INSIGHT by Pensions and Lifetime Savings Association (PLSA)
〉New report highlights consolidation, climate change, the use of technology and saver engagement as the most important future trends facing the UK pensions industry over the next five years
〉Over a third of respondents said climate change and ESG was the most anticipated trend for the UK pensions industry
〉Improving saver engagement (42%) was the most anticipated impact of technology
| Senior pension executives and fund trustees say consolidation, climate change, the use of technology and saver engagement are the most significant future trends the pensions industry will face over the next five years, according to a new report, ‘Facing the Future: UK Workplace Pension Schemes Survey’, an independent survey published by the Pensions and Lifetime Savings Association (PLSA).
Through 129 interviews with PLSA member organisations representing a wide range of scheme type and size, IFF Research gathered the views of chief executives, chief operating officers, chief investment officers, chairs of trustees, consultants, directors, heads of pensions, pensions managers, and many others.
Respondents were asked about challenges and opportunities on policy issues ranging from: the UK economy; the impact of Covid-19; the role of pensions in society; environmental, social and governance factors; technology; automatic enrolment; accessing pensions; and regulation.
The report and findings are being launched to coincide with the start of the PLSA’s annual conference on 12 October, the UK’s largest pensions event.
| Consolidation of the industry
The most anticipated trend in the pensions industry over the next five years was the consolidation of the industry (48% of members said this was the most significant future trend). It is widely expected that assets under management continue to grow and as funds undergo value for money assessments they will seek out greater economies of scale. This will lead to fewer but larger pension funds in the future.
The PLSA seeks to increase the quality and performance of workplace pension schemes and large schemes tend to score highly on these tests. The PLSA welcomes the current trend towards consolidation. However, smaller schemes may also deliver some or all of these benefits. So scale should not be pursued as an end itself.
| Addressing climate change
Climate change and ESG was identified by PLSA members as the second major key trend over the next five years, with over a third (36%) of survey respondents saying they were the most anticipated trend for the UK pensions industry.
Among survey respondents that agreed that pension schemes should be used to help combat climate change and other ESG issues, the most common reasons given were because it was felt to be an important cause for society (particularly climate change) and because such investments can offer high returns.
Climate change was also identified as the priority as to how pension funds should be used. 64% of respondents surveyed agreed pension funds should be used to help tackle climate change and other ESG issue, 54% who agreed pensions should be used to invest in the UK economy through infrastructure and investment.
Just as technology is transforming other industries, technology has the potential to revolutionise the way pensions work, how the industry works and, crucially, how to better engage with and communicate with savers. Big data, better collaboration, opaque investment, investment analytical tools, cost transparency and personalised retirement planning journeys all have the potential to transform the industry and customer experience for the better.
Not surprisingly therefore, half (50%) of members we surveyed were currently investing in technology for pensions schemes or planning to do so over the next 12 months. Improving saver engagement (42%) was the most anticipated impact of technology on the sector over the next five years and the top reason for investing in technology (reducing costs was second at 14%), while improving understanding of pensions was the second most anticipated impact.
More than a quarter (26%) of PLSA members think improving member communications will be a major trend. This is likely to be accelerated by the creation of the Pensions Dashboard, which will for the first time allow savers to see all of their pensions in one place online.
| Saver engagement
One of the biggest issues facing the UK is how to better engage individuals to save for and plan their future. Savers’ engagement with their retirement savings is too low: workers don’t know how much they have saved, nor do they know how much they need to save to get the lifestyle they want in retirement.
Since its introduction, automatic enrolment has seen over 10 million people newly saving or saving more for a pension in the UK. This is a genuine success story. However, at the current contribution rate of 8% of automatic enrolment band earnings the majority of savers are unlikely to have the standard of living in retirement they expect. When asked, over the next five years, which initiatives could be the most effective in improving member engagement, over half (53%) of respondents identified the pensions dashboard. The mid-life MOT (26%) and PLSA’s Retirement Living Standards (24%) were identified as the next two most effective initiatives.
Achieving better retirement incomes for everyone requires savers to actively engage and understand the consequences of their pension saving decisions has been a major policy priority for the PLSA in recent years.
| Julian Mund, Chief Executive, PLSA, said: “Whether it is engaging with a trend towards consolidation, seeking ways of harnessing new technology to help savers understand retirement income or taking steps to deal with climate change, it is vital that workplace pension schemes face the future to drive better outcomes for savers when they reach full or semi-retirement.
“Against the backdrop of uncertainty brought by the coronavirus, the changes our industry faces underscore the importance of developing good public policy to ensure we have a system which is fit to meet the challenges of the next five years and beyond.”
| All opinions expressed are those of the author. investESG.eu is an independent and neutral platform dedicated to generating debate around ESG investing topics.