By Dale Critchley, Workplace Policy Manager, Aviva
Of the changes with a shorter timescale, the requirement to provide one or more default pension benefit solutions is interesting, in that it shows the way in which the regulators and government departments are working together to deliver joined up proposals. The Government roadmap shows delivery by master trusts as early as 2027, with single employer schemes, and group personal pensions the following year.
This sequencing makes sense. Many single employer schemes may choose to partner with master trusts, which are likely to be in a better position to design and manage retirement income solutions. If master trusts have been up and running for 12 months or more, it will allow for more informed partnership decisions. The FCA may need more time to work out how default solutions work within group personal pensions (GPPs) where promotion of shopping around, and investment pathways, have been the focus to date.
It’s encouraging to see the Department of Work and Pensions working closely with the FCA and building on the development of targeted support. The proposals in the Bill are that trustees, and GPP providers, will need to provide one or more default pension income solutions that meet the needs of their members, or a specific cohort of members. They will need to present the default, or the most appropriate default, to a member who is looking to take their retirement benefits and provide a description of the type of person the default is suitable for. The intention seems to be that this description will match the member reading the communication.
This clearly leans on the principles of targeted support, with pre-built solutions provided to pre- defined cohorts of scheme members. The requirements for default pension benefits go further than the “suggested solution” within targeted support, as they require members to be put into the default solution if the member makes no active choice but setting that aside, the process seems remarkably similar.
While there is an option to offer a single default across all members, trustees will need to decide if their scheme membership is homogenous enough to make that an appropriate choice. This will involve an analysis of scheme data, but the Bill grants trustees the power to request any other information they feel is necessary to help with the design of the default pension benefit solution(s), and the allocation of members to the most appropriate default. As with targeted support, this is likely to be a complex decision, with trustees needing to balance the amount of data they request, with the need to get to an acceptable level of certainty about the suitability of the default. This will be even more important where access to the pension pot is foregone in return for an income, or where decisions are irreversible, such as an annuity purchase.
Trustees that operate pension benefit solutions in-scheme may need to decide what the initial level of income might be, where there is flexibility. The Bill also raises the prospect that they will be required to monitor how individuals are using their solution, and provide information to members when they need to make a decision, for example, when they might need to change the level of pension they are drawing to ensure it is sustainable for the potential duration of their retirement. Assistance with future decisions on annuity purchase might be another area where trustees are required to intervene.
The Bill proposes that members who are offered a default delivered by a partner scheme will need to agree to the transfer. This may provide a useful paper trail for trustees, but it’s not clear whether the same will be true of in-scheme solutions. The ambition is that members are not required to make a choice, but this may not extend as far as automatic enrolment, as there is no mention of opt-out or notice periods in the Bill.
The default pension benefit requirements are one part of a 114-page Bill. We should expect amendments and regulations will fill in some of the gaps. Trustees may want to start thinking about the default(s) they will provide for their members however, and how they might provide them. 2028 may seem like a long distance away, but an early start will avoid the need for a last-minute sprint to get over the line.
|
