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Topic: Investments

Why more people are choosing to place their trust in master trusts

I’ll always look back on 2022 as a milestone year for the pension industry. This is the year that we marked the 10th anniversary of auto-enrolment, an initiative that has enabled millions of workers around the UK to save more towards their retirement. To be more precise, more than 10.6m people have been auto-enrolled into a pension scheme since auto-enrolment launched1, which is a fantastic achievement. 

This has also been a standout year for all of us at The People’s Pension. Not only are we toasting our own 10th birthday, we’re still growing and now have nearly 6m members enrolled in our scheme. Over the last decade, we’ve helped these members accumulate more than £17bn in pension savings – an incredible feat that’s definitely worth celebrating.

Offering a helping hand in uncertain times

More people than ever are choosing to trust us with their pension savings – and this growth is something we’re seeing among other master trusts as well. Which begs the question, “What’s driving this trend?”

At a closer glance, it seems to me that there are several factors at play here. For example, the current cost of living crisis and economic uncertainty is leading more employers to seek out pension schemes that offer better value and greater stability for their employees. With their low charges, very high standards of governance and transparency, master trusts are, therefore, becoming a more attractive proposition for many.

In addition, new legislation is placing further pressure on schemes to demonstrate the value they’re offering to their members. For instance, the introduction of value for members assessments means certain defined contribution schemes must now self-assess to demonstrate the quality of their governance and administration, among other criteria. If they fail to meet certain standards, they’ll need to make sweeping changes or run the risk of being wound up entirely.

With their larger economies of scale and robust frameworks, master trusts are well-equipped to meet these new challenges. This includes The People’s Pension, the UK’s largest independent master trust. We’re continuously improving our offering to members to help them make more informed choices that will lead them towards a more comfortable retirement.

Looking to the future

This has also been an exciting year on a more personal level. After serving on the Trustee Board for the last 2 years, it’s an honour and a privilege to now be taking on the role of the Chair of the Trustee at The People’s Pension. My predecessor, Steve Delo, has done an outstanding job in the role, and it will be very hard to fill his shoes. He’s been instrumental in building the scheme to where it is today. We place our members at the heart of everything we do – whether this be giving £12m a year back to savers through the rebate on our annual management charge, or providing a carefully selected range of investment options to give people a pension fund that best suits their needs. With the support of the Trustee Board and our excellent in-house Pensions Management team, we’ll maintain the incredibly high standards set by Steve in order to best meet the needs of pension savers.

Our heritage is based upon operating a master trust that strips out complications and simplifies pensions, ensuring members and employers aren’t overwhelmed by complex charging structures and endless fund choices. This is something I’m keen to continue as we move forward. As the UK pension system develops, we’ll evolve alongside it with more tools and services to provide further support to savers.  

Demand for master trusts has never been higher, and it looks certain this trend will continue to grow next year and beyond. With the hard work and dedication of our team and the new measures we’re putting in place, I’m confident those choosing The People’s Pension will find everything they need to secure a better financial future.

[1] Review of the automatic enrolment earnings trigger and qualifying earnings band for 2022/23: supporting analysis – GOV.UK (www.gov.uk)

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This article was written when we were B&CE, before we changed our name to People’s Partnership in November 2022.

New head of Responsible Investment appointed

B&CE, provider of The People’s Pension1 has reinforced its commitment to investing responsibly with a new appointment to its Investment Business Unit.

The organisation, which provides a pension to one in five UK workers, has appointed Leanne Clements as its new Head of Responsible Investment.

Joining from the independent financial think tank, Carbon Tracker Initiative, where she was Head of Stewardship for the UK and EU, Leanne will develop B&CE’s approach to responsible investing in its management and stewardship of members’ investments.

Previously, she was Campaign Manager for The Association for Member Nominated Trustees and held senior responsible investment roles at multiple UK pension schemes.

Commenting on her appointment, Leanne said:

“I’m delighted to join B&CE at such an exciting time in its history, and at a pivotal time for responsible investment more broadly. I’m looking forward to building on the brilliant work the team has already done in this space and putting the best interests of the six million people saving with The People’s Pension, at the heart of our investment decisions.”  

Jonathan Cunliffe, Managing Director of Investments of B&CE, said:

“Leanne’s credentials and experience are first class and we’re so pleased that she has decided to join our expanding team. Responsible investment is at the very heart of what we’re about and her appointment is great news for our members.”

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Retirement crisis predicted as Generation X aren’t saving enough

Millions of people across the UK aren’t saving enough for retirement, with Generation X at risk of falling down a savings gap, warns a leading pension provider.

In 2004, The Pensions Commission1 – set up to review UK private pensions and long-term savings – outlined that people in the UK would need a retirement income equivalent to two thirds of their working income.

Today, a new report from B&CE2, provider of The People’s Pension, based on data taken from the Wealth and Assets Survey3, found that six in 10 (61%)4 households and almost two thirds (63%) of individuals aren’t saving enough to meet that target, with a stark generational divide identified.

The report5, which includes new analysis from the Pensions Policy Institute6, also shows that two thirds (68%) of ‘Generation X’ workers, born between 1965 and 1980, and almost eight in 10 (76%) ‘Millennials’, born between 1981 and 1996, aren’t saving enough. That’s compared with just four in 10 (41%) ‘Baby Boomers’, those born between 1946 and 1964.

Self-employed gardener Jug Judge, 52, from Upper Beeding, West Sussex, doesn’t currently save for a pension.

He said: “I’m not prepared to give up a chunk of my income so that it will benefit me in 10 or 20 years’ time. I don’t think I have the wherewithal to plan for retirement and, at the moment, I consider myself very lucky that I can go out to work five or six days a week for 10 hours a day. I don’t know much about pensions and I am not the sort of character to be looking to the future.”

While Millennials largely have time to make up the shortfall, B&CE, which provides pensions to 1 in 5 workers across the UK, is warning that when Generation X retires in significant numbers, the country will face a retirement crisis. 

It is calling on the pensions industry, employers and trade unions to come together to form a consensus view on how to deal with the issue of under saving, and to produce a clear set of objectives for the UK pension system.

Phil Brown, director of policy at B&CE, said:

“Once Generation X starts to retire in large numbers, the UK could face a retirement savings crisis, with people unable to carry on with anything like their current standard of living.

“While this problem isn’t one that can be solved during the current cost of living crisis, it also shouldn’t be ignored. Government, employers and other stakeholders should look seriously at the UK’s pension framework, to gain consensus on the challenges ahead and set objectives for what sort of outcomes the state pension and workplace saving should look to achieve. 

“We would be in a much worse position if it were not for automatic enrolment, which has dramatically increased the number of people saving for retirement over the past decade, but now it’s time to ensure it reaches its full potential.”

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Note to editors:

1. Pensions adequacy is often defined in terms of replacement rates; the fraction of pre-retirement income that pension income makes up in retirement. The Pensions Commission set a series of replacement rates that are the most commonly accepted definition of pensions adequacy. These replacement rates underpin the policy work that is the basis for automatic enrolment. The replacement rates vary by pre-retirement earnings as someone with a lower income will need to replace a larger fraction of income in retirement in order to reach an adequate standard of living.             

2. B&CE is a not-for-profit organisation, which provides The People’s Pension, a leading workplace pension scheme, serving nearly six million pension savers across the UK. With no shareholders, it uses its profits to help people build financial foundations for life.

3. The Wealth and Assets Survey (WAS) launched in 2006 is a biennial longitudinal survey conducted by the Office for National Statistics (ONS). It measures the well-being of households and individuals in terms of their assets, savings, debt and retirement plans.

4. These figures have been updated from a press release issued by B&CE in May this year.

5. A full copy of the report can be found here

6. The Pensions Policy Institute (PPI) does not lobby for any particular solution, and is are not a think-tank taking politically influenced views. The PPI is an educational research charity, and have been providing non-political, independent comment and analysis on pensions policy and retirement income provision in the UK for over 20 years. Its aim is to improve information and understanding about pensions policy and retirement income provision through research and analysis, discussion, and publication. For news and other information about The PPI please visit www.pensionspolicyinstitute.org.uk

For further details, contact Blaise Tapp, the media relations manager at B&CE, on 01293 205 004 or blaisetapp@bandce.co.uk

Two appointments made to People’s Investments Limited Board

People’s Investments Limited Board1, the company that oversees the investments operation of B&CE2, the leading pensions provider, has made two new key appointments.

Mark Walker and Dawn Turner have been appointed to the five-person Board, which is responsible for independent oversight of around £18bn in investments for all entities within the B&CE Group, the provider of The People’s Pension.

Dawn is an independent advisor and non-e­­xecutive with expertise in responsible investment, sustainable finance and environmental, social and governance risks. Her other independent and advisory roles include renewable energy, social housing, pension investments as well as being the independent Chair of the Gwent Police Joint Audit Committee.

She was the former Chief Executive of the £30 billion investment management company, Brunel Pension Partnership Ltd, and was previously the Chief Pensions Officer for the Environment Agency Pension Fund. That represented the culmination of a 40-year executive career in the financial services and investment industry spanning across utilities, fashion, retail, manufacturing, leisure and environment sectors.

Mark is Chief Investment Officer of Coal Pension Trustees Services (CPT), the in-house executive responsible for the £22bn of investments of the Mineworkers’ Pension Scheme and the British Coal Staff Superannuation Scheme.

Mark was previously Managing Director and Global Chief Investment Officer of the Univest Company, Unilever’s internal investment group. He has also been a partner at Mercer and was head of the London Investment Consulting Unit.

Dawn said: “As an advocate of better futures for everybody, I’m looking forward to the challenges ahead and ensuring that B&CE’s millions of members continue to receive an exemplary service.”

Mark said: “I am delighted to be joining the People’s Investments Limited Board, which plays a vital role in the ongoing success of B&CE and its flagship product, The People’s Pension.”

Jon Cunliffe, Managing Director, Investments of B&CE, said: “Millions of people have put trust in B&CE to invest their savings through our range of products, which means it’s essential that they know their money is well looked after. The appointment of Dawn and Mark, who have so much knowledge and experience between them, is tremendous news for both People’s Investments Limited and our members.”

Ciarán Barr, Chair of People’s Investments Limited, said: “We are very pleased to welcome Dawn and Mark to the Board. Their extensive experience of investment and pensions, along with that of the existing Board members, will be invaluable in supporting our members now and into the future.”

Dawn and Mark will join the existing board of Ciarán Barr, Chair, and other independent non-executive Board members Jez Bezant and Chris Cheetham.

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Notes to editors

  1. The primary functions of the People’s Investments Limited Board are to oversee B&CE’s Investment activities on behalf of the group and its Trustee boards.
  2. B&CE is a not-for-profit organisation, which provides The People’s Pension, a leading workplace pension scheme, serving nearly six million pension savers across the UK. With no shareholders, it uses its profits to help people build financial foundations for life.

Maximising long-term returns using asset allocation

Even in economic good times, investing is a risky activity. Attempting to predict the future and bring together a combination of assets to fit that narrative is a trap to avoid. As recent geopolitical developments highlight, it’s exceptionally difficult to anticipate the evolution of world events, and after a steep fall in markets, it’s tempting to reduce risk by selling equities.

A better, more methodical approach is to estimate long-term returns by asset class and allocate the best mix of different investments to build a portfolio that maximises potential future returns for a given level of risk. As central banks abandon policies, such as quantitative easing, that have dampened market volatility in recent years, forming an educated opinion on future volatility and how the correlations between different asset classes are likely to evolve is a key part of this process.

Equities

For assets that benefit from economic growth – particularly equities – we utilise a combination of analysis of historical inflation-adjusted returns with:

  • expectations of long-term economic growth
  • inflation
  • risk premia
  • current valuation measures.

All this data helps us to draw conclusions about future returns; and the metrics substantiate our view that equities, over the next 10 years, should return 3-4% above inflation, somewhat less than we have seen since 2012.

Bonds

For defensive assets – principally bonds – we think carefully about:

  • low starting yields
  • the progressive unwinding of central bank quantitative easing
  • future inflation-growth trade-off.

Our analysis of this information leads us to believe that bonds will struggle to match inflation over the next decade, and after 3 years of strong returns, we are starting to reduce the interest rate and credit sensitivity of our bond portfolio.

As a result, over the next decade, the inflation-adjusted return of a traditional balanced 60/40 equity bond portfolio is unlikely to exceed 2%, considerably lower than the returns recorded since 2012. So, while this long-term strategic approach to asset allocation removes the risk of short-term price volatility, prospective returns appear moderate at best.

Hybrid investments

A solution to increasing returns in a balanced portfolio is to include hybrid investments in the asset mix at the expense of traditional fixed income. At The People’s Pension, our default investment option invests almost 67% in equities, 20% in bonds, and the rest in real estate and infrastructure investments. These latter 2 asset classes have both equity and bond-like characteristics as they engage in the benefits of economic growth and pricing power while also producing income. Evidence also suggests that they can provide some protection against inflation.

Risk premia strategies

The equity assets we invest in also use risk premia strategies, which comprise:

  • value
  • momentum
  • quality
  • size
  • low volatility.

Here, we employ a rules-based approach to benefit from market inefficiencies caused by investors’ various cognitive biases. We incorporate these strategies in a low-cost way within our members’ overall asset allocation.

The benefits of utilising hybrid assets and a risk premia approach

We estimate that introducing hybrid assets and a risk premia approach into our investment strategy should boost the long-term real return to around 3%, which, compared to a traditional balanced portfolio, is a better return. Obviously, there is no guarantee of future returns, and a combination of geopolitical uncertainty, elevated energy prices, and ongoing supply-side constraints is likely to lead to prolonged volatility, potentially whipsawing (ie the movement of stocks in a volatile market when a stock price will suddenly switch direction) those brave investors keen to trade markets tactically.

Looking forward

Looking to the future, after a weak start to the year, our base case is that economic growth will quicken as we move through 2022. However, inflation will remain a significant margin above the key central banks’ targets, and with wage growth lagging, real incomes will be squeezed. This time round, central banks will not be able to ‘look through’ unfavourable inflationary outcomes and there will be monetary policy tightening. Higher interest rates will be driven primarily by the authorities’ desire to ensure inflation expectations do not drift and cause a repeat of the 1970’s experience. Currently, financial markets are giving central banks the benefit of the doubt in their attempt to engineer a soft landing for inflation in 2023 while maintaining reasonable economic growth, and this remains our baseline scenario. Ifthis occurs, financial markets should recover lost ground as we head through this year. However, if central banks lose control of the inflationary narrative, expect further weakness in markets.   

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This article was written when we were B&CE, before we changed our name to People’s Partnership in November 2022.

New Head of Risk and Performance appointed

B&CE, provider of The People’s Pension, has strengthened its investments expertise with the appointment of a new Head of Risk and Performance.

Shakeel Ahmad joins the UK’s largest independent master trust from F&C/BMO Global Asset Management, where he was Head of Investment Risk. He has previously held the same position at JP Morgan and spent four years at ABN Amro Asset Management as Head of Risk Management for fixed income and FX. He has also previously held risk and performance-related roles across multiple asset classes at various investment houses.

At B&CE, which provides The People’s Pension to one in five workers, almost 6 million people, across the UK, Shakeel joins a growing investments team which oversees assets under management of more than £17 billion, alongside asset manager State Street Global Advisors.

Commenting on his appointment, he said:

“I’m delighted to have joined B&CE at such an exciting time in its history. I’m looking forward to working with a hugely talented investment team, which has the shared aim of making the right choices for the millions of members of The People’s Pension.”

Jon Cunliffe, managing director, investments at B&CE, said:

“We’re delighted that Shakeel has brought his wealth of knowledge and experience to B&CE. He shares B&CE’s values and is committed to putting the member at the heart of every decision made and helping them to build financial foundations for life.”

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Our ESG strategy prioritises a finance-first approach to investing

The consensus may be waning, but even today, some investors still agree with the Milton Friedman doctrine that a firm’s only responsibility is to legally increase its stakeholder profits, leaving individual investors, consumers, and employees – rather than corporations – as the leaders of positive societal change.

Previously, this approach was deemed to be logical. However, there are obvious problems with it. For example:

  • Firms that prioritise corporate responsibility may gain community support and, as a result, benefit their shareholders.
  • There is evidence that firms that subscribe to the Friedman doctrine place excessive focus on short-term profit delivery, which has a negative effect on longer-term thinking around investment and innovation.

A finance-first approach to ESG

However, be that as it may, we need to be mindful of not constraining investments too narrowly when integrating environmental, social and governance factors because this will begin to diminish prospective risk-adjusted returns. If social and economic considerations take precedence over a finance-first approach to investing, there is a heightened risk that future investment returns will be compromised. Therefore, it’s important for investment managers to take a sensible approach to ESG investing, one that aligns with a finance-first approach. For example, if a company is involved in polluting the environment, exploiting its workers, or incentivising its managers to focus on short-term profit delivery, then these issues are likely to reduce the sustainability of its business model and therefore its attractiveness as an investment.

Higher market valuations

ESG considerations should not be treated as an add-on to a pre-existing asset allocation approach but should be at the core of how members’ retirement savings are allocated. While it cannot be comprehensively proven, there is substantial academic evidence to support the view that companies with higher-than-average ESG ratings tend to be rewarded with higher market valuations compared to their competitors.

A fundamental reason for this seems to be that these companies are better at managing the non-financial risks of their business models, and, as a result, this makes them relatively more sustainable and less susceptible to a damaging de-rating by the market. We’ve all seen real-world examples of companies not managing non-financial risks and the negative effects on their share prices, such as the Deepwater Horizon oil spill on BP or the emissions scandal on Volkswagen.

A ‘leader’ in managing ESG risks

At The People’s Pension, we have successfully incorporated ESG into the stewardship of our members’ retirement savings and, using MSCI ESG ratings, our default investment profile has been rated AA, making it a ‘leader’ in managing ESG risks. However, this is only part of what we’re focusing on as responsible investors.

An exclusionary approach

Instead of adopting the best in class, the ‘how’ approach to ESG investing, responsible investing involves making the active choice to remove (or choose) investments based upon the ‘what’. The ‘what’ typically involves removing or excluding investments in controversial weapons, addictive substances, gambling, and enterprises damaging to the environment. Therefore, in addition to ESG integration, we have used negative screens to help us divest £226m from 147 companies involved in controversial weapons or linked to controversies involving human rights, labour, the environment, and corruption.

Due to the increasing influence of responsible investment on investor choices, this approach should not sacrifice returns and can help prevent assets from becoming stranded by climate transition. Therefore, an exclusionary approach, in theory, can add to the improved risk-adjusted returns achieved through ESG integration. We have progressed even further with this approach by implementing tilts to reduce the carbon emissions from the assets we hold for our members.

Our goal is to be engaged asset owners, and we therefore expect our external managers to participate on behalf of our members in order to help ensure responsible governance and reduce non-financial risks. This activity should have a positive impact on our members’ returns over the long term. 

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This article was written when we were B&CE, before we changed our name to People’s Partnership in November 2022.

How we run our members’ money

Like most pension schemes, the vast majority of our members invest in the default. So, this fund is particularly important and requires a highly focused investment strategy that means savers can receive the retirement outcome they deserve.

Optimising risk and return

We prioritise optimising risk and return by offering an appropriate default fund, which meets the retirement needs of our members in the most cost-effective way. We do this by investing in several different asset classes that target positive long-term returns. This combination of different assets forms what is known as a ‘balanced portfolio’. It uses the benefits of diversification with the aim of reducing the fluctuations of our members’ investment returns. 

Traditional beta with equities as the cornerstone

Most long-term investment returns derive from asset allocation in traditional beta, which is made up of various sources of return. Equities are the cornerstone, having historically been the best way for investors to benefit from economic growth through corporate earnings.

Our equity allocation incorporates risk premia strategies, which use a rules-based approach to benefit from market inefficiencies caused by investors’ various cognitive biases. These strategies consist of value, momentum, quality, size and low volatility –and we integrate them in a low-cost way within our members’ overall asset allocation.

Infrastructure and property

Along with equities, we also invest in 2 other so-called ‘growth-facing’ asset classes – infrastructure and property. They’re ‘hybrids’ in the sense that they both have equity and bond-like characteristics; they can generate economic growth as well as an income stream and have lower volatility compared to equities. Both of these asset classes boost the risk-adjusted returns received by our members.

Bonds

We also hold bonds, historically a key part of a balanced portfolio. Yet, low yields and high levels of interest rate sensitivity have reduced prospective risk-adjusted returns. While it’s inevitable that future returns will be lower, we still think that sovereign bonds do offer valuable diversification benefits in a portfolio of mixed assets.

Sustained inflationary risk that prompts central banks to push up interest rates too quickly must be taken seriously. However, current high levels of borrowing suggest a limited cycle of rate hikes – with central banks eager to inflate away the debt burden by tolerating above-target inflation, while committing to maintaining interest rates at relatively low levels. 

Corporate bonds

Our fixed income allocation is heavily weighted towards corporate bonds, which has been a big positive for our members’ returns. An early end to the economic cycle would be negative for these assets; but we feel that central banks are committed to extending the current economic expansion.

Foreign exchange risk

Finally, there is foreign exchange risk. We take a rational, global approach to long-term asset allocation, so the majority of our investments are in foreign currency. We don’t want to hold unrewarded risk for our members. And as a result, we have analysed the appropriate amount of exposure to the major foreign currencies that we should hedge back to the Pound and concluded that 70% is the optimal level.

Responsible investing

There is significant academic evidence that suggests that companies with higher-than-average environmental, social, and governance (ESG) ratings are rewarded with relatively higher market valuations. Crucially, these companies are better at managing their non-financial risks, which makes them less prone to a damaging de-rating by the market.

Surveys show that ESG is important to our members. Morgan Stanley Capital International (MSCI) has rated the accumulation fund used in our default lifestyle profile as ‘AA’. This means that the companies our members hold are, on average, leaders in managing ESG risks and opportunities. 

Also, we’ve actively decided to remove (or choose) investments in companies based upon the detrimental nature of their business activities. This approach is increasingly preferred by investors. It should not necessarily involve sacrificing returns and should be able to increase the improved risk-adjusted returns delivered by ESG integration.

Continuing to evolve our approach

Like all major asset owners, we need to continue to evolve our approach. A lot of good work has already been done to ensure that our members’ investment journeys are positive, and this is something I intend to build upon in the years ahead.

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This article was written when we were B&CE, before we changed our name to People’s Partnership in November 2022.

A review of pensions policy in 2021

Many of the policy changes discussed in 2021, like pensions dashboards, will be difficult to accomplish but will bring real improvements for savers. We have more questions about other initiatives, but have no doubt the Department for Work and Pensions (DWP) is trying to improve the UK pension system.  

Pensions dashboards

Big projects, like the pensions dashboards have seen major progress this year. The main contracts for the systems that will make the dashboards work have been issued by the Money and Pensions Service and they are progressing towards staging schemes on dashboards from early 2023.

Most of the legal and regulatory rules that will underpin how dashboards work have yet to be published, so there is still much to do. Similarly, we haven’t seen the application programming interface (API) that will be used to link together pension scheme member databases and the dashboards information architecture. It’s imperative that schemes get confirmation on the final requirements as soon as possible so that preparation can begin in earnest.

Small pots

In late 2020, the DWP working group produced a report recommending that the industry look at the policy and administrative issues around automatic consolidation of small pots. So, this year there has been further investigation into the small pots issue. And now following a report by the Pensions and Lifetime Savings Association (PLSA) and the Association of British Insurers (ABI) working group, there is a need for further action by policymakers. It is likely we will need legal and potential primary legislation to make small pot consolidation a reality. We hope that both the government and the industry will return to the table in 2022.

Communications and engagement

We now have final regulations for the simpler annual benefit statement.

The statement is now a known quantity. For most people, it’ll be a clear and standard-comparable document. For some (potentially those with more than one job or a protected pension age) it may look different, but not significantly so.

Investments

On investments, we have seen a renewed focus on investing in illiquid assets. Much of the government views rapidly growing DC funds as an easy source of capital for national economic priorities.

Measures like changing the charge cap are being suggested, which we see as ineffective. But other measures, like a new fund structure, are more likely to enable greater diversification in how DC funds invest. Broadly, we see investment in unlisted assets as potentially desirable given the large body of work showing an illiquidity premium for the schemes capable of capturing it.

The market for workplace DC is, however, very price-sensitive. Investing in unlisted assets is typically much more expensive than investing passively in listed equities and changing scheme asset allocations to invest in unlisted assets would most likely pass through to member charges.

Value for money

Which brings us to The Pensions Regulator and the Financial Conduct Authority framework for value for money. Making the workplace pension conversation about value, rather than just charges, is a sensible aim. Initially, the regulators’ value-for-money framework is intended to help pension professionals assess value, but, in time, we expect metrics to be developed that are consumer facing.

Our view is evolving. The focus on the proposed framework consultation paper in judging the quality of scheme oversight, investment and costs and charges is mainly right. The Pensions Policy Institute’s recent piece on the global experience of value for money also highlighted the importance of governance as a theme. It’s something we hope both regulators will return to.

So, while we expect 2022 to be equally busy, the hope is that policymakers keep the bigger picture in mind. 

Tim Gosling, head of pensions policy at B&CE, provider of The People’s Pension

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This article was written when we were B&CE, before we changed our name to People’s Partnership in November 2022.

Leading the value debate and meeting newly-engaged member expectations

When saver engagement comes – and I guarantee it will – how can we show the value of what we offer? As saver interest grows, can we tell the story of how we’re all helping to plan for our members’ futures and, if so, will we be able to service all their enquiries and not let them down?

The price of a family car

Common sense tells us the more a member has saved, the more involved they’ll be with their pension savings. It’s noted in Australia, who’ve had auto-enrolment since the 1990’s, that people take an interest in their savings when the value of their pot reaches the price of an ordinary family car.

Auto-enrolment, pension growth and increasing member engagement

As we approach the UK’s 10-year anniversary of auto-enrolment, pension pots are growing, and people are beginning to take more interest in their savings. We’ve seen this in our own members, where those who have more saved are more active in their online account.

So, as providers, employers, and financial professionals, we need to prepare ourselves for more engaged members, the questions they’re likely to ask, and the support they may need.

What is the charge?

Once engaged, charges often come as a bit of a surprise to savers, and 2 questions they will ask are, ‘How much am I being charged?’ and ‘Can I get it cheaper elsewhere?’ The Cheapest isn’t always the best, but in the case of pensions, value for money is important.

Value for money

Value for money for the newly-engaged saver is important, and what charges are paid for in pounds and pence is essential.

Flat percentage charges increase the cost to the member as their savings grow. So, to improve value for money, many financial companies reduce charges gradually as a member’s savings grow.

Employee benefits benefit employers too

Employers also want value for money from their workplace pension schemes too. Research tells us that employees value their employer’s pension contributions – second only to holiday entitlement. A scheme that lowers a member’s charge as their pot grows, effectively rewards loyal employees.

For employers, it’s very difficult to examine value for money at an individual level. Therefore, offering a scheme that reduces employees’ charges demonstrates value and promotes ownership of the journey towards an affordable retirement.

The shift from defined benefit to defined contribution pensions places greater responsibility on the member. Individuals approaching retirement must decide what to do with their savings and consider competing future variables, such as longevity, inflation, investment returns, and risks. How can we help them see the importance of those decisions?

Creating the journey

Our long-running New Choices, Big Decisions longitudinal study highlights that as people approach retirement, financial decisions can be made with little grasp of the full facts. Instead, they often choose the path of least resistance.

As an industry, we’ve confused savers instead of creating a simple journey of saving and then spending. What’s needed are guided routes into retirement, starting long before retirement approaches, when trigger points activate engagement and forward thinking. We must make it easier for them to become engaged with their savings and show our value.

Knowing how much money they have, who they can pass it on to if the worst happens, and where they can get simple retirement planning tools may be enough for some savers. For them, accessing their pot online must be the first step.

Pension engagement has been smouldering for years, but with a few small steps we can help ignite future interest for savers who want to know more. Employers, pension providers, and trusted financial advisers all have a role to play here in driving engagement and demonstrating value. The end destination should be a comfortable retirement. How savers think and approach that, along with lessons for us all, are discussed in our New Choices, Big Decisions report.

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This article was written when we were B&CE, before we changed our name to People’s Partnership in November 2022.