Russell WrightSenior Vice PresidentDefined Contribution
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You’ve probably seen articles saying 2023 will see a “step change” or even a “new era” for DC pensions - but let’s face it, it probably won’t (and I’m an optimist!).
A new era in DC would see some of the really pressing issues – like automatic enrolment reforms for those on low pay, redesigning the pension tax system to really incentivise retirement saving and launching consumer-facing pension dashboards – taking centre stage.
But we’re in a cost-of-living crisis. So pensions have moved to stage left and, understandably, aren’t getting the attention they need and deserve. There are, however, some important changes in DC expected this year. Let’s dive into a few of them.
A (not so) new era?
Mega trends impacting on DC Some of societies biggest trends are going to keep us on our DC toes this year.
Front of mind is retirement planning, where we’ve seen a continued shift in responsibility from the government and employers to the individual. Automatic enrolment, the 2015 pension freedoms and the decline of DB pensions have been embodiments of this trend. Coupled with increasing life expectancies and turbulent financial markets, it’s a challenging environment for people in the UK and globally. While circumstances will be different across geographies, we’re all facing similar issues.
It all comes home to roost when people need to access their pensions. The FCA tracks the number of pension plans accessed for the first time, and this increased by 18% to over 705,000 in the 12 months leading to March 2022.
With pressures on living expenses and more people with DC pensions coming up to retirement age, we could hit the 1 million mark in 2023. Keep an eye out for our new publication (The Future of Retirement Income) which we’ll be launching later on in Q1 – it’s focused on the UK’s retirement income challenge and some of the ways the industry is looking to address them.
Regs and legsWe know there are some important regulatory and legislative developments coming our way in 2023.
Some favourites include:
The recently launched consultation outlining the FCA, TPR and DWP’s joined-up approach to value for money (or is it value for members – it would be nice if we could agree on the terminology at least!). The proposed metrics and disclosures in relation to investment performance, costs and charges and quality of service all signal a clear shift in focus from purely cost to a holistic assessment of value for money. We’re excited this could make like-for-like comparisons across contract-based and trust-based pensions easier, and hopefully help to improve the value for money members receive in the long term.
The Financial Services and Markets Bill could help address the advice/guidance gap. This is essential with an aging and more DC-orientated population, with most people unlikely to be commercially attractive prospects for traditional IFAs. On the topic of advice, the FCA have also launched a thematic review of the retirement income advice market. Look out for their findings towards the end of 2023.
The implementation of the FCA’s new Consumer Duty. This will highlight an increased focus on how FCA-regulated firms measure whether they’re having a positive impact on people’s financial outcomes. This will impact members of trust-based pension schemes even if the trustees aren’t regulated by the FCA.
New rules are due to go live in the spring that will require schemes to disclose and explain their policy on illiquid investment and will remove specified performance fees from the charge cap. The government hopes this will encourage investment that supports the transition to net zero and helps stimulate economic growth.
Plus there are consultations on addressing the challenge of deferred small pots and expanding Collective Defined Contribution beyond just a single employer scheme.
Sorry to disappoint anyone who was hoping for a shiny new era in DC pensions in 2023. The current landscape is looking particularly testing as people try to balance present challenges with future ones, but there are still lots of exciting developments that could benefit members coming this year. And I’ll be delighted if I’m proven wrong and the new era dawns before we reach 2024!