Catherine Doyle looks back on 2017 and finds much to be optimistic about in the world of DC
Now 2017 has ended we can look back at the events and milestones of another busy year for defined contribution (DC) and pensions more broadly. In June, the Financial Conduct Authority's (FCA) Asset Management Market Study Final Report placed the spotlight firmly on the structure and dynamics of our industry, including the influential role of investment consultants. The following month, the interim findings of the FCA's Retirement Outcomes Review gave us an interesting, although perhaps unsurprising, snapshot of behavioural tendencies as consumers reach the point of retirement.
In October, the financial press heralded with much fanfare the five-year anniversary of auto-enrolment (AE). While it is indisputable that the feat of automatically enrolling 8.3 million individuals into a workplace pension is considerable, the industry has yet to face one of its greatest challenges: the advent of auto-escalation and the effect that this will have on members for whom the enrolment itself may have gone largely unnoticed. Preliminary signs bode well, with 80% of employees being positive about the benefits of being enrolled into a workplace pension. In addition, 79% of those with workplace pensions would welcome increasing their own savings alongside employer contributions, according to a recent study by Ipsos Mori.
The recent embedding of financial education in the national curriculum - indeed our own organisation has recently joined forces with other industry participants to take financial education to primary school children - is undoubtedly a positive step to help ensure that the key foundation stones of financial understanding are established at an early age. This in time should translate into a greater appreciation of the benefits and need for long-term saving.
As I mentioned in one of my earlier columns, perhaps the greatest boon of the last year, amid the uncertainty created by the fractious Brexit discussions, is that pensions have been less centre stage in political discussions, although important and industry-shaping work has continued to be pursued in the background. A case in point is the AE review, the final conclusions of which should provide greater clarity around the future direction of travel for this important framework.
Many key areas of development in DC remain works in progress, including the absence of more concrete savings targets, governance deficiencies among smaller schemes, and the role of the recently introduced Lifetime ISAs and whether they represent a competitor or a complement to workplace pensions. These are all seminal questions, and we are confident that the move towards DC scheme consolidation, which continues apace, will lead to increased sophistication in respect of how best to structure existing arrangements. The stark reality remains that we need to make DC pensions a success, or future cohorts will end up with insufficient provisions to cover anything more than basic needs in retirement. It is a challenge to which our industry continues to rise as we sow the seeds for future generations.
