Is the pensions sector straining under the weight of rapid pensions changes?
Pensions analysis: How is the pension sector coping with current regulatory changes? Terry Saeedi, pensions partner at Gordons LLP, looks at the issues and considers how to avoid a possible capacity crunch.
New member research from the National Association of Pension Funds (NAPF) reveals that 81% of respondents, across both business and pension scheme members, agree that the volume of change expected by the sector in the next 12 months will adversely affect the level of service they are able to provide.
What are NAPF’s concerns?
According to a survey of NAPF members, trustees of pension schemes, scheme advisors and the schemes’ sponsoring employers are concerned at the continuing high levels of regulatory change which may reduce their ability to provide optimal services to members.
The issue which is of greatest concern for both those involved with pension schemes and the schemes’ sponsoring employers is the abolition of contracting-out. Other areas of concern include:
- the implementation of automatic enrolment and schemes
- issues concerning the administration of pensions tax relief
- adherence to the Pensions Regulator’s code on defined benefit (DB) scheme funding
- adherence to the Pensions Regulators new defined contribution (DC) code on governance
- implementation of the new definition of money purchase benefits, and
- dealing with pension liberation requests
NAPF comments that pension schemes and employers have worked hard to shape and deliver effective pension reforms that have brought positive results for pension savers. However, it is concerned that while the ambition behind the changes is laudable, the very short timescales for implementation means there is a risk that the best outcomes for workers and savers may not be delivered.
How could these issues best be dealt with?
There is not a one size fits all solution for dealing with these issues. The key for both schemes and employers is to understand which changes apply to them and from when—not all the changes apply to all schemes. Schemes and employers can then put a compliance action plan in place.
Is there anything lawyers should do in preparation for or to avoid a possible capacity crunch?
Pension schemes and employers draw on the advice of many different professionals to ensure that schemes are properly run. Lawyers should be able to identify which of their clients will be affected by which change and from when. They should then be able to work with the client and other relevant advisers to advise on what should be done from a legal point of view to ensure compliance.
What are your predictions for the future in this sector?
The key challenge for the government is to ensure, at a time of increasing longevity and continuing economic difficulty, that people have appropriate and adequate savings to cover their retirement. This means that there will continue to be government initiatives to increase pension saving—the most obvious one being increases to the minimum automatic enrolment contributions as well as the likely introduction of defined ambition schemes.
Legacy DB pension schemes will also feature large in the future. Most of these schemes may have closed to new members and future accrual, but it will be many years before all DB liabilities have been secured. These schemes will continue to require time, effort and money spent on them even though they will increasingly be irrelevant to an employer’s current workforce.
Unless there is a significant shift to defined ambition schemes, DC schemes (both contractual and occupational) will be the main type of pension benefit provided. Government and regulatory attention has already started to focus on these schemes. Further developments are likely to ensure that these schemes provide value for members both at the accumulation and decumulation phases.
Interviewed by Evelyn Reid.