Issues around member engagement, integration, adequacy and flexibility could be more challenging to resolve in the current economic climate, Squire Patton Boggs has warned.

In the firms first PensionsTensions Overview, Squires Patton Boggs partner, Catherine McKenna, warned that the pandemic has "shone an unflattering light" on individual and societal financial health.

McKenna highlighted issues around member engagement as particularly pressing, stating that whilst some people had been able to up their saving during lockdown, many are not fully aware of the advantages of doing so via pension contributions.

She suggested harnessing online technologies and media, which have become more prominent tools throughout lockdown, as one route to greater levels of engagement, particularly amongst younger people who are used to having ‘real time’ information at their fingertips.

She acknowledged that the pensions dashboards will play a “pivotal role” in providing this greater level of visibility to members. However, McKenna warned that engagement levels will likely wane if the information included is unreliable or incomplete.

Issues around adequacy were also cited as a key concern, with the pandemic highlighting the broader importance of savings, as many households face financial strains.

McKenna emphasised that previously announced government plans, such as lowering the auto-enrolment age and minimum earnings thresholds, would “undoubtedly” help with savings adequacy.

However, she noted that the “current economic downturn” will likely impact the timeline for such measures, which were previously expected in the mid-2020s.

McKenna suggested that, in the meantime, the industry could “build on the success of inertia” by phasing in increases to member DC contributions, based on age or salary levels.

This may not be applicable for all savers though, as McKenna acknowledged that the “conundrum” of how to bring the self-employed into an automatic savings system seems a long way from being solved.

The firm's update also explored issues around adequacy and integration, highlighting the tension between savings for retirement and meeting financial needs as a “major barrier” to retirement savings.

It warned that short-termism often drives financial decisions, with many younger workers understandably prioritising housing costs over pensions, and other costs such as social care considered even less of a priority.

In the current pandemic, this has also highlighted issues around the flexibility offered to members before retirement as, even in an emergency, pensions cannot typically be accessed before 55.

McKenna argued that members of money purchase schemes should be offered similar leeway to that given by The Pensions Regulator, stating that a contribution holiday for a set period during financial hardship, rather than opting out, could make pension saving more appealing, and give members greater control over their savings.

She added: "There remains plenty of scope for people to save not necessarily more, but 'smarter', so that they can have increased control over their savings and more
effectively prioritise different lifestyle goals with suitable education and support."

McKenna emphasised that if member engagement is to be maintained over the long term, then pensions more broadly must be seen as a “trusted and whole working life route to an adequate retirement income”.

Furthermore, she stressed that good engagement must also be supported by sound investment strategies, and not be “undermined by constant and complex changes to the tax relief system”.

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