The Pensions Regulator (TPR) has recently issued guidance for trustees of defined contribution (DC) pension schemes, urging them to support savers through the UK’s cost of living crisis.  Central to the guidance is efficient communication, with TPR encouraging trustees to help savers understand what a fall in their DC pension means for them, and to ensure members avoid making difficult decisions that could lead to risks such as being scammed.  The guidance also sets out how trustees can strengthen the governance of DC schemes to ensure that their investment strategies support stronger saver outcomes.

Considerations for savers

Savers who are earlier on in their saving journey are more likely to see any losses caused by current economic volatility corrected.  However, those nearing retirement are more likely to be impacted.  Savers in so-called ‘lifestyle strategy’ funds, where the asset mix leans towards a higher allocation of bonds in the 5 to 15 years before expected retirement date, are likely to see a greater fall in the value of their DC savings than others. These savers are therefore in need of strong communication from trustees to ascertain whether the strategy of their fund is consistent with their plans on how they intend to access their retirement benefits.

Considerations for trustees

In line with the requirements of the DC code, the guidance sets out the following expectations and key actions for trustees:

Review performance of investment advisers to ensure the focus is on delivering good saver outcomes rather than solely concentrating on costs and charges.  Communicate with investment advisers and consider whether a strategy review is necessary in light of current market volatility. 

Ensure that trustees understand their scheme’s saver profiles and characteristics, as understanding how and why savers make decisions could lead to better scheme design and member outcomes.  Obtain more data on saver profiles if necessary to enhance understanding of the member demographics of individual schemes.

Review the level of support being offered to savers, as for many, this will be the first time they make an active decision about their pension.  Trustees should ensure they retain communication with members before and after, as well as through their annual benefit statements. 

Review member communications to ensure that members do not make hasty decisions based on short-term volatility which may expose them to potential scamming risks.  Direct savers to take free, impartial guidance from the MoneyHelper service if necessary.  As well as signposting members to additional resources, trustees should provide support and modelling tools to better manage members’ expectations.

TPR’s guidance provides further information, support and guidance to DC members throughout both the saving and spending cycle of their pension arrangement will be a key priority for both TPR and the Financial Conduct Authority in 2023. Ensuring value for money in DC investments as well as DC charges will also be an ongoing area of focus. 

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