The Pensions and Lifetime Savings Association (PLSA) is calling for a new regulatory framework to protect those who don’t engage or fully understand their retirement options.
This regime will require pension schemes to support their members when making decisions about how to access their pensions – including offering or signposting products that meet minimum quality standards.
The aim is to provide a proper framework that helps deliver a broadly consistent customer journey for savers across all the pension savings they may have.
The body is calling for evidence to help it shape potential solutions. This proposed framework builds on the PLSA’s vision for guided at-retirement outcomes, set out in its Hitting the Targer report.
This call comes as the PLSA publishes new research showing almost three in four savers (71 per cent) in defined contribution funds want support when deciding how to access their pension. This figure includes some who want to be guided by their pension scheme to a ready-made retirement income option.
Its survey found that a majority of workplace savers with DC pensions who were yet to retire said they knew they would have to make a choice as to how to take their money. However 30 per cent either didn’t know about or understand their options, and only 28 per cet had a clear plan about how they would do so.
The PLSA points out that the 2015 Pension Freedoms gave savers greater choice about how to access their retirement savings. But a significant body of evidence shows the confusing range of options is potentially leading to poor decision-making and poorer retirements.
Too often the complexity results in people ‘choosing not to choose’ or taking a decision that may not be in their best interests. This can have significant negative consequences for their retirement living standard.
PLSA head of DC, master trusts and lifetime saving Lizzy Holliday says: “Five years on from the introduction of the Pension Freedoms, it is clear that too many savers are struggling to understand the complex array of options they face at retirement and are at risk of falling victim to making decisions that hurt their retirement living standard.
“Pension schemes want to support savers more effectively than at present by improving the help they get when they are thinking about drawing their pension and setting a path that protects them from poor outcomes. But many are looking for the support of a clear framework.
“Our proposals seek to provide support to savers to make better decisions and give clarity to schemes about their obligations towards savers at this stage of their retirement savings journey. We look forward to hearing the views of everyone with an interest in ensuring more people achieve a better income in retirement.”
Mark Rowlands, Nest’s director of customer engagement, said: “At Nest, we are committed to supporting our members as they save with us and into their retirement. We have been evolving our communications to members as they consider their retirement options and to encourage them to think what type of retirement might meet their needs and how to access it.
“We look forward to working with the PLSA and the wider industry on this consultation to see what further support can be put in place to achieve the best outcomes for pension savers.”
The call for evidence closes on Friday 4 September 2020. Following analysis of responses, the PLSA intends to publish final recommendations in October 2020.