There is a huge communications challenge for the pension industry, according to leading pension campaigner, Baroness Ros Altmann, in the wake of one of the most dramatic short-term market corrections in recent history.
But the challenge for the industry, she says, is to communicate how well workplace pensions have performed in these difficult conditions.
Her comments came at a Corporate Adviser virtual round table event to publicise the latest Master Trust and GPP defaults report.
Altmann says that the figures included within this report gave an “excellent snapshot” of the success of pensions.
She adds: “I would like to congratulate Corporate Adviser for getting these comprehensive figures into the public domain.” The figures contained in the report, as well as the latest CAPA quarterly data on the performance of default funds, shows that workplace pensions have “held up pretty well” during the downturn, she says, and that over the longer term have delivered positive returns to members.
Altmann adds: “The principles of pensions remain intact. When you consider the overall return in terms of the employees contributions, then it is clear that people have done far better saving into workplace pensions than they have saving in cash or in Isas.”
She says the challenge for the industry was communicating this message to a mass market, in terms that will appeal to the mass market.
Others on the panel agreed that life-styling strategies deployed by larger workplace pension providers had proved to be successful.
Aegon’s investment director Nick Dixon says: “The key message that is shining through is that the risk controls of pensions schemes are really working to protect savers, particularly those nearing retirement.”
Buck’s head of DC and wealth, Mark Pemberthy says that it is important to not focus on this bigger picture — and the ‘average’ returns show that workplace pensions continue to delivered good outcomes for members.
However he points out that the Corporate Adviser report shows that there can be some significant variances between providers. But he says that once tax relief and employers’ contributions are taken into account, even those providers who appear towards the bottom end of these performance tables, are still delivering for members.
Part of the communication challenge for consultants, and providers is to reassure members, to put these recent market falls in the context of longer-term growth.
Hymans Robertson head of DC consulting Mark Jaffray says: “On average, losses seen in the first quarter of this year, mean members have effectively given up the returns they made last year.
“Many people will be aware of the alarming downturn in share prices following the coronavirus pandemic. But they may be less aware of the phenomenal growth last year.”
He points out that there is a significant difference in strategy between providers, particularly when it comes to the five-year glidepath to normal retirement dates, with some targetting a 100 per cent cash pot at retirement, and other providers maintaining higher equity allocations for drawdown.
Aon’s head of DC investment James Monk says this report highlights the outliers, and there will be particular communication challenges for schemes that may have adopted different investment strategies.
“Overall though this shows there is a very positive message for pensions, while also using this data to identify and cut out poorer practices.”
Pemberthy adds: “Without losing sight of the bigger picture it is important for consultants to look at this variance and work with trustees and employees to ensure schemes are taking an appropriate strategy for the membership. Our role is to try to make good better, and data like this enables us to do that.”
Those attending the roundtable also welcomed the government’s decision to continue to fund auto-enrolment payment as part of its emergency support package for businesses during the Covid crisis.
Altmann says: “The Treasury could have put these payments on hold temporarily but I am delighted they have decided to support AE contributions. For some workers contributions will be lower, as the government will just pay in employers’ legal minimum but these payments will still be made. The pension industry has been protected by public policy in ways others have not been.”