We will look at sustainability from several different angles.
Should a pension scheme invest in Environmental, Social and Governance based funds (ESG) or Socially Responsible Investing (SRI), both focus on investment strategies looking to return a financial and social/environmental positive outcome? Interestingly, in the last couple of turbulent months the returns on these investment funds have seen less severe drops in their investment returns than more traditional funds. They genuinely could provide the more sustainable approach that people are looking for.
What type of pension scheme is more sustainable? With the Defined Benefit (DB) market in a long, slow decline and members with Defined Contribution (DC) investments taking a direct hit when the markets crash, plus complex legislation, the challenge for the pensions market is to continue to provide that ‘safe-haven’ for individuals on retirement.
Then you have the question of ‘will my pension sustain me in retirement?’ There really is no short answer to this one, but it’s a question that technology can provide more transparency with by providing members with reactive modelling tools showing the impact of contribution amounts and investment returns at the same time as asking people what do they expect from their retirement. Modelling tools are out there and are a great way to engage members.
What has become a complete game changer since COVID-19, raised its head to outline, whatever we do with pension schemes, there needs to be significant
developments to systems and working practices. This is to make the entire business more agile and able to cope with shifts in how and where people work. There is great technology available in the marketplace allowing members to verify their identity online meaning we can overcome this particular hurdle at a time of lockdowns and potential postal issues. You can use these for members living overseas, as well as those based in the UK.
With members of pension schemes, from new joiners through to pensioners, becoming more tech-savvy, there are ever increasing opportunities to drive the entire saving for retirement journey through online portals. Pension administrators can provide retirement or transfer value illustrations and provide dedicated support using secure methods allowing the member to make their choices using the online portal. This doesn’t need to just address updates, or changes to expression of wish details, this can be investment choices, transfer requests and retirements. The ideal outcome is for members to be able to join the pension scheme, update their details and go all the way through to retirement without having to return a single piece of paper. All of these steps can take place in the electronic world.
This development, which is already possible, means the entire industry can be more agile and able to sustain employees and members whilst improving job security, the member experience, reducing fraud and driving down costs. This has to fit the definition of sustainable.
This article was featured in Pensions Aspects magazine June 2020 edition.
Last update: 19 January 2021