Discussions led to a realisation – times have changed, and so has our purpose. The arrival of auto-enrolment and defined contribution freedoms altered the pensions landscape and we have needed to adapt accordingly. We believe our purpose as a sector is now best defined as: ‘delivering good member outcomes.’
From the perspective of all stakeholders, this should be a more satisfying purpose to embrace, it will help our sector make a more positive impact on people’s lives. With the support of regulators, we can build on this to offer greater flexibility, promote better understanding of the value of pensions and enhance standards of delivery across the board.
Although we have a new common purpose across organisations, we all face the same challenges. To move forward successfully with this renewed sense of purpose, we believe there are at least 5 key challenges we collectively need to tackle.
‘Delivering good member outcomes’ is a strong statement of purpose but, for it to be truly effective, we need to support it with a more defined explanation everyone can relate to – particularly members. We are too focused on what bad looks like as opposed to good. If the definition is too open to interpretation, some providers will fail to raise their game and others will be unsure what is expected of them. The consequence will be confusion and frustration among members. Clarity needs to apply to all aspects of managing pensions – too often, the quality and clarity of communications remains poor.
The solution: The industry and regulators must work together to provide a durable definition of ‘good member outcomes’ customers, staff and investors can relate to – a definition taking proper account of differing levels of needs.
As part of this we need to change our language and bring some consistency across the services delivered. Many examples of inconsistent language can be given, particularly between trust-based and contract-based arrangements, investment and administration. There are initiatives in the industry to help simplify the message to members including the Simplified Pensions Statement, produced collaboratively by the industry, spearheaded by Ruston Smith, Eversheds Sutherland and the PLSA. This demonstrates we can work together to find solutions.
2. Regulatory inhibition
We are all concerned about overstepping the advice/guidance line which has led to several organisations reluctant to help scheme members avoid bad outcomes. At an individual level, firms report dedicated teams wishing to deliver a quality service becoming frustrated at not being able to help. Even with the ability to invest in developing and delivering regulated advice to members, firms have held off due to uncertainty and fear of potential consequences. Research by several organisations has shown a high proportion of members making poor decisions based on poor advice. This could have been avoided if organisations felt comfortable providing guidance services.
As valuable as the sector’s legislative and regulatory framework is, it can also inhibit us from doing what is best.
The solution: As our collective purpose changes, legislation and regulation should change too. Frameworks should be adapted, supporting the sector’s efforts to help members achieve the best possible outcomes. The industry and regulators need to work together, creating a consistent definition of what ‘guidance’ is, freeing up the ability to provide help where there may previously have been hesitation. The industry needs a clear set of principles to work to, and this group is willing to assist the FCA develop them.
In the meantime, innovation is out there, such as the qualification created by the PMI to assist administrators taking members through the retirement process and getting them to a stage where they understand the options and if they need advice.
3. Scams & fraud
Change always creates opportunities – and not necessarily positive ones. Market disruption of a very unwelcome kind is being created by scammers and fraudsters, demonstrating a level of innovation and versatility requiring co-ordinated action.
The solution: Again, the key lies in strong industry co-operation – setting up working parties to develop strategies, sharing intelligence and using technology to frustrate, deter and identify criminals. The Pensions Industry Scams Group and its published guidance is a good example. At an individual level some organisations have created additional services – for example calling members to check they understand exactly what they are doing, and using technology - biometrics is now used for identity fraud. Informal exchange of information on scamming organisations is shared between firms, but we recognise this needs to become a more formal process.
4. Apathy & misunderstanding
The twin challenges of apathy and misunderstanding have always been an issue for the sector. But that apathy and misunderstanding is now doubly dangerous. Members now enjoy greater freedom, but there is greater freedom to make choices they may regret.
The solution: Education is key. There is a wealth of knowledge and experience across the sector which could be used to increase the awareness of members (and nonmembers) of what they need to know about pensions. There is an increasing number of practical tools being developed such as the use of Amazon’s Alexa providing pension values and employers looking at retirement guidance as part of financial wellbeing – but we would like regulators’ support by providing clarity and encouragement to employers and schemes to take advantage of what is available.
There was strong agreement across our roundtable group regarding the key challenges we face in embracing a renewed purpose for pensions management – and agreement too on the solutions. To meet the individual organisations’ purpose, we need to meet the industry’s.
Solution: We see this as an opportunity to achieve a step-change in the industry, but we require strong leadership from industry leaders supported by regulators, working together to build a momentum benefiting all pension members and stakeholders. We urge the FCA to consider creating a ‘single voice’ to drive this forward. We need to take account of high-visibility government information campaigns such as the DWP’s current ‘Get the retirement you want’ initiative and ensure FCA guidance to pension scheme providers, employers and advisers is consistent with the Government’s messages. It is good to see the closer working relationship between the FCA and TPR, and their joint pensions strategy on addressing risks and harms to members signals the way forward. However, there needs to be closer alignment, a single purpose and a set of requirements for all pension scheme operators when it comes to guidance and advice.
Individual firms’ purpose may differ in how its delivered, but this exercise has provided our sector with a realisation that as our environment changes, we need to reflect it in how we deliver on our purpose, and we are willing to work together to overcome new challenges.