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TPR urges DC trustees not to lose focus Published: 20 June 2023 Emailed: 21 June 2023

The Pensions Regulator (TPR) has urged defined contribution (DC) trustees to stay focused on protecting savers from economic volatility.

The blog post from TPR expresses that although equities have experienced a stronger year to date, bonds have continued to suffer in a climate of rising interest rates and high inflation. However, the impact on defined benefit investments appears to have settled. TPR states that while trustees must remain vigilant, they also remain determined to ensure trustees do not sleepwalk into a DC crisis for savers approaching retirement. According to TPR, older savers are being disproportionately impacted as historically lower-risk investments are suffering. It was also highlighted that the recent interest rate rises was an indication of the need for trustees to ensure their bond investments align with member choices at retirement.

TPR director of regulatory policy, analysis and advice, Louise Davey, said:

‘‘We issued a clear message in January that savers must be supported amid concerns the value of some DC pots has fallen. That message remains just as relevant today.

So today I am once again calling on DC trustees to use our guidance to protect savers who are close to retirement and could be impacted depending on the investment strategy of their scheme. These are the savers with the least time to make up losses. Trustees need to focus primarily on outcomes, not just driving down costs. In pursuit of this, they must ensure they receive good and timely information on performance and risk for different member cohorts, and the attribution of those risks. They need to ensure their default pre-retirement strategy is targeting the right outcome and is fit for purpose in the current market environment. Trustees are legally required to review their default strategy and the performance of their default arrangement at least every three years, and without delay following any significant change in investment policy.’’ Louise Davey also suggested that increases in the value of equity markets are good news and projections showing that younger and mid-career savers should recover their losses sooner rather than later. However, trustees need to be mindful that these early signs of recovery are unlikely to be fully reflected in the annual benefits statements they will sending to savers in the coming months.

Louise Davey, further stated:

“We expect trustees to guard against the risks of savers making knee -jerk decisions which could harm their retirement plans. The next benefit statement could prove a key turning point for many savers, and trustees need to take action in response. We urge schemes to engage with savers approaching retirement to review and update their choices. If savers change their mind over the benefits required or about the time when they expect to take them, this could significantly impact their pension pot outcome. Schemes should encourage savers to consider these issues when they see their annual pension statement. For older savers with larger pots, economic conditions mean that it might take several years or more for recent losses to be recovered. These savers need to think carefully about when and how they might access their pot and be mindful of the risks of cashing out, and the importance of retaining investments which provide longer term growth. The annual benefit statement cycle is an important opportunity to explain the implications and while trustees cannot give savers financial advice, they should signpost them towards sources of appropriate advice and guidance, notably Pension Wise and MaPS, to improve the chances of savers making good decisions and realising their retirement goals.’’