pensions all in one place. The regulator's latest policy statement on its final dashboard rules and guidance for providers said that most pension firms will need to have data ready for the dashboards by 31 August 2023. A ground-breaking moment in the pensions world.

If you would like any specific communications advice relating to any of these issues, do get in touch.