Retirement consultant Aon Hewitt has warned that the major changes to how people access their pension savings, which are coming into play next year, could cause some scheme challenges.
Aon Hewitt's Pension calendar identifies the key dates for 2015/16, the most significant of which is Pensions Freedom Day on April 6, but the firm stated that not everything would be ready and available on day one.
Sophia Singleton, Aon Hewitt's defined contribution consultant and partner, predicted that the 'flurry of activity required for pensions freedoms will still continue after April 2015'.
According to the firm's research, only one in 20 trust-based DC schemes would offer a full range of cash and drawdown options in-house, while over half are expected to negotiate better terms for their members with a chosen investment manager.
Singleton continued: 'We expect that in the short term, many members will have to go it alone as the market continues to evolve.
'As the year progresses and sensibly-priced products and guidance emerge, trustees and employers will start to steer members towards these solutions'.
But for defined benefit schemes, next year is shaping to be the 'year of the transfer value' as 2015 is expected to see a significant rise in the number of members transferring from DB to DC arrangements to take advantage of the new pension flexibility.
The DC charge cap and governance requirements will become effective next April, the calendar highlighted. Aon Hewitt said governance in 2015 is expected to be 'a hot topic' because issues such as how trustees organise themselves and their time are crucial to dealing with ongoing pension challenges and bringing much-needed stability to DB schemes.
Paul McGlone, a partner at Aon Hewitt, said governance reform would not be simple to do, 'otherwise schemes would have done it already - but it is important. Good governance takes time, but bad governance takes longer'.
Aon Hewitt has also predicted that the markets in 2015 would enter a 'tricky time' with headwinds for investors coming from both valuations and macroeconomic developments. It stated that the combined effect of this would likely be a period of much lower returns.
Pension schemes would need to find other ways to earn their target returns as markets would not be bringing them - 'let alone at reasonable levels of risk'. - Aon said.
Aon Hewitt also warned that it expects to see £20bn of longevity risk being hedged. It anticipates many insurers to make use of longevity reinsurance capacity, either to support pension scheme deals or as the insurance market rebalances its books in light of Solvency II.
Other key dates for the coming financial year include:
EIPOA to publish draft technical specs for Holistic Balance Sheet (early 2015)
EIOPA to report on transferability of pension rights (mid- year 2015)
Short service refunds abolished for DC (October 2015)
PPF draft levy determination
New Sate Pension and the end of contracting out (April 2016)
