Claire Altman, Managing Director of Individual Retirement at Standard Life, part of the Phoenix Group, comments on the closing of the DWP’s Call for Evidence: Helping Savers Understand their Pension Choices on 25 July 2022: “The pension freedoms changed the face of the decumulation journey for the pensions industry and its members. Overnight, a huge new range of options opened up to people and this choice has been well received. It has however introduced a great deal of potential complexity regarding the choices people have open to them, exacerbated by the well-known guidance and advice gaps.
“When it comes to the current decumulation market, careful consideration needs to be given to the way in which savers are currently interpreting their income choices. We have moved from a world where the vast majority of people took an annuity to one where most opt for drawdown, or cash withdrawals in the case of smaller pots. However, both options come with drawbacks as well as benefits.
“The current decision-making process has been baked into contract based pensions with the introduction of investment pathways. While we see many benefits to pathways, we believe they overlook the complexity of financial planning in retirement. We would like to see them accommodate the need for income certainty and requirement for flexibility e.g. to give the opportunity to target drawdown early on in retirement before buying an annuity with some or all of their savings at a later date.”
Commenting on the response, Tess Page, ACA DC Committee Chair said: “To achieve the goal of helping savers understand their pension choices, it is critical to go beyond the period pre-retirement in order to engage individuals throughout their journey, including when in education before entering work, and post-retirement.
“Providing information and support (however well-designed and delivered) only around the retirement point will fail if engagement has not been built and maintained throughout.
“The majority of members of occupational pension schemes are invested in a default investment strategy during the accumulation phase and can be part of a scheme without ever needing to make a single active decision on investments or benefits. The at-retirement and decumulation world marks a significant departure from this arrangement.
“In future, we see key roles for low cost, transparent, and easy-to-manage income drawdown products to better support individuals, including potentially via “default” decumulation pathways that mirror the FCA’s investment pathways. CDC schemes will also have a part to play. There is much scope for industry innovation in decumulation.”
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