With major pension reforms starting to take place next year, in the form of compulsory workplace pensions, coupled against a backdrop of continuing market volatility and uncertainty, Stephen Nichols, Chief Executive of The Pensions Trust gives his thoughts on the big issues pension schemes need to have on their radar in the year ahead.

Auto-enrolment in 2012
“The introduction of auto-enrolment in 2012 will mean employers will be forced, by law, to offer their employees a workplace pension scheme. While next year will see only those employers with over 30,000 staff needing to comply with auto-enrolment regulations, by 2013, any employer with over 350 employees will need to offer a workplace scheme. As such, employers need to start preparing now if they haven’t already begun. It’s safe to say that many employers will be more concerned about the additional strain that auto-enrolment will have on their bottom line than the actual pension product, and it will be necessary to work with providers that can help them comply with auto-enrolment regulations, and minimise their pension costs. This is likely to be most evident in the retail and care sectors. In addition, employers in the private sector still offering open DB schemes will come under ever increasing pressure to convert to DC.

Master Trusts
Stephen Nichols also highlights: “The introduction of auto-enrolment has brought with it a rise of Master Trusts offering alternatives to NEST, the Government scheme. However, with the recent announcement outlining the delays to auto-enrolment for smaller companies, it may put many Master Trust business cases at risk. Additionally, the removal of short service refunds may also have the same effect. With this in mind, these points may reveal the inherent conflicts of interest embedded within many ‘new’ Master Trust models.”

An uncertain economic backdrop
Stephen Nichols continued: “Having experienced a highly volatile economic backdrop during 2011, and with similar conditions expected to prevail in 2012, pension schemes have had to adapt their investment strategies accordingly towards more growth seeking assets. As a result, schemes are now generally much more diversified, and I would expect this to continue in the year ahead. Additionally, as scheme managers seek for better returns, I would expect to see the hedging of unrewarded risk (interest rates, inflation and longevity) gaining greater acceptance within Schemes. More emphasis will be placed on analysing the risks associated with the current high price and low/negative real yield of government bonds, resulting in the search for alternative bond like instruments.”

Stephen Nichols concluded: “2012 will see many changes to the pensions arena, both with regards to the implementation of auto-enrolment, but also in relation to how pension schemes adapt to a constantly changing investment landscape. At The Pensions Trust, we are committed to providing the highest level of expertise and support to both existing and future scheme members, and are constantly developing our funding and investment solutions, as well as providing information and education of the highest calibre to our members.”