The Department of Work and Pension has raised the possibility of Nest offering income drawdown and a far wider range of retirement options, as part of its consultation on helping savers understand pension choices.
The DWP has launched a call for input on what happens to members of occupational pension schemes when they reach retirement and plan their later life finances.
The FCA has taken the lead on this issue for ‘contract based’ pensions, introducing investment pathways and other ‘nudges’. The DWP is now looking at whether similar initiatives are needed in the trust-based world.
The DWP is seeking evidence on what support and information savers need both in the run-up to retirement, at the point they access savings, and after they have stared to take benefits. It is asking occupational pensions schemes about the support currently offered and what schemes are considering offering members in future.
The call for evidence will run for six weeks, closing on 25 July. Alongside this the DWP confirmed that it is also considering the possibility for Collective Defined Contribution (CDC) schemes to help provide income for pension savers, as this may be a route to providing a sustainable income without savers having to make complex financial decisions.
This DWP consultation cited Corporate Adviser’s recent research that found there is relatively limited support on offer from pension schemes and providers, with a huge variance between schemes on whether guidance is given as to what might be a sustainable income to take in retirement. It cited Corporate Adviser Intelligence reports, including the Workplace Pensions into Retirement Report, that found that 64 per cent of DC pots accessed in 2019/20 were done so without advice.
This consultation has been broadly welcomed by the industry. LCP partner and former pensions minister Steve Webb says: “I welcome DWP’s interest in what happens to people who have saved in a workplace pension and are now working out how best to use their pension pot in retirement.
“One priority for the DWP will be to focus not just on what happens at retirement but also on the journey through retirement. Most people will have modest pension pots and no access to financial advice, so they need products which will work for them without needing active engagement or investment expertise.
“The idea of a ‘flex first, fix later’ pension could be one such product, combining the best of both worlds – the flexibility and growth potential of drawdown and the certainty of a late life annuity. I hope that this DWP consultation will give proper attention to what happens post-retirement, as the right strategy at retirement may not be the right strategy ten or twenty years later”.
Tom McPhail, a director of public affairs at the consultancy Lang Cat said it was fantastic to see that the DWP had raised the question of Nest – by far the largest master trust provider in terms of number of savers – offering income drawdown products, which until now have been outside its remit. He said: “Industry vested interest and protectionism should no longer be allowed to prevail.”
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