The view from Pensions Awareness Day

By Joe Cockerline, Professional and Financial Services

Today is the UK’s annual call to pensions awareness – a rallying call to pension savers to encourage them to engage with their schemes and actively take stock of their retirement planning. The persistent issue of low engagement with pensions and generally low levels of financial capability and wellbeing certainly isn’t a problem unique to the UK, but the challenge of solving that problem is one that’s baffled consecutive governments and organisations within both the public and private sector. Any initiative aimed to drive awareness of the importance of pensions and pension saving should be welcomed. 

In the current climate, the pensions sector faces a range of challenges on a perhaps unprecedented scale. The COVID-19 pandemic and subsequent economic fallout is starting to truly manifest itself for working families across the UK. With unemployment on the rise, persistently low interest rates and increased pressure on household spending, the sector faces a potential ticking time bomb as thousands of people increasingly run the risk of disengaging with savings behaviour, only to find their eventual retirement catastrophically underfunded. 

Of course, the risks don’t stop there – regulatory change and legislative reform creates increased uncertainty in an already uncertain climate. Pension schemes, by definition, are long-term in their outlook – so what are the key issues facing the industry in the next 12 months? 

A protracted COVID-19 outbreak

COVID continues to dominate the news agenda and with a resurgence in cases across many nations, it’s increasingly apparent that a true shift back to “normal” may only fully manifest upon the widespread availability of a working vaccine. Until then, COVID-19 looks set to continue to disrupt our personal and professional lives. As mentioned, the pandemic’s impact on individuals’ financial wellbeing has been significant. 

Perhaps most pertinent, including for those who remain in stable employment and therefore able to keep up their pension contributions, is the practical difficulties imposed by the pandemic. The pandemic has effectively stymied savers’ ability to plan for the long term, directly or indirectly impacting the retirement planning of thousands of savers who were approaching retirement age. For those with plans to retire to the countryside or abroad, or drawdown their pension for that once-in-a-lifetime purchase, there’s every chance that COVID has put their plans on hold. 

And that’s without mentioning the impact of COVID on the assets that underpin sustained pension growth. Numerous asset classes have been hit hard by COVID and with no predictable end to the volatility, the virus remains a key challenge. 

Regulation and reform

Within the UK pension space, a raft of regulatory reform is slated in the coming year, which stands to fundamentally alter the face of the industry. The much-mooted Pension Schemes Bill, the flagship piece of legislation under the current government which aims to enshrine schemes’ responsibility to account for climate change, as well as granting adjusted powers to The Pension Regulator and implementing legislation around the pension dashboard is arguably the most significant regulatory change. However, significant ongoing consultations around the role of ESG and the value that small schemes deliver to members (including potentially compelling smaller schemes to shut shop if they don’t deliver appropriate value) also stand to change the industry. As ever, keeping on top of regulatory and legislative change is imperative. 

ESG is here to stay

While ESG has been a hot topic within the industry for a number of years, the importance of the issue is now also beginning to draw attention in the consciousness of the mainstream public. With even the likes of Gary Lineker now questioning the ethical and environmental credentials of pension investments, it seems inevitable that more savers will begin to question how their pension is invested. Increased engagement with this issue is a true positive for the industry, but providers whose ESG credentials are lacking risk being shown up and left behind by competitors with more developed offerings. Indeed, the rise of activist investors showcases the fact that paying lip-service to ESG is simply not an option – those who “talk the talk” but fail to “walk that walk” risk being lampooned by disillusioned investors, with all the reputational damage that entails – particularly with renewed focus on the “S” of ESG and the potential role pension schemes have in facilitating a post-COVID 

At the core – effective communication

As ever, the industry need not be a passive participant in these rapidly-shifting developments. Central to effective management of these potential challenges is appropriate and clear communication – whether that be to the industry, the regulator, government or individual savers. The pension industry faces perennial criticism for being perceived to be obtuse or complex – and while significant inroads have been made in making pensions more accessible in recent years, the sector still has a mountain to climb in being perceived as genuinely “open”. Inherent in all the above issues is a demand on the wider industry to outline the steps being taken to handle COVID volatility, adjust to regulatory change, implement investment strategies with genuine ESG considerations and other issues besides. The sector faces choppy waters – the winners in the next 12 months will be those that speak clearly and consistently to their audience. Now more than ever, the world watches.