Impact of market volatility shows in Regulator’s latest DC landscape report
The Pensions Regulator’s 2023 occupational DC landscape report shows the impact that recent investment market volatility is likely to have had on DC pots.
The Regulator notes that average assets per member grew by just 1% in 2023, which it attributes to investment market volatility in 2022. However, its published average pot size has actually reduced from a restated £5,873 to £5,846, and elsewhere in the same report the Regulator states that there has been 0% growth in assets per member. But whether it is 0% or 1%, this flatlining is in contrast to a near 50% increase over the previous three years when the average pot size rose from a restated £3,938 to £5,873.
The Regulator found some errors in its previous reporting so figures in this year’s report are not necessarily directly comparable to those quoted in previous years’ reports, such as those in the 2022 survey – see Pensions Bulletin 2023/04.
The Regulator’s data also shows that the trend of consolidation in “non-micro” occupational DC schemes has continued with a further 11% fall in the last year in the total number of such schemes, but that 9.9m people are now actively saving into Master Trusts, which now have 26.1m memberships in total.
Comment
The Regulator had warned of potentially poor results in the months following the 2022 LDI crisis, and we now seem to have proof of this via its latest DC landscape report.
We hope that the flatlining of DC pot sizes for 2023 is just a one-off event – pensions are, of course, long-term investments so poor results for one year should not be overstated.
It is not possible to disentangle the impact on the average pot size caused by the ongoing proliferation of small pots, but the over 16m non-contributing members of Master Trusts must contain many millions of such pots. As has been stated before, there is an urgent need for action to solve this problem which has been getting worse for more than a decade.
Government minister reprises some earlier messages
On 15 May 2024, in a speech to a liberal conservative think tank under the heading of “The Future of UK Finance”, Bim Afolami, Economic Secretary to the Treasury, urged UK pension schemes to increase their asset allocations to unlisted and listed UK equities, mentioning the new requirements for DC and local government pension funds to publicly disclose their level of international and UK equity investments that was announced in the Spring Budget (see Pensions Bulletin 2024/09), but on which we have yet to hear further details.
He also mentioned the need for the Government to take steps to consolidate the pensions market, ensure that the regulatory structure rewards funds that invest for long term returns, not just for cost, and to develop vehicles that ensure pension funds have access to high-growth assets.
Mr Afolami gave a similar speech to a CityWeek conference on 20 May 2024.
Comment
Although we can expect to get a further update at this year’s Mansion House speech, presumably in July, it is not clear when these policy initiatives will be delivered.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
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