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TPR Tells Trustees To Remain Vigilant On Member Protection

TPR Tells Trustees To Remain Vigilant On Member Protection

Friday, 8 December 2023

The Pensions Regulator (TPR) has highlighted how last autumn’s economic turmoil reinforces the need for trustees to stay focused on protecting savers from any sign of economic volatility.

Protecting savers close to retirement

In a blog posted on the regulator’s website earlier this year, TPR Interim Director of Regulatory Policy, Analysis and Advice, Louise Davey, said TPR is determined that ‘trustees do not sleepwalk into a defined contribution (DC) crisis for savers approaching retirement.’ Davey said TPR had issued a ‘clear message’ in January that savers must be supported amid concerns that the value of some DC pension pots had fallen and believes the sentiments of that message remain relevant. She therefore called on DC trustees to use TPR guidance to protect savers who are close to retirement and could be impacted by the investment strategy adopted by their scheme.

Fiduciary duty

Davey went on to say that trustees need to act in line with their fiduciary duty in order to ensure key requirements are met. This includes the need to continue supporting savers in so-called ‘lifestyle’ funds and ensuring investment strategies support stronger saver outcomes in the years to come. The blog also explains how ‘older savers are being disproportionately impacted,’ due to historically lower-risk investments suffering most in recent times. This once again highlights the need for trustees to ensure bond investments align with member choices at retirement.

Focus on outcomes

The blog urges trustees to focus primarily on outcomes and not just driving down costs. In order to achieve this, Davey champions the need for trustees to receive ‘good and timely information on performance and risk for different member cohorts,’ along with the attribution of those risks. The need to ensure that a scheme’s default pre-retirement strategy is targeting the right outcome and is fit for purpose in the current market environment was also highlighted. In addition, Davey reminded trustees of the legal requirement ‘to review their default strategy and the performance of their default arrangement at least every three years, and without delay following any significant change in investment policy.’

Annual benefits statements

While Davey did point to ‘signs of recovery’ in some financial markets since last year’s economic turmoil, she cautions trustees to be mindful that this is unlikely to be fully reflected in annual benefits statements sent out this year. She therefore states it is vital for trustees to provide more up-to-date context in annual statements and supporting materials in order to guard against the risk of savers making knee-jerk decisions which could ultimately harm their retirement plans.

Mindful of the risks

Davey also urges schemes ‘to engage with savers approaching retirement to review and update their choices.’ If savers change their mind regarding the type of benefits required or the age at which they expect to take them, for example, this could significantly impact their pension pot outcome and savers should be encouraged to consider such issues. This is a particularly pertinent point for older savers with larger pots, who may require several years for losses to be recovered. Such savers need to think carefully about when and how to access their pension pots and be mindful of the risks of cashing out, and the importance of retaining investments which provide potential for longer term growth.

Sources of appropriate guidance

The blog also stresses that the annual benefit statement cycle is a key opportunity to explain any implications to savers. While trustees clearly cannot offer financial advice, Davey does encourage them to signpost savers towards appropriate sources of guidance such as Pension Wise and the Money and Pensions Service (MaPS). By consulting such sources, she says savers will be improving their chances of making good decisions and ultimately realising their retirement goals.

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