By Dale Critchley, Workplace Policy Manager, Aviva
Trustees and pension providers have a duty to provide clear, relevant information, in the right format and at the right time to help members make good decisions. The retirement “wake up pack” is packed with information about the different options available to those looking to take an income. This is often augmented by online information and modelling tools, all designed to help members decide on the best option to meet their retirement income needs.
For some people, information is enough. But where understanding is low or decisions involve significant sums of money, members may need additional support.
Regulated advice provides a bespoke retirement plan, created to meet the precise needs of an individual or household. It’s the gold standard but comes at a cost which may not be justifiable for smaller pension pots. Information about the availability of advice, and when it might be appropriate, could help members make better decisions. At Aviva we offer a free service to help customers decide if they should take advice in the run up to retirement. Seeing information about the entirety of our pension income via the Pension Dashboard may prompt more people to recognise the value of advice too.
Targeted Support and high-level proposals for Guided Retirement within the recent Pension Schemes Act both lean into the idea that members might benefit from guidance around what might be appropriate, based on groups of people who share common characteristics. In both cases, a solution is presented based on the data required to place a member within a cohort for whom a particular solution has been identified as appropriate. Within Targeted Support this is a recommendation, within Guided Retirement it will be presented as a “default solution”.
The effectiveness of guidance will depend on whether members participate in the process and their willingness to accurately answer what might be a handful of questions. This may well depend on an appreciation of the value they might get from the process. It will also depend on schemes and providers being able to make recommendations, or provide appropriate defaults, based on a limited amount of data. This will not be the same as the fact find to capture data for advice.
Given that longevity risk sharing solutions will disadvantage people with a reduced life expectancy (without effective underwriting) I think there should at least be a simple filtering question about health. Capacity to deal with fluctuating income can be inferred from details of other sources of income, while aspects like housing tenure can point toward income needs. We might also need to ask about preferences, recognising that members have saved hard to accumulate their pension pot, and that, for example, they may prefer to forego a level income in real terms, in exchange for a higher income in more active retirement.
While millions have been successfully enrolled into workplace pensions without needing to make active choices, there is growing recognition that members need more than clear information if they are to make better retirement decisions and achieve better outcomes.
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