Auto-enrolment (AE) harnessed inertia to boost pension savings, but at retirement individuals are abruptly required to make complex and high-stakes choices – such as how and when to access their pension, how much to withdraw, and how to balance income with longevity and investment risk.
This abrupt shift can lead to poor decisions, unexpected tax bills, the risk of running out of money, failure to shop around, or even decision paralysis.
It cannot be right that, after years of inertia, individuals are asked to make a life changing (and possibly irreversible) decision with a patchwork of support.
The evolution of retirement support
It’s important to remember that having options at retirement is a relatively new concept, and therefore retirement support has had to evolve. It’s easy to forget that Pension Wise was launched in 2015, and for those that have used the service, it has been a great help. Many schemes and providers also provide additional support, but this is voluntary.
However, it is still the case that most people find professional advice unaffordable, undervalue its benefits, or they simply don’t trust it.
The pensions industry needs to move forward and, as the environment changes, innovate and adapt. That’s why the current regulatory initiatives are crucial – these include:
- Default pension benefit solutions (guided retirement): The Pension Schemes Bill provides for the introduction of default benefit solutions (also referred to as guided retirement) with the Department for Work and Pensions (DWP) roadmap stating that master trusts would be the first schemes to comply with the regulations in 2027. Legislation will require trustees to offer default solutions that are appropriate for their membership (in-scheme or via a transfer to another scheme).
- Targeted support: The Financial Conduct Authority is progressing with its “targeted support” proposals, designed to empower pension providers to offer specific ready-made suggestions to groups of savers with similar characteristics.
- Retirement CDC: The DWP has also launched a consultation on retirement collective defined contribution schemes (RCDC), which could provide another option to secure income beyond drawdown and annuities.
Putting the saver first
While these initiatives aim to empower individuals to make informed choices, their implementation must be co-ordinated. Without consistency in how options are presented across schemes, there is a risk of confusion and sub-optimal outcomes.
Trustees, providers, and employers will therefore need to consider their strategies around communications, options, and transfer processes. The industry needs to work together to ensure that there is consistency in terminology and processes, with retirement initiatives introduced in a joined-up and co-ordinated manner. Failure to do this could have the opposite effect of the desired outcome of ensuring that we deliver better outcomes.
Next steps
We are at a pivotal point in the evolution of retirement support. If executed well these changes have the potential to significantly improve living standards during retirement. The SPP continues to collaborate with stakeholders to ensure these initiatives succeed, fostering innovation and bringing together diverse perspectives to help complete the pensions puzzle.
Anish Rav is a member of the SPP and director of global pensions policy and propositions at Capita Pension Solutions