Pension Funds Insider

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A time to choose

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Life in slow motion: That’s how a video camera might record human activity on Earth now. The streets are empty, almost as if a neutron bomb has gone off. Many aspects of normal life are paused. On closer examination though, there’s a lot going on.

In pensions, of necessity it’s almost business as usual, except offices have been atomized and we’re even more reliant on the internet for communication. There’s not much new business, but members are still active (even the millions on furlough) – and getting anxious. Most these days are dependent on a money purchase pot, which they’ve heard has taken a big hit lately.
Calls are coming in to providers: what should I do? Well of course there’s no answer to that, unless you have a financial adviser, which most people don’t. Cue more anxiety. Okay then, what are my options?
Defined benefit schemes might come under further pressure from members wanting to transfer out – The Pensions Regulator is on the ball there, stiffening the administrator’s backbone (as far as the law allows). Flexible access means you can get at your pension once you’re 55, provided it’s in a money purchase arrangement.
It’s all given a huge fillip to scammers. Some pension scheme members who might not have been vulnerable last year are now more needy, because let’s remember, millions do not qualify for government help. That includes a significant proportion of the self-employed as well as those consigned to zero-hours contracts or the gig economy.  Many of those on furlough will be finding it tight to manage on 80%, when they’ve been used to finding too much month at the end of the money as it was.
And of course, we don’t know how long this is going to go on; or indeed what the future will look like. In the summer of 1914, young men sallied off to a war they expected would be over by Christmas. Eighty years ago this month, the next war also looked like ending soon, but not in a good way. As we know now, but people didn’t know then, each world war dragged on for years.
Weary indeed by 1918, the Spanish flu pandemic and the ensuing economic slump of 1919 put paid to any hopes of change (although women in the UK were eventually granted the right to vote, ten years later). By 1945, things were different; people decided they weren’t going back to what had been normal six years earlier. They chose a new way: notably, a National Health Service.
We are now living in a historic moment; one of those few times when a pandemic has such an impact that we are forced to consider what is really necessary, and what is not. This time, it’s not so much the mortality: globally, COVID-19 might only kill a tenth of the 40 million who died of the flu in 1918/19. There’s no vaccine yet, but reason to believe we’ll have one in a year or so. Advances in medicine over the past hundred years – and the NHS - have given us hopes of which our forefathers were bereft.
But who are ‘us’? Yes, ‘us in the UK’; but the current pandemic has forced us to understand – if climate change had still not – that even an island nation cannot isolate itself from the rest of the world. So whatever choices we make about our future way of life must assume we are citizens of the world, as well as of our own nation state. Politicians who disdain our global responsibilities will not be forgiven.
What does this mean for UK pensions? The economic downturn – if we can use that euphemistic description – along with the imperative to tackle climate change will ensure ‘ESG’ is the mantra at the centre of scheme investment strategy. That’s ‘Environmental, Social and Governance’ criteria: each of equal relevance to a sustainable future.
This is definitely not a responsibility which can be laid off to the asset managers. Trustees of occupational pension schemes and Independent Governance Committees of personal pension providers must ensure the right priorities are observed. “Value for money”, promoted as the watchword by regulators, has to be forward-looking.
Most workers (except, and this too must change, many of those self-employed) are currently saving in a pension scheme. Most are much younger than 55: and even those that have reached this magic ‘minimum pension age’ would be well-advised to carry on, rather than start spending their pension. 
We’re in for the long term: what we now need to think about, too, is what will make our saving worthwhile. What kind of future do we want?
Ian Neale
Director, Aries Insight