Ten years from how will the pensions industry have solved four of the key challenges it currently faces?
Standard Life dabbled in some crystal-ball gazing at Corporate Adviser’s Master Trust and GPP conference, to highlight today’s most pressing DC issues, and explore potential solutions.
Standard Life’s retirement and savings director Mike Ambery and its head of master trust, Donna Walsh, said retirement adequacy, simplifying regulation, better decision making at retirement and using UK innovation to drive economic growth were key challenges for the industry.
On retirement adequacy they pointed out 12.5m people were currently under saving for retirement, with three in 10 Gen Xers currently on track to have a pension pot of less than £100,000 when they retire.
Ambery said: “Unless something is done then there will be 9m people potentially in pension poverty.”
This could be addressed by legislation increasing contributions on AE schemes, potentially up to 12 or 15 per cent. Ambery added that this may involve measure to allow younger workers or those on low incomes to divert contributions into other savings vehicles. They also voiced support for measures such as “Save More Tomorrow” which uses nudge techniques to get people to commit to increasing contributions over a period of time.
When it comes to simplifying regulation Ambery said there was a need for single regulator whose focus was “pensions, pensions, pensions”, although others in the audience want more of a focus on lifetime savings. Looking ahead, Ambery said there was a need for a single regulator with increased oversight, particularly given the projected consolidation in the master trust market and launch of the dashboard. “This could help remove friction from the transfer market, particularly when looking at consolidation on a group level.”
The team also predicted that by 2035 new forms of advice and targeted support will help people make better decisions around retirement. This is likely to be supported by AI and technology developments, with pension savers given a far broader choice of spending products, including those that offer longevity pooling. Walsh added that it was hoped that the Consumer Duty rules might result in people being “less fearful about making mistakes or doing the wrong thing” when it came to retirement decisions.
Labour’s first Budget, and the Mansion House could make a significant change to pensions over the next 10 years, according to Ambery and Walsh, with increased investment into private markets, particularly into investment opportunities in the UK’s science and technology start-ups. This has the potential to improve future growth prospects for pension savers, they say. Will the university vaccine and drug-development programmes, for example, result in bumper payouts 10 years from now for the pension firms that are now starting to invest in these opportunities?
Ambery said that while no-one could accurately predict what people sat on the stage at a Master Trust & GPP conference 10 years from now would be discussing, it is clear the industry faces a number of challenges, amid a landscape that is rapidly changing, both in terms of legislation and regulation.
He said: “We can as an industry gather round when it comes to these key issues and look at how we can help drive change for the better so we get to where we want to be in 2035.”