The last few years have seen huge change in workplace pensions. Single employer own trust pension schemes are moving to master trusts at the highest rates ever seen, partially driven by the legislation affecting pension schemes with assets under £100m and also the advent of the Pensions Dashboard in the near future. As a consequence, we are seeing master trust schemes boost their funds under management to levels that allow new thinking on investment strategies, product features, and online journeys.
From looking at everything that has happened in 2022, there are two things that are evident to us at Smart Pension.
First of all, risk-rated default investment strategies haven't proven popular with members – pension companies need to look at providing flexibility on sustainability instead.
We believe that retirement savings are powerful. If invested wisely, they can grow as well as helping to solve major global issues. However, there's no one-size-fits-all with sustainable investing – pension savings need to provide members with more options to reflect their personal preferences. One person might be more interested in excluding tobacco from their investments, for example, while another might have a stronger preference for leaving fossil fuels out of their portfolio. With our digital platform, we are moving away from a very traditional risk-rated approach to one that is beliefs-orientated and gives members more flexibility. We are doing this because our members are asking for it, and the previous strategy of asking them to make a decision based on their risk appetite has not seen much traction.
Our default growth fund is entirely invested in funds that promote good Environmental, Social and Governance (ESG) practices. All of the underlying investment funds that now make up our default growth fund are rated as Article 8 or 9 investment funds by the EU’s Sustainable Finance Disclosure Regulation, a technical standard recently introduced by the European Commission. Included in this are a recently-implemented green bond fund and a biodiversity fund. We therefore want to give members sustainability by default, and not just provide them with a sustainable self-select option. This puts the Smart Pension Master Trust at the forefront of the industry from a sustainability perspective.
Secondly, pension savers are still confused by decisions at retirement.
Pension savers face a number of challenges when it comes to converting their savings into a retirement income. Far fewer people now have Defined Benefit (DB) pensions, so they need to make active decisions if they are going to make the most of their pension savings.
All too often, savers say they are bewildered by the options available, and there is often a lack of guidance or advice to help them through this process. Without an effective ‘at-retirement’ strategy there is an increased risk of value being eroded, through members making either the wrong decisions or simply no decision at all. Financial advice is the usual go-to, especially for people with larger pensions, but is seen as prohibitively expensive for the majority of savers.
Everywhere you look in financial services, technology is making it easier and cheaper for individuals to manage their money. That's why we offer Smart Retire, an innovative digital retirement platform which helps people to think about their pension in the same way they think about their savings and income during their working life.
Rather than forcing our members to take out a range of different plans when they want to access their pension savings, such as annuities or drawdown, they have a single plan with Smart Retire. At its most basic, there is a flexible income pot, to manage their transition from work to retirement, and a later life pot, which is essentially putting aside some savings to provide an income from a later date – reducing complexity for our members. There are also inheritance and rainy day pots for those who would like to use them.
We can’t emphasise enough the need for greater engagement with long-term savings to provide an adequate income for people in retirement. We want to help solve these challenges, so you can expect to hear a lot more about this from Smart Pension in 2023.
0330 124 7409
Please note: Smart Retire is one of a number of options available to members of the Smart Pension Master Trust when they reach 55 years of age. Learn more about Smart Retire.
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.