The pensions industry is going through a seismic change, with more to come.
Today I presented at the Professional Pensions Defined Contribution conference and a lot of talk was around the great number of regulatory changes happening in the industry right now, all of which are designed to make sure that schemes are doing the right thing for members.
This aligns with what I’ve seen so far this year. At Smart Pension, we’ve seen a large increase in trustees and employers running smaller single employer trust (SET) pension schemes (particularly those with less than £100m under management) getting in touch with us. We think, and so do many others, that the majority of these pension schemes will make the move to alternative arrangements over the next few years. The market is consolidating and consolidating fast, driven by a desire to achieve better outcomes in retirement but also reduce cost and risk from increased regulation.
Here are my four steps to making sure that your pension scheme is delivering better outcomes in this changing industry.
- Understand how the industry is changing.
The Department for Work and Pensions and The Pensions Regulator are ramping up regulatory requirements on smaller pension schemes and this is only going to get tougher meaning more time and money spent on running your scheme.
- Ask yourself, can you prove that your pension scheme delivers better outcomes?
A lot of scheme managers are asking me how they can prove their smaller pension scheme demonstrates value for money and good outcomes for members. In my view, for smaller schemes, this is going to require more resources and effort than ever before.
- If your current scheme can't deliver better outcomes, what are your options? Switching pension schemes shouldn’t be something a company discounts. Scheme owners may be put off by the extra work, effort and cost of moving pension schemes. But that should not be a barrier, especially where the new scheme has considerable experience in managing the transition. There are lots of choices out there in the market including master trusts and group personal pensions. By moving to a larger pension scheme, you can cut costs without cutting corners, and, in many cases, you can get much more for much less. Such as a sustainable investment strategy and better member communications.
I think simple economies of scale mean that if a smaller SET scheme switches to a larger master trust, the costs of running the scheme are much less because they are spread across larger numbers of members.
- Where to start if you think that these new changes mean that you’re going to have to change schemes to deliver better outcomes. Don’t worry you're not alone. Choose a scheme that can demonstrate that it has successfully transferred schemes before. At Smart Pension we’ve transferred many schemes, it’s a repeatable process and over the years, I’ve learnt lots about how to do it successfully. I shared a lot of practical tips at the conference and I’m happy to talk to you about this too – just drop me an email at firstname.lastname@example.org.
In summary, watch this space. In a year’s time, the make up of pension schemes in the UK will look very different from today.