So far in this blog series we have discussed what was anticipated for the pensions industry in 2020 due to expected and unforeseen changes. You can find part 1 and 2 of this series here.
Looking at the impact on pensions from Covid-19, there are also longer-term consequences and associated economic and employment effects to consider. They include the effect on valuations of changing and volatile liability and assets values, and the potential for lowering of contributions arising from diminished employer and employee commitment, reduced salaries, etc. Other potential impacts include changing of membership as a result of temporary or permanent layoffs, reduced working hours, phased returns to work; or changed employer status, which may impact on the employer covenant, the ability to pay, and on benefits and pension budgets.
The General Outlook for Pensions Provision
The outlook for the pensions industry, taking into account the changes anticipated for 2020 but filtered through a COVID-19 lens, leads me to the following conclusions:
- There will be an increased focus on governance and risk management. The crisis may highlight the strengths and weaknesses of the current system
- Timelines for IORP II implementation will be needed, given the number of other challenges in play
- The changed economic outlook may impact the planned timelines for auto-enrolment. The results of a recent MHC/IIPM survey found that 66% of respondents expect the roll-out to be delayed due to the current crisis
- Concerning the state pension age, employers and employees need clarity urgently. The Government recently deferred the planned change from age 66 to 67 pending a report on the issue by a Commission on Pensions, which will be established to examine various issues related to the sustainability of, and eligibility for, the State pension; and
- In terms of ECB/EIOPA reporting, one wonders if outputs or feedback will be provided to the Central Bank, when we might expect clarity on EIOPA reporting requirements from the Pensions Authority, and whether the reporting requirements will be coordinated.
The effect of 2020’s expected and unexpected changes
The impact of both the expected and unexpected changes on the pensions industry – and the broader political, legal, and economic environment – places significant demands on those involved in providing pensions to respond and adapt to changed outlooks for schemes, sponsors and members. Professionals should also expect Increased governance and compliance standards, increased reporting requirements, and the need for new functions, including internal audit and risk management.
The increasing professionalism of trustees to meet these growing requirements and expectations will also be a point to be addressed, resulting in a need for upskilling, training, and qualifications for new roles and requirements – not to mention consequential implications for service providers.
The pensions industry has proven that it is resilient and capable of adapting to the changes presented by COVID-19. We must continue to learn, develop and innovate to ensure that we are ready to deal with the immediate and longer-term challenges and can continue to provide stable, reliable, and sustainable pensions for members.
ITC’s Trustee Services Director
*Please note this content is the view of the author and not of Independent Trustee Company