Pensions update | October 2022

Recent market turbulence following the 'mini budget'

It has been a turbulent few weeks for pension schemes in the UK following the announcement of the Chancellor's 'mini budget'. For final salary pension schemes with liability driven investment ("LDI") strategies in place, the rapid increase in gilt yields caused a spiral in which pension schemes were selling off gilts to meet margin calls on hedging positions associated with the LDI strategy, driving further rises in yields, which then fuelled more sell offs. The Bank of England was forced to step in to buy gilts to slow the escalation of the crisis. The Pensions Regulator has been clear in a statement that it expects pension scheme trustees to take an active role in managing their scheme's investment and liability position as a result of the crisis. 

The pressures are different for those managing defined contribution arrangements, but the Regulator is keen to stress that there are issues here, too. Members who are approaching retirement are particularly vulnerable to the change in gilt prices because their investment journeys often involve a higher allocation to gilts as they near their retirement age. 

These members may have seen a greater fall in their retirement savings than those at an earlier stage of their 'flight path' to retirement. 

However, there may be some good news for those members who wish to buy an annuity at retirement (rather than taking cash, for example), with expectations that annuity rates will increase. In terms of scheme management, the Pensions Regulator expects trustees of defined contribution schemes to continue to take a long-term investment view despite recent market volatility, but they should review their investment strategy and communicate with those about to retire about their retirement options. 

Signposting members to regulated financial advice, particularly where the member is taking decisions about their pension savings, remains key.

FCA zooms in on pension scams

The Financial Conduct Authority ("FCA") has launched its latest ScamSmart campaign in light of the increases to the costs of living, which it fears will leave consumers vulnerable to 'misdirection' tactics as they fall for promises of immediate cash or higher returns on their savings. 

The aim of the campaign is to arm savers with tools and knowledge to avoid these scams. Common scamming tactics rely on misunderstanding amongst consumers about how pension savings work and include offering a free review of pension savings or help to release cash to meet living costs. The FCA is encouraging consumers to visit its ScamSmart website which has helpful information on recognising and avoiding pension scams. Employers and pension scheme trustees should consider signposting to ScamSmart in communications with employees and pension scheme members.