Pension savers could face being trapped in low-return funds post-Covid, warns LCP

Thousands of pension savers could be trapped in unsuitable and low returning investments or funds they never asked to be invested in once the Covid-19 pandemic subsides, Lane Clark & Peacock (LCP) has warned.

The pensions consultancy cautioned that some workplace members who have actively chosen to invest in property funds could find themselves invested in low-return cash investments, as some property funds have been gated because of the difficulty in valuing property assets in the current crisis.

As a countermeasure, LCP stated that contributions are generally being diverted to low-return cash investments as a short-term solution, leaving schemes to decide what to do with future contributions if members do not name a preference when the property funds reopen.

LCP pointed out that a scheme which opts to redirect the new contributions into a property fund based purely on the assumption that this is what the member would want runs the risk of breaching the 0.75 per cent charging cap, which protects members of schemes covered by automatic enrolment rules.

The consultancy said this was because there is a “legal risk” that the property fund could also be treated as a default fund, which is the fund into which contributions are directed if the member has not expressed any active choice about investments.

LCP warned that savers faced “long-term” damage as some schemes are understood to be considering simply leaving members’ money in low-risk and low-return cash funds.

LCP partner and head of DC, Laura Myers, said: “Where members have actively chosen to invest in property, they have been willing to face higher charges in the hope of securing better returns. It would be perverse if this was now regarded as a default arrangement and further, in breach of the charge cap.

“It would be even more perverse if the result was that member funds continue to be invested in an overly cautious way, which is likely to produce a lower pension pot at retirement. The Pensions Regulator's (TPR’s) guidance on this does not go far enough and leaves the issue open to legal interpretation and unfortunately worse outcomes for members.

“We urgently need clarity from government and TPR so that members do not lose out.”

    Share Story:

Recent Stories

A time for fixed income
Francesca Fabrizi discusses fixed income trends and opportunities with Goldman Sachs Asset Management Head of UK Pensions Solutions, Fixed Income Portfolio Management, Henry Hughes, in our Pensions Age video interview

Purposeful run-on
Laura Blows discusses purposeful run-on for DB schemes with Isio director, actuarial and consulting, Matt Brown, in Pensions Age’s latest video interview
Find out more about Purposeful Run On

Keeping on track
In the latest Pensions Age podcast, Sophie Smith talks to Pensions Dashboards Programme (PDP) principal, Chris Curry, about the latest pensions dashboards developments, and the work still needed to stay on track
Building investments in a DC world
In the latest Pensions Age podcast, Sophie Smith talks to USS Investment Management’s head of investment product management, Naomi Clark, about the USS’ DC investments and its journey into private markets