Pensions industry 'creaking' amid 'widescale capacity crunch' - ACA

Around 88 per cent of employers expect pension schemes to struggle to find individuals who are prepared to take on the role of trustee amid a growing regulatory burden, according to research from the Association of Consulting Actuaries (ACA).

The ACA’s 2021 Pension trends survey found that a further 76 per cent of employers also expect more trustees to consider resigning due to the scale of the new responsibilities they are expected take on.

The findings have prompted concerns that the industry is "creaking" under the weight of an increasing regulatory burden, with the ACA warning that the pace of change is also pushing up costs, revealing that governance costs have increased by over 5 per cent in the past year alone.

Furthermore, over half (57 per cent) of employers said they expect governance costs to increase by over 5 per cent per annum.

It is perhaps unsurprising then that 19 per cent of employers said that they are considering sole trusteeship to simplify governance of the scheme, with 7 per cent having taken this decision in the past two years.

The report also raised concerns around the lack of regulatory progress in some areas, however, revealing that 58 per cent of employers thought the delay in progressing legislation and regulation to enable defined benefit (DB) consolidation arrangements was hampering decision making.

In addition to this, it found that support for DB consolidation had declined by a fifth in the past 12 months, whilst those 'undecided’ had grown to over a third, with a further 69 per cent expressing concerns about potential reputational risk.

However, the opposite was found to be true for defined contribution (DC) schemes, as while over a third of employers have already adopted a DC master trust or made DC consolidation decisions, 53 per cent said they are not exploring DC consolidation and are unlikely to do so.

Whilst progress has been seen around the pensions dashboard, the ACA warned that this was "worryingly slow" given the planned launch in 2023, as only a "narrow majority" of 51 per cent of scheme trustees and governing bodies have taken action to clean up their pensions data in preparation for pensions dashboard.

Commenting on the findings, ACA chair, Patrick Bloomfield, said: “The pensions industry is creaking under the weight of too much legislative change being pushed through at the same time.

“A widescale capacity crunch is already happening and set to get worse as dashboards, GMP equalisation, simple statements, scam prevention and climate change are all competing for space, alongside fundamental changes to DB funding regulation and DC value for money.

“The pace of change in pensions is pushing up costs and discouraging people from being trustees. Unless steps are taken to manage the pressures being put on schemes, we risk killing off the UK’s traditional model of trusteeship.

“This would all but remove the member representation in trustee boards, which was seen as such as positive step forwards 25 years ago, following the Maxwell scandal.

“Brexit and Covid-19 have caused understandable delays in getting many pension policy issues over the line.

“We desperately need the government to focus on getting longstanding matters completed and implemented, before adding more things to the pensions to-do-list.”

Adding to this, Pensions and Lifetime Savings Association (PLSA) director of policy and advocacy, Nigel Peaple, agreed that there is a "huge amount" of regulatory change facing pension schemes in 2022, with "widespread concern" about whether the industry can handle so much at once.

"A certain amount of regulatory change is necessary, but a balance must be struck between the benefits it delivers in terms of better retirement outcomes, and the costs, which ultimately fall on individual savers and employers," he continued.

“To ensure we avoid over-regulation, it is important that the government does a proper cost-benefit assessment before making proposals and undertakes fully open and public consultation before proposing new requirements."

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