Hymans Robertson predicts it will be another “jam-packed” year for the DC pensions market, with a renewed focus on responsible investment and ESG strategies.
Head of DC consulting Mark Jaffray says: “In DC we will see continued development within responsible investment as the pace for change will certainly accelerate.
“If trustees and governance committees have built a strong foundation this year with regulatory changes, developing their own knowledge in this area, then they will be really well equipped to challenge managers and providers going forward and to keep up with the pace of change as RI solutions continue to evolve.”
He said he expected to see more employers take the lead with this issue, setting out responsible investment beliefs and engaging staff on how to invest.
He adds: “There will be greater focus on communication and engagement to members on responsible investment and adequate funding for retirement and generating income in retirement. This will dovetail renewed attention by providers on performance of their default funds and how they can further improve outcomes for members.”
Elsewhere in the DC market, Hymans Robertson called for the government to “refrain” from imposing new taxes on workplace pensions, and said further tax simplification in this area could prove beneficial.
Michael Ambery, head of DC proposition and strategic provider relations says: “My over-riding wish for 2021 is for the government to avoid using, or considering, taxation of pensions contributions or benefits as the funding method for the financial cost of Covid-19.
“We remain concerned that pensions, and specifically pensioner poverty, will slip down the government priority order to manage the pandemic financial cost but would urge the government to consider the longer-term implications of this stance.
“We’d also like to see the government take action in 2021 to completely demystify the complexity surrounding tax relief.
“It would be great to see a full commitment to simplifying the issue of annual allowance that is leading late savers to breach their annual allowance.
“It would also be great to see the government take action to reset the levels of auto enrolment to 12 per cent to diffuse the ticking time-bomb of retirement poverty.”
Elsewhere in the pensions world, Hymans Robertson says DB schemes face another bracing year, with many company sponsors struggling to survive in a weakened economy.
Susan McIlvogue, head of DB pensions at Hymans Robertson says: “With Government support for businesses ending in the Spring, it will be sadly inevitable that some DB scheme sponsors won’t survive. Whilst many of these schemes will fall into the PPF, we predict that some will go down the new route of commercial consolidation.”
She points out that for schemes with ongoing but weakened covenants, there may be little choice but to lengthen funding plans and implement additional protections.
Hymans Roberston is the latest consultant to predict that 2021 will see increased demand to transfer risk to insurers through buy-in and buy-outs.
McIlvogue adds: “Trustees contemplating a risk transfer transaction will need to be better prepared than ever, to demonstrate why they should be a high priority case in a busy market.”
The Pensions Scheme Bill is expected to receive Royal Ascent in the coming weeks, and should promises to make schemes safer, better and greener. 2021 will also see the new and long-awaited Funding Code from TPR, the biggest shake up in DB funding for over a decade.
McIlvogue says: “With the economic outlook remaining uncertain and combined with the challenges approaching from RPI reform and Brexit, not to mention GMP equalisation, it will certainly give us lots to navigate in the year ahead, with a foreboding sense that things could get worse before they get better.”
Hymans Robertson also point out that DB schemes also face a number of investment challenges in the year ahead. Co-head of DB investment Ross Fleming adds: “2020 has provided us with a lot of market twists and turns and there have no doubt been winners and losers in the wake of the pandemic.
“Climate change will be a key consideration for 2021 following this year’s consultation requiring schemes over £5bn to address climate risk and provide public reporting in line with the TCFD framework.”
“Finally, the market volatility experienced during 2020 will be further impacted by the outcome of the RPI consultation reform and the challenges of Brexit. Schemes will undoubtedly look to 2021 to take stock and re-test their long-term objectives to review progress against plan.”