The way savers access their DC pensions in retirement is typically not aligned to longer-term financial needs, and many will continue to “fall through the cracks” without more co-ordinated action from the industry and policymakers — according to a new regulatory report.
The Pensions Policy Institute has conducted its first report looking at what Value for Money (VfM) might look like in the DC decumulation market. The report is sponsored by The Pensions Regulator.
This initial research sets out a comprehensive picture of the retirement income market landscape, exploring how DC savers access and use their pension savings, and whether the products and support structures currently available meet their diverse needs.
It found that support for savers in the deumulation stage is ‘lagging’ — with most large DC schemes offering no structured retirement income options, leaving members to make complex decisions alone or transfer out.
As a result it says two ‘informal defaults’ have emerged: full cash withdrawals or a passive continuation in accumulation strategies. The PPI says both patterns may be misaligned with longer-term retirement needs.
It adds that advice and guidance gaps persist in this market, with many savers, especially those with smaller pots making decisions without any support. It adds that continued regulatory uncertainly around the advice/ guidance boundary limits how much help providers feel able to give.
The PPI adds that data remains fragmented, with most information collected at the pot level, with limited visibility across multiple schemes, making it difficult to assess outcomes or design better support mechanisms.
The report concluded that there is momentum to address some of these issues, but more coordination is needed. It said recent and ongoing policy developments and innovation offer potential to help savers and improve the decumulation, but without alignment across the market, many savers may continue to fall through the cracks.
PPI senior policy research Mariana Garcia Requejo says: “This research marks an important first step in defining what “value” might look like in decumulation. It plays a role in mapping savers’ needs and behaviours. The development of a more comprehensive evidence base is highlighted as both a challenge and an opportunity. Setting the direction for what data is relevant for the market to collect could guide us to the evidence needed to improve saver outcomes.
“As DC pensions become the primary source of private retirement income, it is increasingly important that savers are supported to make sustainable choices. This report sets the stage for the second in the series, due later this year, which will explore future opportunities to design a more effective retirement income market that can provide VfM for all savers.”
