- Chris Curry – Director, Pensions Policy Institute
- Gregg McClymont – Executive Director, Public Affairs, IFM
- Steve Webb – Partner, LCP
- Carol Young – Group Chief Executive, USS
What do you think will be the two biggest changes to the pensions landscape by 2035?
Steve Webb: There’s no doubt that artificial intelligence (AI) will transform pensions, but it’s hard to forecast at this stage exactly how! One possibility is that ‘robo advice,’ which has been talked about for years but never really delivered, will finally turn into reality. This could be transformative in a defined contribution (DC) world where people now have to make choices about how to exercise their ‘pension freedoms’.
I also expect that by 2035 we’ll have seen massive consolidation both at scheme level and individual level. In the DC space, I suspect most employees will be with one of a small number of master trusts, and individuals will be using dashboards and other tools to consolidate their own individual pots.
Carol Young: Firstly, we’ll see many more people relying substantially on DC savings in retirement. This will influence the kinds of decisions people have to make. We need to help give savers the best chance of understanding and planning their spending needs in retirement. I hope we’ll see continued innovation in how people are supported to target their preferred living standards and access their savings.
The second major change will be more consolidation. This has the potential to achieve economies of scale that can unlock new investment opportunities, give schemes greater influence in ESG and responsible investment decision-making, and deliver better value for money – all of which should lead to better outcomes for members.
Chris Curry: There are many issues that are likely to change the pensions landscape between now and 2035, including continued demographic, economic and labour market change. But I believe the biggest drivers of change will be technology and climate.
The pensions industry is already behind many other industries when it comes to the use of technology, and the pace of change is only likely to increase once initiatives such as pensions dashboards become part of the landscape for savers. Climate and the environment are likely to affect all aspects of life, which will provide challenges for the pensions industry both as providers and also as employers.
Gregg McClymont: We’ll be living in a DC world – the whole debate will be about DC income in retirement.
We’ll see a much larger master trusts sector because of compounding of asset values and default retirement income products which create pensions rather than savings products.
Increased employer contributions rising in a staged process towards 8% as part of 12% total contributions from the first pound of earnings will also have a significant impact by then.
What role will pensions policy play in those changes?
CY: It is critically important to have policies that make it easier for members to act in ways that support their long-term best interests. We need policy interventions that enable trustees and providers to focus the majority of their time on providing support to members. This includes designing processes for key points of interaction – joining, midlife check-ins, retiring – from a member’s perspective, so that they are well-supported through their retirement savings journey. Ideally, that would be via the kind of slick, digital experiences they’ve grown used to in many other parts of their lives.
We also need to recognise that while most people will be building up DC pots, there are still defined benefit (DB) schemes like USS that are open to new members and they need to be given every chance to thrive.
SW: Government policy is likely to drive consolidation at the scheme level, with tougher regulation forcing the smallest schemes to merge. For individuals, the successful delivery of a pensions dashboard plus improvements in technology should make it easier (if not automatic) for scattered pension pots to be consolidated.
In the DB space, the market will be much more mature in a decade. The steady decline in the number of DB schemes is likely to accelerate, and an enhanced role for the PPF could well be a part of that.
GM: Pensions policy will have a large role in future change, mainly by evolving automatic enrolment mandatory contributions, thresholds and default retirement products.
CC: Pensions policy will need to continue to evolve in order to meet the needs created by the changing landscape. It will need to become more holistic, ensuring that it can balance the trade-offs between adequacy, sustainability and fairness, and is likely to change gradually over time rather than a big-bang change that leads to a new direction.
Key areas include the challenge of building on the success of automatic enrolment and continuing to harness the power of inertia while still encouraging and enabling better outcomes for those who can do more. We also need to fully understand and account for both inter- and intragenerational issues.
What one action should pension executives do now to prepare for the future?
CC: As the needs and demands of savers change, it’s vital that the industry also changes to meet these needs and demands. So as well as trying to understand the savers of today and what they need now, it’s vital that industry players already start to consider how wider economic and social change will impact not just on them as an organisation, but what that will mean for their future savers. That is not necessarily about products, as customer service and the way in which services are delivered and consumed will become increasingly important as people look for something that will fit in with the way they live the rest of their lives.
CY: Invest in really understanding your members’ priorities. Identify the key points in their lives, and their interactions with your scheme, where they most need your support. Use this to figure out how best to engage with them in making their pension savings – and their plans for retirement – matter to them today. This is not just about communications – it’s about designing end-to-end experiences that make it easier for them to make informed choices, or rely on well-designed defaults, that best support their long-term aims.
SW: Get your data sorted! Whether it’s a DB scheme preparing for buyout, a DC scheme trying to design optimal pathways for its members, or any scheme providing information to a dashboard, good data is essential. And good data is not simply a regulatory chore but, in an era of machine learning and AI, those who have good data will be much better placed to use it and learn from it.
GM: Plan for the reality that in pensions policy, the only constant is change.
Hear more at the Annual Conference
Steve, Carol, Chris and Gregg will be further debating the future of pensions at our Annual Conference on 17 October at 4.30 pm.