Complexity in pension governance expected to increase, despite concerns around member outcomes

 

19th January, 2016 — The majority of pensions managers (61%) do not agree that changes in governance over the last five years have improved member outcomes, according to new research released today by LifeSight, Willis Towers Watson’s UK DC master trust. The research, which asked pensions managers and trustees for their predictions around the future of DC Governance, shows that 94% believe that compliance requirements around governing DC plans will increase in the next decade and 96% believe that complexity will increase for members.

Regulatory change was the major concern for respondents, with over half (53%) citing legislation and regulation as the main barrier to better governance. In light of this over three-quarters (79%) of those representing trust-based pension plans see their own type of schemes becoming less prevalent in the next 10 years. In their place, a similar proportion (74%) predict the number of master trust schemes will increase.

Fiona Matthews, Managing Director of LifeSight, comments: “These findings suggest that despite members increasingly wanting to see more of a focus on the quality of their retirement, governance is still very much directed at compliance and managing risks. Across the industry, we need to help pension managers and trustees to navigate the increasing complexity so that good governance leads to good member outcomes. What remains to be seen is whether schemes will be able to do so when there are so many other obligations and requirements to be addressed with limited resources.”

The research also revealed that just 8% of respondents are targeting drawdown as their default investment strategy, despite its popularity with members. Instead, over a third (35%) still target annuities as the primary focus of their investment strategy even though over half (53%) of those surveyed feel members needs have dramatically changed as a result of the pension freedoms.

Matthews continues: “Going forward, as master trusts become more prevalent, the onus will be on pension providers to use personalised and interactive communications to engage members in their pension, and provide readily accessible support that members desperately need. To do this effectively schemes must move beyond the burdens of compliance and admin and direct their focus on improving member outcomes, communicating and demystifying complex issues and helping members better understand the choices that they’re making.”

Looking ahead, pension schemes plan to move towards a more strategic model, by prioritising their activity on monitoring members’ behaviour and helping them at retirement. Over two-thirds (68%) would like to prioritise helping members at retirement in the future, but currently only 17% are able to manage it. Similarly, a third (31%) would like to spend more time monitoring member behaviour in the future but only a handful (3%) do so now. In addition, over half (55%) said they would like to spend less time on compliance and a third (34%) would like to reduce the time spent on administration.

 

Leave a comment:

Your email address will not be published.
Required fields are marked *