By Nico Aspinall, Sustainability advocate, BNY Investments Newton
This year many of the final planks of the regulatory environment bridging the past of DC and its future will be designed and driven into place. Gone is the employer-driven fragmented, low cost, listed and passive, under-weight in UK assets world which leaves individuals on their own at the point of retirement; welcome to the global-scaled, value-for-money, private markets UK investors which can take people through one of the most complex decisions of their lives into safe and secure income for life. One by one, it is hoped, this bridge will enable or force our DC pension arrangements will travel across.
Whether this complex change is possible, desirable and successful depends not only on the pension schemes bill and its implementation; but on all of our engagement with the consultations that will follow royal assent, and of course the consultations for ongoing initiatives. Boy, is it going to be a busy year!
Here are some of the questions you can input into this year:
- What assets should be included in the scale test? Do funds shared by multiple lifecycles count? An example might be high-risk and low-risk Lifestyle choices built on the same funds but not offered by default. They clearly contribute to scale but are they not main scale default arrangements. Will this nuance be recognised?
- How should the transition and new entrant pathways offer relief from the scale tests? This might feel technical, but these pathways will enable (or not) innovative, newer schemes to continue to exist past 2030 and 2035. Will these result in fewer huge schemes or a larger number?
- Will there be any ‘default’ to default pension benefit solutions? Will Trustees be empowered or even expected to move people into a retirement solution without their engagement? Without this power, it seems unlikely to me that retirement CDC can be a viable option, but what construction of the law could give Trustees this power?
- What should VFM measure? This has been the question on our podcast we’ve put (implicitly) to more than 100 guests, but that’s given us 100, mostly sensible answers. The latest iteration focuses more on investment performance than previous ones, but also permits more leeway for poor past performance with assumed future performance. This consultation is live and closes on 8 March.
- What should the Trustee role be and how should any conflicts be managed? With professional trustees in charge of Master Trusts and therefore the core of the future governance of these scale arrangements, are current arrangements satisfactory? This consultation is live and closes on 6 March.
This list is far from exhaustive but highlights what I consider to be some of the most important for the future shape of pension investment. They ask complex questions and our policymakers need to hear a range of views, particularly from Trustees, to make good decisions. Do look at these and respond to give these initiatives the best shot of improving DC pensions in future.
DC pensions needs you!