Three quarters those who withdraw their DC savings in full do so without any professional advice or tailored guidance according to The Pensions Regulator.
Industry figures supplied by the regulator show that more than 450,000 pots were accessed for the first time between October 2023 and March 2024 — and of this 51 per cent were fully encashed.
This figures come in a report by The Pensions Policy Institute, sponsored by TPR, which evaluates the current retirement landscape and identifies the challenges in delivering value for money in decumulation.
The PPI’s says that many savers will “continue to fall through the cracks” without more co-ordinated action from the industry and policymakers. It also pointed out that currently two ‘informal defaults’ were emerging in the retirement market:: full cash withdrawals or a passive continuation in accumulation strategies. The PPI says both patterns may be misaligned with longer-term retirement needs.
As a result the TPR is calling for a retirement ‘sat-nav’ to help simplify options for pensions savings enabling them to make better decisions that are more suited to their personal circumstances.
TPR interim director of policy and public affairs Patrick Coyne says: “Automatic enrolment built a nation of savers. Now we must move from a savings system to a pensions system, and that requires a ‘sat-nav’ for retirement which simplifies options and empowers savers to make informed choices.
“Without the right support, savers may find themselves forced to work for longer or find themselves strapped for cash when they should be enjoying older life.
“Plans for a guided retirement duty in the Pension Schemes Bill present a fantastic opportunity for industry and policymakers to provide products and services suitable for different kinds of savers. We are keen to help and that is why next month we are also launching an innovation design service to get new ideas off the ground.”
The regulator said it wanted greater transparency over post-retirement investment strategies and for schemes to make better and more systematic use of the data they have.
It added trustees would increasingly need to better understand their savers’ needs and behaviours, which is why its data strategy sets out TPR’s ambition to work across the whole industry to drive consistent, coherent and, where possible, open standards for data on the metrics that matter.
The regulator also said it would continue to support further pension scheme consolidation, particularly in the master trust sector, as this could reduce charges, improve scheme governance and services and offer opportunities to improve investment approaches, including consideration of a wider variety of post-retirement options such as in productive assets.
Where schemes lack the scale to improve, particularly in the use of data, member communications or investment transparency, they should consider if consolidation is in their members’ best interests.
TPR added it will continue to work closely with the Department for Work and Pensions (DWP) and the Financial Conduct Authority (FCA) to put in place the right frameworks to encourage innovation in savers’ interests and ensure pension savers across contract-based and trust-based schemes are appropriately supported to navigate complex retirement choices.
This includes working with the FCA on its review of the boundary between advice and guidance and targeted support as well as the DWP’s proposals for a guided retirement duty.
