For the purpose of this article – I will refer to some savers as our “children“, those under our care who have suffered loss while sleeping.
They are the unwitting victims in the collapse in bond markets , including the collapse in value of long-dated and index-linked gilts which a major feature of the lifestyle/path funds selected for them as part of the pension scheme’s “default fund”.
Who and where are the children?
The problem is that the Pensions Regulator has no idea who has been impacted by the toxic versions of lifestyle. The same can be said for the FCA whose problem is the workplace pensions – including legacy stakeholder and group personal pensions that may not have been reviewed for decades.
The trustees of occupational schemes and the IGCs and the GAAs of insurance companies offering workplace pensions or just investment pathways, are tasked with maximising value for members and have a duty to their consumers to explain not just what has gone right, but what has gone wrong.
Right now, we have no idea what has gone wrong. We can see that much value could be lost if a lifestyle strategy opted to protect savers from annuity fluctuations rather than loss of capital
We know that insurers are aware of the need to get savers out of unsuitable gilt based defaults
But we don’t know whether good intentions have transferred into good practice. In short we don’t know how many DC savers have been left behind.
It is not enough for TPR to issue guidance on this matter, it must call on occupational schemes to confirm how their default strategies (whether current or legacy) are invested and how those strategies have protected members over the period of the current economic crisis.
This is not as hard as it seems, using relatively simple analysis of member data – it is possible to see how members in scheme specific default funds have fared over the past eighteen months and identify if a problem exists within the default savings vehicle. Savers who have self-selected funds can be excluded from this analysis.
Such analysis of member data , compares favourably to the creation of net performance tables – which for lifestyle strategies is very hard to do and easy to fudge. Analysis of this kind of problem starts with assessing outcomes and identifying outcomes from the changes in pot values (NAVs).
The Pensions Regulator need not publish the results but it should be able to see where problems are and which schemes need to be focussed on. Where substantial losses have been incurred by savers close to retirement, then members need to know and understand what has happened.
It is not good enough to sweep the problem under the carpet, that is a bad way to get rid of risk. Relying on the problem to go away over time doesn’t work when millions of savers will be crystallising pots in the coming years. People need to understand what has happened and prepare for the consequence.
“How do we tell the children?”
The awkward conversation between trustees and members who have found themselves defaulted into disastrous investment strategies is not one being modelled by our communication consultancies. But this is precisely why we need good communications – not as scheme PR but as a means to tell members what has happened and what is being done.
I am aware that there are consequences of transparency and they may include members considering taking action against trustees. I cannot pretend there is not a risk that this might happen. Where there has been negligence, then those who have entrusted their money and been let down, may take action. That is why trustees need PI insurance, no pension trustee (unless they are criminal) sets out to damage their member’s pensions, but sometimes they do – and sometimes they need to be accountable.
It’s tough but “telling the children” is what guardians sometimes have to do. And of course people close to retirement need to be treated not as children but as mature workers.
Precisely the same thing needs to be happening with IGCs and GAAs who should be calling for information across the insured books they look after, identifying areas where savers have been left behind in less modern strategies that don’t reflect how savers take their benefits.