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Trustees urged to support DC savers amid economic challenges

Ref: PN23-02

Issued: Thursday 12 January 2023

Savers must be supported during current economic volatility amid concerns the value of some defined contribution (DC) pots has fallen, The Pensions Regulator said today (12 January 2023).

In a guidance statement aimed at DC trustees, TPR said that while those who are early in their saving journey can take a longer-term view on their investments, savers who are close to retirement could be impacted depending on the investment strategy of their scheme.

Savers in so-called ‘lifestyle’ funds need to understand whether the strategy they are in, as they approach retirement, is consistent with their plans on how they intend to access their retirement benefits.

TPR’s statement sets out how trustees should communicate with savers to help them understand what a fall in their DC pension means for them, depending on their personal circumstances, and to avoid making hasty decisions that could lead to risks such as being scammed.

It also explains how trustees should strengthen the governance and oversight of DC schemes and ensure their investment strategies support stronger saver outcomes.

David Fairs, Executive Director of Regulatory Policy, Analysis and Advice at TPR, said the current economic environment introduces new challenges for DC trustees.

He said: “Pensions are a long-term investment and so for many DC savers, any losses caused by current challenges can be corrected. But for those nearing retirement, the impact could be more significant. Now is the time for trustees to act.

“Our guidance statement aims to ensure trustees are communicating properly with savers about their options, and to encourage them to seek free impartial guidance from MoneyHelper, and to ensure their current governance and investment structures are appropriate.

“There is no one-size-fits-all answer in these difficult times, and scheme specific circumstances are important. However, we expect all trustees to consider the issues raised in this statement and take appropriate action as part of their ongoing governance responsibilities.

“We continue to monitor the situation in financial markets closely to assess the impact on both defined benefit and defined contribution schemes. We are speaking to trustees and their advisers about how schemes are responding to current market volatility, as well as industry representative bodies, including how they can support savers through this period.”

Communication is vital

The guidance statement reminds trustees that they should be reviewing governance structures, investment advisers’ remit, the characteristics of their scheme’s saver profiles and their scheme’s investment arrangements and implementation.

It also highlights that communication with savers is vital to ensure savers have enough information to make informed decisions about their savings, and to avoid hasty decisions that could impact retirement outcomes or leave them vulnerable to scammers.

Trustees should review the level of support being given to savers; for many savers, the first time they make an active decision about their pension will be as they near retirement.

Trustees can direct people to the Money and Pensions Service’s MoneyHelper service, which offers free, independent help and guidance for people of all ages. This includes free guides, a pension calculator and for those over 50, free appointments with an expert via Pension Wise.

MoneyHelper can also help people find a regulated financial advisor, if they need one, to make a final decision.

Minister for Pensions Laura Trott said: “It’s essential that people have the support and information they need to make informed choices about their financial futures, particularly in challenging economic circumstances, so I welcome TPR’s guidance statement. I’d also encourage all savers to take advantage of the free and impartial guidance available via Money Helper and Pension Wise, especially those approaching retirement.”

Carolyn Jones, Head of Money and Pensions Guidance at the Money and Pensions Service, said: “TPR’s timely and welcome statement will provide crucial guidance during these challenging times.

“Pensions can be complex and the decisions people make can have long term effects, so it’s important for them to seek help before rushing into anything, no matter how large or small their pension pot is.

“Trustees can help by promoting this message and signposting people to the support they need, such as our free, independent MoneyHelper service. With the right resources and information, everyone can make the decision that works for them and their individual circumstances.”

Joe Dabrowski, Deputy Director Policy, Pensions and Lifetime Savings Association (PLSA), said: “The past year has been an enormously challenging one for many households in the UK given the rise in inflation levels and the continued increase to the cost of living, so it’s therefore vital that savers have a good understanding of their pension provisions as they plan for their retirements.

“The launch of this guidance by TPR is both extremely helpful and timely. We’d urge schemes to take note of this important document and engage with it for the benefit of savers.

“To help savers plan, the PLSA launched its Retirement Living Standards back in 2019 and will be issuing the latest updates to these – to reflect the increased cost of living – shortly. The PLSA also intends to develop further supporting best practice guidance for the industry, to support savers during this period.”

David Pharo, Pensions Administration Standards Association (PASA) Board Director, said: “At PASA we recognise the importance of the issues TPR are highlighting associated with the current economic climate, particularly in the context of schemes ensuring savers receive sufficient information to enable them to make informed decisions about how they fund for and plan their retirement. As well as considering the investment aspects of this statement, we would encourage schemes to consider the issues highlighted by this statement with their pensions administration providers both in terms of what information is currently available to savers and whether additional information, guidance or access to planning tools would be helpful.

Notes to editors:

  1. DC schemes do not involve leverage in their investment strategies, and so were not impacted by the volatility in some liability-driven investment funds.
  2. The guidance statement provides the below checklist for trustees to develop an action plan:

    Review your governance and investment arrangements:

    • Ensure your scheme has sufficient scale to support savers.
    • Dedicate enough time to govern the DC arrangements effectively.
    • Review investment advisers against agreed objectives and consider the proactivity of their advice.
    • Use member data and trends in behaviour to inform decisions and input into investment strategy.
    • Ensure investment options remain suitable and consider how market conditions might present new risks and opportunities.
    • Monitor performance against objectives and industry benchmarks and consider how different groups of members have been impacted.
    • Assess how investments protect against high inflation and review the use of cash funds.

    Supporting your savers:

    • Strengthen your member support capability and target your efforts towards those most affected and in need of help.
    • Use insights to inform your guidance and saver engagement plans.
    • Review communications to ensure savers can make informed decisions about their investments.
    • Review and inform savers about the support, guidance and modelling tools which may help them navigate current market conditions.
    • Help savers understand what recent performance means for their individual circumstances.
    • Encourage savers to inform the scheme if their retirement plans change.
    • Highlight the importance of seeking advice and taking a long-term perspective on pension saving.
    • Highlight the risk of potential scams.
    • Consider your savers’ communication journey, including additional information to supplement annual benefit statements.
    • Be specific in your guidance, to the circumstances faced by savers at different points in their retirement plans.
    • Tell them how certain actions can protect or boost their savings.
    • Guide them through the trade-offs that they will need to make and the risks involved.
    • Monitor member action / inaction and adjust and evolve your engagements plans accordingly.
  3. TPR is the regulator of work-based pension schemes in the UK. Our statutory objectives are: to protect members’ benefits; to reduce the risk of calls on the Pension Protection Fund (PPF); to promote, and to improve understanding of, the good administration of work-based pension schemes; to maximise employer compliance with automatic enrolment duties; and to minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of TPR’s functions under Part 3 of the Pensions Act 2004 only). 

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