By Dale Critchley, Workplace Policy Manager, Aviva
Trustees and providers who may have measured their default against alternative benchmarks will now need to ensure their default measures up against their peers. VfM will also look at charges and service metrics and may expand to include metrics on engagement and support. Efficiency and engagement will impact retirement incomes, and both can be improved through economies of scale.
The Act retains the requirement for automatic enrolment qualifying schemes to operate at least one main scale default arrangement with £25bn or more invested. If a scheme becomes non-qualifying, all employees will need to be enrolled into a new scheme. While the market and voluntary mergers may avoid this scenario, regulation is likely to focus on the run up to 2030 and how orderly exits are managed.
An override to contractual terms for workplace personal pension scheme members will allow transfers without consent, where there is a reasonable expectation of a better outcome in a new scheme or default arrangement. The key rules will cover the “best interest test” and the role of the “independent expert” required to approve transfers, potentially creating a new role for actuaries
Better returns, lower charges and consolidation into more efficient schemes that can invest in better service and engagement will potentially drive bigger pension pots, but poor decisions and lack of support at retirement could undermine all that hard work.
The proposals to transform the at-retirement journey might be the final piece of the Pension Schemes Act jigsaw. It’s also an area where rules and regulations could make a significant difference. Since the 1990’s when savers were routinely expected to take an annuity with their workplace pension provider, the emphasis had been on encouraging choice and shopping around. Rules and regulations will need to be carefully considered to ensure that savers are allocated to the right cohort, that good value default solutions meet their needs and that the overall process results in better decision making and a sustainable retirement income.
The Pension Schemes Act has the potential to significantly improve the lives of future pensioners by making the most of every pound saved. What the Act and pensions schemes can’t control is how many pounds are saved in the first place. The Pensions Commission is looking at how to address under-saving and improve retirement adequacy, adding that final piece of the workplace pensions puzzle.
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