LONDON, 28 November 2023 - Aon plc (NYSE: AON), a leading global professional services firm, has set out its “hopes and fears” for pensions in 2024.
After a year in which UK pension schemes digested the events of 2022 and adjusted themselves to new circumstances, Matthew Arends, partner and head of UK retirement policy at Aon, looks at what the pension industry may have on its mind as it goes into 2024.
Matthew Arends said:
“All those involved in running pension schemes may have mixed feelings as they face the New Year. There have been improvements in most defined benefit (DB) pension schemes’ funding levels during 2023, but many defined contribution (DC) savings pots may have suffered from lower investment returns compared with previous years.
“The mixed picture also extends to views of the future, the weight of regulatory change affecting pensions, as well as the resulting governance and operational burden it brings. This is sparking fears over how schemes can resource appropriately to address the amount of regulatory change affecting them.”
Matthew Arends continued:
“Even before July’s Mansion House Reforms, the concern of regulatory burden was a clear message that rang out from the UK results of our Global Pension Risk Survey this year. While schemes continued to navigate familiar and new forms of volatility, there were also concerns over the volume and pace of regulatory change and the uncertain policy direction from government.
“For example, the Pension Regulator’s focus on DB de-risking now seems to have been supplanted by an encouragement to invest in UK growth assets, along with the government reducing the tax on surpluses and floating the potential for legislative changes to encourage DB schemes to run on. It's unclear as things stand, how these tensions will be resolved and how much this change in focus will be borne out in scheme endgame strategies.”
Matthew Arends continued:
“DC schemes will need to react to several regulatory changes in the pipeline, such as the extension of auto-enrolment, the new value for money framework, small pots implementation and the potential of a Pot for Life. All the while, we still do not have the long-awaited General Code or the new Funding Code from the Pensions Regulator.
“Dealing with this amount of change all adds up to a stretch on resource and is potentially a distraction from the normal day-to-day challenges of running a scheme.”
Pensions policy
Matthew Arends said:
“On the other hand, and after such a sustained period of change, there is some hope for increased future stability of pensions policy once the effects of the new policies become clear. A period of stability in regulation would also give savers confidence in the reliability of the pensions system.
“However, in the meantime, there is the fear that the need to keep up with changes to numerous aspects of the pension landscape could squeeze out a clear focus on some of the fundamental long-term issues we face. For example, these include acting on climate change or addressing retirement adequacy, and, particularly, pensions gaps including the gender pensions gap. These important challenges remain to be resolved and the danger is that action on them is deferred so that resources can be diverted to the urgent compliance needs.”
External threats
Matthew Arends said:
“While regulatory change may threaten to bog down scheme activity, there are other external threats too. The number of schemes reporting that they have been subject to cyber-attacks continues to increase – and at a disturbing rate. Aon’s Global Pension Risk Survey found that 14 percent of respondents to the survey had suffered an incident, up from 7 percent in 2021 and 3 percent in 2019. This is the rapidly emerging risk of our time and one with serious consequences. It can lead to disruption to how schemes serve members, such as by potentially missing pension payroll dates or via the interception of asset transfers. Too few schemes are taking action to protect themselves against cyber risk or have sufficiently robust plans for how to respond to cyber incidents. This needs to change.”
Cost vs Value
Matthew Arends said:
“Another key area of focus in 2024 will be the need to maximise the amount of money that individuals have to sustain their lives post-employment. Focusing on cost has always been a very narrow and poor proxy for delivering better outcomes. I hope instead that an increased focus on value continues to permeate DC pensions. Value is what delivers better member outcomes and ultimately that has to be the aim for 2024 – and every other year too.”
About Aon
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Media Contact:
Colin Mayes
Aon
+44 (0)7801 748138
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Anelia Fikiina
Kekst CNC
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