The top five themes to emerge are:
The view from across the industry is that Collective Defined Contribution (CDC) schemes are unlikely to gain much momentum, outside of potentially large single employer trusts who want to soften the blow from the move away from Defined Benefit (DB), or government schemes. Reasons highlighted were the complexity of CDC, including the challenge of variable income and the difficulties of managing pensions in light of the demographic shift of an ageing population.
It was highlighted that the Dutch, who are historically the most forward-thinking on CDC offerings, are now rowing back on this type of structure. Where CDC may be useful is as a mechanism solely in post-retirement, but this would reduce its purported benefits, and doesn’t solve a number of the issues highlighted above.
Therefore, a post-retirement solution which has innovative investments and is also simple to use, as well as featuring a guided user journey (including features such as AI advice), was generally the consensus of what good would look like.
As expected, the consensus from the industry is that efficient and frictionless technology will be essential in keeping costs low, increasing engagement and interacting with alternative savings vehicles. There will continue to be difficulties in some sectors that do not collect employee email addresses or where the take-up of technology is low, but these issues will reduce gradually over time.
It was agreed that phone-based apps will be the easiest way for members to interact with their pension by 2030. However, providers will have to improve both functionality and user experience to ensure that they stay relevant enough to compete in a crowded market for apps on members’ phones. Integrating with open finance tools and sharing data that can be shown with bank accounts is seen as a way to be part of the future of digital finance.
With the cost of living crisis, financial wellbeing has come to the fore in the last couple of years, but whose responsibility is it to support employees in this area?
Pension providers have been keen to offer support where possible, with content hubs and seminars among others, but it was agreed that many employees wouldn’t go to their pension provider in the first instance, if they were worried about their financial health.
Consequently, financial wellness programmes should be led by the employer, if they are to have the most impact, with advisers and providers supplying collateral to support employers.
Delegates thought that the cost of living will be less of an issue by 2030, and that the industry had shown flexibility during the crisis, including allowing members to pause contributions for a short period of time.
It was acknowledged that an increase in minimum contribution rates is inevitable. However, how or when it will be implemented is less clear. Delegates broadly agreed that contributions should be auto-escalated, but whether the increase would solely go to pension savings was considered unlikely. Instead, the increase in contributions could be used in alternative savings vehicles to help with housing, or for student loans. Should that be the case, payroll and pensions technology will need to be adapted significantly to overcome the increased complexity.
Given the recent and forecasted growth of the defined contribution master trust market, we asked the delegate groups if they thought there would still be a place for contract-based schemes in 2030. The resounding view was that contract-based schemes are here to stay, but only for a particular market. The key drivers for that were the broad fund range available to members, as well as the access that an adviser has to a member’s data within these arrangements.
The solution to overcome the more limited fund range within master trusts, and therefore appease high earners and decision makers, is for master trusts to offer a Self-Invested Personal Pensions (SIPP) product alongside their existing solution. As the member journey for ‘transfers out’ to other products becomes more streamlined and efficient, the running of these hybrid schemes would enable master trusts to compete against contract based products.
It was unanimously agreed that the Value for Money (VFM) framework should be strengthened in the contract space, with more of a regulatory lens on Group Personal Pensions (GPPs) and Group Self Invested Personal Pension (GSIPPs).
In summary, lots of thought-provoking themes emerged at the Corporate Adviser Summit 2023, and the sessions provided a clear focus on the priorities for the pensions industry between now and 2030.
Disclaimer: These are views discussed at the Corporate Adviser Summit and do not represent Smart Pension’s views or strategy.
Launched in 2015, Smart Pension exceeds £4bn in assets under management (AUM) and now serves over one million members and more than 70,000 employers. It is powered by Keystone, Smart’s global savings and investments technology platform.
Aquiline Capital Partners, Barclays, Chrysalis Investments, DWS Group, Fidelity International Strategic Ventures, J.P. Morgan, Legal & General Investment Management, Link Group and Natixis Investment Managers are all investors in Smart Pension.