The government have been urged to slow down implementation of retirement ‘default’ arrangements, including decumulation-only CDC, and focus instead on legislative changes that will improve member engagement.
The comments were made by Aegon in its response to the Department of Work and Pensions’ consultation on “Helping savers understand their pension choices”.
It is urging the DWP to adopt a three-stage approach with the initial focus on member engagement. It says this should be followed by a more detailed look at default options at retirement, for those who cannot or chose not to engagement with retirement options. It adds that decumulation-only CDC should be the ‘third stage’ of this process, with care taken that the development of these new pension arrangements does not detract from or slow down other improvements around retirement options.
Aegon points out that in the trust-based pension world, trustees focus should remain on improving engagement. It points out that it is “highly challenging” for them to design default retirement income strategy for members in general, and as a result retirement defaults should only be a last resort when other options have been exhausted.
Aegon pensions director Steven Cameron says: “Aegon supports granting members of trust-based schemes access to the same range of freedoms as members in the contract-based world typically enjoy. But with a huge number of interlinking pension developments, including the value for money framework, pension dashboards and solutions to small deferred pots, we urge the DWP to implement their ambitious proposals in three stages.
“As a first stage, trustees should be encouraged through guidance to grant their members access to the core decumulation options including income drawdown, with regulation following once the legislative timetable permits. Where trustees are unable or don’t wish to offer this in house, they should seek to partner with a scheme or provider with the necessary expertise.
“Stage two should look at how trustees might support those members who don’t want to – or feel unable to – make their own retirement choices through some form of default retirement income strategy. But this will be far from straightforward and raises many questions. Default investment funds can work in the accumulation phase, where members can often have similar aims and objectives. But at retirement and in the decumulation phase individual member circumstances, needs and desires are far more personalised.
“Where members fail to engage, how can trustees make decisions without knowledge of the individual’s health, financial dependents, or other pensions and wealth? With this in mind, trustees should double down on improving member engagement with their retirement options. Any default retirement income strategy should truly be a ‘last resort’.”
He adds: “The consultation is also interested in how decumulation-only CDC could be added into the mix of retirement income choices. While this could play a future role, they don’t currently exist, with much needing to be done to turn these into a reality. Rather than detract from or slow down other improvements, we recommend this be considered very much as a third stage.”