Value destruction risk at retirement ‘so big’ government must intervene – LGIM

By Holly Roach

The value destruction of a savers’ pension at the point of retirement is “huge” and personalised guidance is vital to prevent members knocking out years of savings, according to industry experts.

Speaking yesterday (27 April) at the Legal & General Investment Management (LGIM) defined contribution (DC) summit, head of multi-asset funds John Roe said: “Value destruction at the point of retirement is huge – the risk that someone does something stupid at retirement because they can’t afford advice is so big.”

He revealed the concern has reached a point where “the government needs to intervene to help”, and argued that “more focus is needed from a regulatory perspective because someone looks after you up to retirement and in a lot of cases it all falls apart at retirement”.

Head of DC sales Rita Butler-Jones agreed: “It is vital the industry takes a good look at post-retirement solutions. Good outcomes for members isn’t just about building a pot up in the accumulation period but about giving members the right options and advice when it comes to spending their pension pot. The wrong decision can knock out ten years of savings.”

She urged the industry to provide personalised guidance to savers and said it “will make a huge difference in whether savers make the right decisions at retirement”.

Butler-Jones also noted the “master trust trend is not going to go away”, and argued master trusts “will continue to be the best DC choice for years to come”.

“Master trusts represent the fastest growing product in the DC market and continue to be more and more attractive because they have generally lower costs than single employer schemes which can translate to more value for money,” she said.

She also revealed that LGIM responded to nearly three times the number of master trust opportunities in 2020 than it did in 2018.

Head of DC client management Stuart Murphy said that while “pensions have been a fair constant throughout the pandemic”, there has been an increase in pot consolidation.

He said: “There have been interesting behaviours over the last 12 months. Year on year when we look at transfers out, there is usually a 30% increase, but during the pandemic there was a 40% increase in members transferring.”

He added while members were still cashing out, “the males accessing their pots in 2020 had a pot size on average twice the size of the females accessing their pots”.

“The gender pensions gap is crystal clear,” he confirmed.

“We talk a lot about how females can catch up and plug the gap but my view is we need to come at it the other way and reach members earlier so females can get ahead of the game.

“The industry talks about small pots and how we bring consolidation together, and the pensions dashboard is clearly one way of doing that, but looking at research we’ve done when it comes to the gender pensions gap it’s all slightly superfluous – if a female has half the pot of a male when retiring, they’re at huge disadvantage.”


Murphy noted ESG could be the key to engaging the younger generations in pensions. He revealed NatWest research found “the top member themes for members aged 18 to 34 were the environment, human rights and equality”.

Head of DC client solutions Simon Chinnery added: “Climate change is a recognised emergency and people want to see that our engagement and working is actually going to make a difference. We don’t have the luxury of waiting until 2050, we need to take action now.

“What I hear from members is they don’t want jargon and pensions complications but they do want to know how their money is invested. It is not the majority yet but I think we will see this groundswell increasing and will see more and more engagement from members in this area, supported by groups like Make My Money Matter.”

He added: “In the transition to net zero, the message that needs more articulation is that everyone needs to do their bit. It is important across many different industries to get the focus off the kind of green wash nod but imbedded in companies to at least begin the journey.

“Right now there are lots of commitments from companies and governments and from a member perspective they hear those words but want to know how it is translated.

“We do not need more commitments, but more action. We need to make sustainability in the here and now.”