The government's plans to speed up consolidation of pensions schemes in the defined contribution sector could lead to an opening of the “crocodile’s jaws” in terms of schemes that deliver value and those that do not, says Rona Train.
The partner at Hymans Robertson says consolidation can lead to greater value for money for members if the larger provider offers better technology and greater choice. But it can also lead to a loss of value if aspects such as administration go wrong.
Train says most of the smaller trust-based schemes will have moved to a master trust in future and she says the most important thing for employers is to ensure they actively work with the provider to improve services.
In a Q&A with FTAdviser In Focus she reflects on upcoming regulatory changes and the effect these will have on pensions.
FTA: What’s your view of the Edinburgh reforms overall?
RT: The ambition behind the Edinburgh reforms is a good one – “for the UK to be the world’s most innovative and competitive global financial centre”.
Sitting behind this is a number of initiatives to deliver this, including the productive finance working group, which we fully support.
Further detail is required in some areas to bring the ambitions properly to life and deliver on them. We recognise some of the planning is still in the early stages, but we very much welcome the evolution.
FTA: What effect will greater open banking integration have on pension saving?
RT: Open banking will mean that pension savers will be able to see all of their pensions and savings in one place, allowing them a more holistic picture of their finances.
This is to be welcomed, as it will help members to view their pension savings as ‘their’ money, rather than something that is many, many years away over which they have little visibility.
This could potentially lead to greater engagement in, and ownership of, their pension assets and could impact the level at which they contribute into their pension going forward.
FTA: What’s your view on the government’s plans to allow pension funds to free up funds for illiquid assets?
RT: We firmly believe that there are clear benefits to DC pension schemes of investing in illiquid assets, while also recognising the risks and limitations that may apply for some schemes.
We’ve already seen several master trusts access illiquid assets, and we see the opportunity for schemes to invest up to 20 per cent of assets under management in illiquids over the medium term.
We’ve been talking for a while about our principle of 10/10/10 – by this we mean: paying an additional 10 basis points in fees, to get a 10 per cent allocation to illiquid assets within a scheme’s default assets, in order to achieve a 10 per cent improvement in member outcomes.
