Since the coronavirus pandemic hit, headlines have abounded that pensioners may have to accept a lower income or a later retirement date as the outbreak hits investments, with stock markets across the world falling by 30 per cent or more.
While pensions are long-term investments and stock markets will recover, the current market turbulence means some members in defined contribution schemes, including master trusts, and especially those approaching retirement in the next few years, may have to rethink their retirement plans.
Defined benefit schemes are also affected, and while the government has made huge investments to fund the immediate needs of both employers and employees, this does not include pension funding. It is likely that long-term solutions will need to be found to support both public and private sector schemes, and this may include looking at retirement ages and ongoing pension issues such as GMP equalisation (which required that a defined benefit was provided to those who opted out of the state earnings related pension scheme in favour of an occupational pension scheme).
Other employees may be concerned about their retirement because of the possible failure of their employers. Corporate insolvencies are already affecting tens of thousands of employees with the recent high street failures such as Debenhams, Beales and Cath Kidston. But it is not just the high street that is struggling – from manufacturing to professional services, we will see many more closures and each one will create anxiety among their staff and pension scheme members. That is why HR departments, trustees and providers need to be ready for an increase in calls.
The good news is that HR teams and trustees have some time to prepare. Our research with pension scheme administrators shows that member enquiries are down on average by 25 to 33 per cent – which is hardly surprising given current events. Furthermore, the necessity for continuity of service has led to unprecedented levels of cooperation between HR, trustees and administrators. Feedback suggests that this has led to an innovative and solutions-focused approach rather than an adversarial one. In addition, end-of-year processes, including pension increases, seem to have gone smoothly over the period of disruption.
We have also witnessed many pension administrators bringing forward major rollouts of technology and kit to enable home working for almost all their staff. Necessity has also seen rapid operational advances that over time will be adopted into normal working practice, as well as removing inefficiencies. Long overdue examples include the replacement of cheque payments. Administrators have also introduced innovations such as electronic verification for processing deaths and electronic signatures when, for example, the next of kin is self-isolating. This has led to the acceptance of an electronic scan of a medical certificate of cause of death in a hospital, care home or at a GP. This in turn can be independently verified by using electronic searches on mortality screening databases. Small changes such as these are significantly improving member service and we strongly recommend they continue to be supported by HR and trustees as long-term solutions.
But employers and their administrators must prepare for an increase in member requests. On 1 April, The Pensions Regulator – in cooperation with the Financial Conduct Authority and the Money and Pensions Service – provided pension guidance for the general public. While this will not help with scheme-specific concerns it is worth reading the regulator's recommendations.
Many members will be concerned about their retirement once the pandemic has subsided. At the moment schemes have a small window of opportunity to work with their third-party administrators and other advisers to find possible solutions to what could become another serious issue immediately following the current crisis.
Philip Dickinson is a director at Cosan Consulting