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Recent regulatory developments in the UK, including proposed legislation from the Department for Work and Pensions (DWP) and new rules from the Financial Conduct Authority (FCA), are set to significantly influence pension decumulation and support throughout the retirement savings journey. These changes aim to enhance consumer protection, promote better retirement outcomes, and align industry practices with the principles of the FCA Consumer Duty regulations.
In response, Mercer is adopting a principles-based approach to ensure they meet, and exceed, the expectations set out by the DWP and financial regulators.
A clear and consistent path forward
Mercer has established a Working Group to design a comprehensive Default Retirement solution. The group has agreed a set of core principles and values that will underpin their approach. These principles will guide actions and ensure that solutions are aligned with regulatory standards, industry best practices, and, most importantly, the needs of members.
Core principles include:
- Pension not pot: Default solutions will make sure that members have a dependable income stream that doesn’t run out.
- Backstop: Defaults are safety nets, supporting those that cannot or do not want to engage. Mercer’s first choice will always be to engage with members and deliver the best solution we can.
- Consolidation first: Mercer will actively encourage members to consolidate their pensions, where beneficial, and prior to access.
- Advice: Seeking advice will be promoted as an option, before offering default solutions.
- Data-driven: No data is ignored; every data point helps Mercer segment members and better tailor the appropriate solution.
- No regrets: People like to change their minds. Defaults will keep the flexibility door open for as long as possible.
- Simplicity and transparency: Focus will be on delivering clear, tangible outcomes that are easy for members to understand.
- Reducing decision fatigue: The aim is to simplify retirement planning, minimising the number of decisions members need to make.
- Risk protection: Risk and uncertainty should be minimised.
- Multiple defaults: One size does not fit all. Defaults will be customised for different consumer segments
- Cognitive change: As members’ age and cognitive abilities change, the solutions will adapt to protect and support them.
A long-term strategic vision
Mercer’s commitment extends beyond compliance with the regulations; it involves embedding these principles into their culture and operations. Collaborating with partners and providers, Mercer is exploring how data analytics, open finance and AI can further personalise the retirement journey, supporting members at every stage of life.
Stephen Coates, head of proposition at the Mercer Master Trust explains: “Once again we are working with our partners to use member data, open finance technology, and AI, to create journeys that deliver targeted solutions across a range of different customer groups. One size most certainly does not fit all when it comes to retirement decisions, and our default solutions will aim to meet the needs of a wide range of people.
“Our long-term vision is to develop ways to use member data to deliver hyper-personalisation. We believe AI will be a game-changer, allowing us to interpret data and deliver insights in a natural, conversational way. In a relatively short time, we think that highly personalised education, guidance and advice will be within affordable reach for everyone. It’s our ambition, our vision, to keep reducing cohort sizes until, eventually, we reach a cohort of one. We see targeted support and default retirement as the right trajectory, and we believe that our vision is the destination.”
A future of personalised, data-enabled support
As the pensions industry faces increasing regulatory pressure to innovate and improve member outcomes, Mercer is well-positioned to meet these challenges by delivering meaningful, tailored support to members. Embracing a future where personalised, data-driven support is the norm, will foster greater clarity, security and confidence for members.
The Mercer Master Trust is provided by the Mercer Master Trust Trustee Board acting in conjunction with the founder of the Mercer Master Trust, Mercer Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales No.984275. Registered Office: 1 Tower Place West, Tower Place, London EC3R 5BU.
