Pulling the Right Levers: What action to take Amidst Economic Turbulence

The UK continues to face a challenging and uncertain economic landscape. High fuel and food prices, a current bank rate of 5.25% (with more news expected on the 1st of February), high inflation (4% against a target of 2%) (Source: Bank of England) and continued political and (global) economic volatility all contribute to this uncertainty.

Such uncertainty and volatility heighten the importance of those with pension scheme responsibilities including members planning for retirement.

As employers and trustees, there is a pressing duty to guide employees, particularly those in disadvantaged groups, towards wise pension decisions that will result in the best possible outcomes. The challenge, recognising the strategic importance and financial security that pensions offer individuals through and at retirement, is achieving this in the light of such an economic backdrop.

Even with the best intentions, if you miscommunicate or make incorrect decision, you may come off as disconnected from reality and insensitive to the everyday struggles that some members might be facing such as heating their home or putting food on the table.

But burying your head in the sand at leaving employees or members to fend for themselves is not the answer either.

Pension professionals and those employers who have responsibility for pension schemes need to remember that member support is ‘not just for Christmas’, it’s for the duration of the time that the members participate in the scheme.

So, what are the right levers to pull and how do you navigate the economic snowstorm? The answer is carefully (but confidently) remembering that the active decisions to take, need to be seen in the light of your own scheme and its members.

Listed below is a ‘top-10’ of practical actions that you may wish to consider as you wrestle with this all-important challenge:

  1. Good Governance: Practices that are transparent, accountable, and regulation-adherent inspire confidence, encouraging employees to invest in their pension schemes. Employees need assurance that their investments are secure and that their futures are being well looked after too.
  2. Competitive Pension Scheme Charges: Regular scheme charge reviews and negotiations can boost net returns for members. This is particularly true of Defined Contribution (DC) schemes that were early adopters of arrangements like master trust. Pension providers are very much ‘open for business’ and the chances are, you should be able to get contributions working harder for the member, if not with the incumbent, then with somebody else.
  3. Investment choice: Focusing on high-performing investment strategies and diversified portfolios can mitigate risks and supercharge returns. It is crucial to remember that it’s not just the investment decision in the period of saving that counts, but also the investment decisions taken in the period up to retirement. Is this 5 years, 7 years or 10 and what strategy should be adopted?
  4. ESG – The rise of Environmental, Social, and Governance (ESG) investing can serve as an important incentive in encouraging employees to save more (and in the right way). By aligning retirement savings with ESG principles, employees can play their part in shaping a sustainable future while securing their own. An employer who has a publicly stated ESG agenda but does not give any thought to its pension strategy is at reputational risk of criticism.
  5. Default Investment Strategy: A default investment strategy that mirrors the needs and risk appetite of scheme members is crucial. Once the strategic decision on default is taken, tweaks might be needed by the investment manager to ensure it stays relevant, however any change must be consistent with a robust strategic and documented plan.
  6. Pension Literacy: Regular, digestible, targeted, and relevant communication is a must. Not least, the benefits of joining and ongoing membership of a DC pension scheme should be promoted. How you do this, however, needs to be considered. Gamification of pensions, as part of an individual’s overall financial wellbeing might be the answer (get them to look at pension in the same way as mobile banking, perhaps linking together all their financial accounts in one place).
    It is worth remembering too that every member is different. Using a ‘one-size-fits-all’ communication approach could wrongly categorise employees as the same. For example, two employees may be of the same age, gender and enjoy a similar income (hence presumed to have the same needs) when in fact we know everyday life means what’s important to one, is not for another.
  7. Empowerment and Engagement: Offering financial planning tools and encouraging an open dialogue about retirement planning can alleviate fears and uncertainties.
  8. Flexible Pension Contribution Options: Options that adapt to personal circumstances make retirement planning more manageable, particularly amid a changeable economic environment.
  9. Governmental Incentives for Pension: Highlighting tax relief and employer contribution matching are current examples of incentives that can provide the nudge for employees to contribute more – or not opt out or ratchet down contributions. Pension salary sacrifice is a must too. Savings in NIC can be given back to the employee, shared, or retained.
  10. Continuous Improvement in Pension Planning: Regularly fine-tuning strategies based on effectiveness and employee feedback is likely to result in better outcomes.

The current economic climate may be tough, but with the right levers, we can steer employees and pension scheme members towards a more secure future, ensuring a comfortable retirement for all.

Here at Broadstone, we are well positioned to advise and support pension schemes and their advisors. We work closely with both professional trustees and sponsoring employers and have everyday experience of tackling these and other issues. We can also work directly with the members too.

We offer independent and unbiased advice and always seek to put the client first. Collectively confident, our expert teams specialise in advising clients on DC and DB pensions, Risk, Healthcare, and Investment. We can also offer regulated Individual member advice and support with Communication and deliver Benefit Technology. We always seek to add value in everything we do. Our goal is to get the right outcomes for our clients first time.

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