We have experienced a lot of unprecedented events over the past few months which have impacted all of us in many ways.

With the cost-of-living crisis in particular, coming to a head this winter, we need to make sure the money invested by our members into their pension pots is working for them and continues to deliver over the longer term. 

Heidi has set out some ideas to support your members to plan in these difficult times, Three core principles to good financial health, but how should an investment strategy be designed and should we look to make any changes given the changing financial landscape? 

Keep calm and carry on 

It is important in any turbulent period to keep considering the longer-term view. As often is the case, a period of market turbulence won’t necessarily last and over the longer term may become just a moment in history. Whilst it is important to review the overall strategy and underlying funds on a regular basis, only making considered and well thought-through changes that will benefit members over the long term is needed. 

Risk management 

The younger members may have time to ride out market volatility, but there are a considerable number of members in the later stages of their career who won’t have the luxury of time. Therefore, managing risk at the mid and later career of the members within the investment strategy is vital to ensure they aren’t experiencing losses at the worst time for them. 

Reviewing the member outcomes across different scenarios against the risk will help (eg looking at worst case and best-case scenarios for members within a particular investment strategy). Consultants, like us at LCP, will often have technology that can test different strategies to see what the impact of the changes might be to member outcomes. This is a quick and easy way of deciding if a more detailed strategy review is needed. 

Linked to this is the need for members to set their target retirement age correctly, as often the strategy they invest in links to this age. A timely reminder to members can help with this. 

Targeting the right outcome 

As we saw in October, the price of Government Bonds dropped dramatically, and whilst this had a major impact for Defined Benefit schemes, it also impacted some members invested in Defined Contribution schemes. In particular, members who were invested in the later stages of an annuity-targeting strategy, which often invest in longer dated Government Bonds, and had no intention of buying an annuity, are likely to have seen significant drops in the value of their funds. For those members experiencing the losses, this can be very unsettling. 

This experience is a reminder of how important it is to ensure members are invested in a strategy that meets their end goals and it is worth checking the default investment strategy is targeting the right outcome for your members. Remember to provide timely communications to your members to remind them of what they are invested in and what they are targeting so they can make changes if they need to. 

What’s next? 

I don’t believe the current period of uncertainty we are in is going to be over soon, therefore keeping an eye on how the investments are performing and considering any changes for the longer term is a good idea. We should also think about how investing sustainably can be improved within our strategies as this also fits with longer term view. 

If we keep grounded and carry out the right level of governance and oversight, we can keep working towards positive outcomes for our members. 

More in the series:

More than a feeling?

Three core principles to good financial health

What good governance means for members

Dashboards are coming