TPR’s first missive of the year encourages trustees to talk to their DC members about pensions and risk given the current economic volatility.
The Pensions Regulator (TPR) has today (12 January 2023) published a guidance statement setting out how trustees of defined contribution (DC) schemes and their advisers should support and communicate with members during the current economic climate. It urges trustees to review their governance structure, investment arrangements and communications, drawing out key messages from the existing DC Code and supporting guidance. TPR also provides a useful checklist that trustees can develop into their own action plan.
TPR sets out how trustees should communicate with members where their DC pension has fallen in value, seeking to ensure they don’t rush into decisions that might adversely impact their retirement outcomes or, worse, lead to them being scammed. While TPR recognises that circumstances vary, it reminds trustees that they should encourage members to seek impartial guidance from MoneyHelper.
TPR expects trustees to help members understand what a fall in their DC pension means for them, drawing out the different types of circumstance and working with employers to urge members to maintain their contributions. Trustees should provide those in the accumulation phase with reassurance through guidance about the trade-offs and risks facing them, cautioning against moving everything to cash or trying to time the market. TPR reminds trustees about the importance of annual benefit statements (and accompanying information and guidance) as part of member communication, but also suggests they should consider follow-up targeted communications as part of a continuous process.
For members nearer retirement and in ‘lifestyle strategies’ which typically increase their exposure to bonds as they approach their retirement date, then it will be important to explain that the falls in bond values which have affected their funds will also have led to improved annuity rates.
TPR also takes the opportunity to remind trustees about the requirements of the DC Code of Practice and to consider whether sufficient time, scale and resource is given to govern their DC arrangement effectively (particularly in hybrid schemes). It emphasises that investment advisers should be proactive, looking beyond costs and charges to members’ outcomes, directing readers to its recently updated guidance on setting objectives for investment consultants.
TPR also reminds trustees to review the characteristics of their scheme’s member profiles, to gather and analyse information on member behaviour and to review the scheme’s investment arrangements to ensure the fund choices and the targeted outcome remain appropriate. TPR also recommends assessing the impact on members of fund performance and reviewing how well cash and other investments protect members against high inflation. It expects trustees to communicate the risks in cash funds and the value of choosing investments which provide long-term inflation protection, as well as considering how cash allocations build up within default lifestyle strategies and whether they remain suitable in the current inflation environment.
