In a substantial submission to the Work and Pensions Select Committee inquiry into the Pension Freedoms, the PLSA has called for a new set of product, communication and governance standards – underpinned by legislation – to pave the way for pension providers to give greater support to savers at retirement, irrespective of the size of their balance, their level of engagement, or what type of solution they use to access their pension.
Background
Pension freedoms have given people new possibilities and options with their saving, and savers really value these opportunities.
However, a bridge is needed to help savers transition from a system that uses the power of inertia to successfully bring them into pension saving through the complex decisions they must take to access their pension saving in retirement. The industry, Government and regulators have acknowledged the challenges that savers face but have not yet gone far enough.
There are significant barriers to providing suitable decumulation options that better deliver appropriate retirement income choices.
Crucially these include evidence that savers are not in a position to assess which options are best for them, and that schemes are deterred from offering the right solutions due to litigation and regulatory risks. Our proposals will address these barriers.
Guided Retirement Income Choices
The PLSA is calling for a new statutory obligation on pension schemes, designed according to appropriate governance standards, requiring them to provide helpful guidance and sign-posting to suitable products. Importantly, the PLSA-proposed framework allows product providers to build retirement income solutions that blend the best features of cash, drawdown and annuity products commonly used for retirement today. We believe this is the best way to give providers the confidence they need and savers the support they need.
The recommendations are not designed to replace any existing regulatory approaches or guidance services but rather to build on them to develop blended solutions that are more appropriate for future retirees. For example, under our approach, the government-backed MoneyHelper service would play an essential role in providing impartial, non-commercial guidance.
The benefits of our recommended framework are:
• To guide and inform savers – A saver communication and engagement journey, informed by behavioural economics, and deploying a ‘path of least resistance’ that enables schemes to signpost savers to a retirement solution either inside or outside the scheme.
• To deliver well-designed solutions – A set of minimum product standards that require schemes, who are better able than savers, to trade off the numerous and complex economic and decision-risks faced at retirement.
• To support schemes to deliver the framework – Key governance minimum standards to underpin the design and delivery of the above elements.
Nigel Peaple, Director of Policy & Advocacy, PLSA said: “The pension freedoms revolutionised the way in which people can access their pension savings; now it is time to build on them to support people in making the retirement decisions that are right for them.
“As the pension system matures we want schemes to be able to provide better information and more suitable, blended products to help savers manage the opportunities and challenges they encounter, whilst continuing to offer a full range of choice and freedom.
“Guided Retirement Income Choices is a framework that allows schemes to more effectively help savers balance the longevity, inflation and investment risks they face to make the most of the opportunities they have at retirement.”
The full submission is available to download via the PLSA website.
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