Schroders’ latest UK Defined Contribution (DC) opinion poll[i], undertaken earlier this month, provides a snapshot of the key decisions being considered by UK DC pension trustees and consultants following the UK’s 2014 spring budget and DC charge cap announcement.
Overwhelmingly 81% of those surveyed believed that ‘the increased flexibility announced in the spring 2014 Budget’ was a good thing for UK DC Pensions. Amongst the comments received one participant said that they believe it removes a barrier to pensions savings and the perceived unattractiveness of annuities.
When asked ‘will you be reviewing your default investment strategy in light of the budget and charge cap announcement?’ over 82% of the respondents said yes. One of the reasons cited for the review was to create pre-retirement options that better match the choices that members are likely to make at retirement.
Stephen Bowles, Head of Defined Contribution at Schroders commented:
“This is the first snapshot survey we have undertaken since the significant changes announced earlier this year. We are pleased that increased flexibility has been seen as a positive move and that default investment strategies are being reviewed in light of these announcements. It’s incredibly important that defined contribution schemes have the right pre-retirement strategies in place for their members.”
Participants were asked about annuities and specifically ‘will annuities still have a part of play in retirement planning for DC members’. 93% said yes, out of those that said yes 46% commented that it would play a bigger part at a different/later stage. Participants cited annuities as a safe and predictable way to secure income and that some pensioners will think that security of income is worth paying for. Of those that commented annuities would be appropriate at a different/later stage said that people may elect to work part-time over the age of 65.
Taking at look at the latest DC charge cap announcement, the question ‘Do you think that the 75 basis points cap on charges will lead to fewer outcome based investment solutions in DC schemes?’ split the audience 50/50. Of the 50% that said yes, one participant commented that charge cap will constrain the quality of advice given.
The last question looked at default investment strategies, specifically asking ‘Do you think that DC schemes will need to have multiple default investment strategies to target different outcomes – i.e annuity, cash and drawdown?’ overwhelmingly 87% answered yes.
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