One of the most urgent challenges facing the industry is helping savers navigate retirement income decisions according to the Pensions Policy Institute (PPI).
At the Corporate Adviser Summit the PPI head of policy research Dr Priya Khambhaita outlined the findings of research published earlier this year, aimed at helping the industry design solutions that will improve member outcomes in retirement.
Dr Khambhaita acknowledged that this research was very much a starting point, and the organisation would be looking to build on this in coming years. This is part of a wider piece of work looking to define what ‘value for money’ might look like in the decumulation space. Khambhaita said this framework would be different VFM in accumulation – and may need to include issues like ESG and Sharia options for example for those of particular faiths.
Khambhaita acknowledged that there were a number of challenges when it came to to looking at decumulation, not least the fragmented pensions sector, a lack of industry-wide data, the evolving regulatory landscape and a lack of consumer engagement and understanding about what are often complex decisions.
Among the key findings shared at the event was the fact that more than 450,000 pension pots were accessed for the first time, with over half of these fully withdrawn into cash.
Khambhaita said that this trend was even more pronounced with smaller pension pots with 68 per cent of pots worth less than £6,000 fully withdrawn into cash.
One of the key issues she raised was the lack of industry-wide data that relates to consumers, rather than just individual pots, making it difficult to track their behaviour in relation to wider pension savings. In some cases she said people will be making cash withdrawals because there is not an in-house decumulation options, but this may not be differentiated from those who are simply cashing in these savings to spend or put into a bank account.
Khambhaita says this means there is an inability to see “the big picture” she said, particularly when it came to trust-based pensions as many schemes do not track retirement outcomes of members.
Khambhaita also pointed to the fact that almost a third of savers (29 per cent) are accessing their pensions without any guidance or advice.
She added there is significant potential to improve this situation with many providers being a trusted source of information and often holding valuable information and data on members which could guide them towards better retirement decisions.
However she added there was a “hesitancy” among providers at present to go down this route, with many remaining cautious about offering tailored help, given the blurred boundary between advice and guidance and how new initiatives such as targeted support might work in practice.
She said stakeholder interviews conducted for the study suggest that savers trust providers and would welcome more structured support, such as timely nudges or default decumulation pathways. But innovation has so far tended to focus on higher-value clients, leaving the majority underserved
Khambhaita added that while retirement defaults may not always deliver the optimal outcome, they are often better than the current reality of disengagement. Well-designed defaults, that offer flexibility and clear “off-ramps” for those with more complex needs, could significantly improve outcomes, particularly for those with small savings who are less confident financially.
Looking ahead, she suggested that hybrid retirement income models – combining flexible drawdown in early retirement with more secure income later in life – could become more common. Digital tools, robo-guidance platforms and stronger trustee involvement were also highlighted as areas of potential progress.
Ultimately, the PPI sees this report as the first step in a broader programme of research. Khambhaita concluded: “We need to strike the right balance between accessibility, innovation and security, so that all savers – not just the most engaged – can achieve better outcomes in retirement.”
