It’s clear more needs to be done to support the upcoming generation of retirees given the problems of smaller multiple pension pots, barriers to advice, limited guidance and a far greater proportion of retirees relying solely on DC pensions.
View a PDF of the round table supplement HERE.
As new products like Collective Defined Contribution (CDC) schemes start to gain attention, the industry finds itself at a crossroads when it comes to offering solutions and support for these savers.
At a recent roundtable, consultants and providers came together to discuss the decumulation challenge and the lack of consistency in how pension withdrawals are currently handled across the industry. The conversation centred on how improving outcomes for everyone is now more urgent than ever.
Delegates also debated how upcoming regulatory reforms, AI and the dashboard initiative might affect decumulation strategies, provider functionality and member behaviour.
Limited functionality
One of the key challenges in accessing pension pots is the inconsistency in how providers manage the process. Aon partner Jit Parekh pointed out that many schemes lack essential functionality, stating that some providers “don’t offer annuity broking, don’t offer drawdown, or don’t offer partial drawdown.” Those attending the event agreed that this is potentially damaging member outcomes.
Howden Employee Benefits head of pensions Emma Hadley added that this was a particular issue with older, legacy platforms, many of which typically provide limited choices, making it harder for members to make informed decisions. Members want a simple, guided solution she said, but legacy systems often fail to deliver this.
Redington senior vice president Russell Wright noted the consequences of these functional gaps, observing that when providers lack drawdown options, members often “follow the path of least resistance… just taking all your money out.” This highlights the importance of robust tools and support to prevent suboptimal decisions.
NFP regional director employee benefits Martin Parish said that this lack of standardisation and consistency can be confusing for retirees, who may have pensions with more than one provider. As a result many find it hard to navigate their options at retirement. He related a personal experience where one provider required “the sale of equities to settle tax-free cash first,” while another handled the transfer differently. He said difficulties can be further compounded by some providers not offering accurate information to consumers, adding that the industry needs to improve standards on this issue.
Guidance
Good guidance and education are key when it comes to helping people figure out their retirement options. Parekh explained that for members with smaller pension pots, one of the first questions people ask is simply how to get their cash out. This can reflect a lack of engagement when it comes to retirement planning. He said this shows how important it is, not only to get this basic information right but to communicate effectively so people can understand their options and the long-term effects of their decisions.
Hadley agreed, emphasising that simplicity is key. Even when members stick with one provider, outdated systems with limited options can make things difficult she said. She explained that people are looking for “a simple guided solution” that helps them feel confident about their decisions.
Legal & General head of DC Rita Butler-Jones shared a success story about a retirement guidance tool that has helped people consolidate their pensions by walking them through a set of simple, easy-to-understand questions. Over 8,000 members used the tool, she said with 2,500 completing it — some as young as their early 50s.
Mercer Marsh Benefits head of workplace savings David Croker, emphasised how important it is to provide strong, easy-to-use tools to keep members engaged. “Whoever figures this out and gets it right more often will come out on top,” he said, explaining that a great user experience is what keeps people loyal to their provider.
Effective guidance can help people towards better decisions, but while many on the panel said more personalised advice can offer greater support it was recognised that most members are not willing to pay for this additional service. Butler-Jones said that even when advice costs were covered by the pension pot most members do not take up this option.
Employer support
According to Butler-Jones, many larger employers are becoming more proactive when it comes to promoting retirement tools and guidance to their staff.
She said many of these more paternalistic employers are deeply concerned about where retirement assets are directed, with some working to prevent staff from transferring pensions to other providers if they feel this could lead to poor outcomes. She added that employers have a huge part to play in helping their staff get ready for retirement, especially when it comes to directing them towards guidance options and making sure employees are set up for the best possible outcomes.
But Parish pointed out that this support was not always available from smaller and medium-sized businesses. Many of these SMEs just don’t have the resources to provide the same level of support he said. This leaves a big gap, with many employees missing out on the help they need.
He said: “There is a massive risk… not necessarily commercial for us on the advisory side,” emphasising that while it may not be profitable for providers or advisers in the short term, the industry must step up in the long run to support employees, especially as auto-enrolment continues to grow over the next 10 to 20 years.
Butler-Jones stressed the importance of self-service systems for managing employee benefits, especially for smaller businesses. She pointed out that smaller employers can be just as commercially viable as larger ones, thanks to these sorts of services and said a whole range of services, such as nominated beneficiaries, can now be offered on a self-serve basis.
Pathway solutions
LCP partner Sam Cobley said the retirement industry is on the brink of significant change as more providers introduce post-retirement “pathway” solutions, which are emerging as a cost-effective way to manage income drawdown and annuities while also improving guidance and advice options.
Cobley noted that one large trust-based scheme saw 20 per cent of members using a pathway solution with potential for further growth, noting, “Maybe we’re on the cusp of change.”
Croker stressed that employers must shift their focus from simply providing a pot to considering better retirement outcomes for employees. He said they need to consider what they are offering when selecting AE and pension providers: “Is it to get the best pot [for their employees] or the best retirement?” He said that with DC there has been a different mindset, when compared to older DB schemes where the focus was solely on the income in retirement. Perhaps employers and providers need to refocus on this, he said, but offer options that enable members to access retirement income solutions without having to make complex decisions.
Engagement shift
Parekh also talked about the need for people to rethink how they deal with their workplace pensions. He pointed out that younger generations especially, needed to start trusting their pension providers more. “People need to be more engaged,” he said, “but not in a way where they’re constantly checking in, just passively aware.” He believed this shift was a huge opportunity for the retirement industry to drive meaningful, long-term change, with workplace savings becoming a central focus for the future.
Gallagher benefits consulting director Jason Cannon also stressed the importance of trust when it comes to pensions. He encouraged people to see their pensions as something personal, rather than just something tied to their employer. “Trust your provider,” he said, “and think of it as your pension pot, not just your employer’s.”
He said most people are overwhelmed by terms like ‘drawdown’ or ‘annuity’ and care more about charges and simplicity. He said he hoped that the dashboard, when it finally launches, will be an important tool in helping people understand what they have in terms of pension savings, and make better decisions at retirement.
Cannon also noted that already the industry had significantly improved processes when it comes to pension transfers and consolidation, helping people feel a greater sense of ownership of their retirement savings. “Consolidating multiple pots changed the story,” he said, making it easier for individuals to see their pensions as something personal rather than just a workplace benefit.
There was also discussion as to how the workplace sector could compete with the retail market, when it comes to consolidation, Sipps and at-retirement options. Butler-Jones pointed out that the key difference with the the retail market is that consumers choose the brand or company, so this can engender loyalty; in the workplace individuals are often defaulted in these schemes or providers. She said: “Even before auto-enrolment, the company made that choice on their behalf, and that’s why engagement levels in retail are much higher than in the workplace, consumers engage by choice, making their own decisions.”
However many feel that the workplace sector needs to be more vocal about the advantages it offers, not least in costs, and the diversification and performance of its large default schemes.
There was speculation last year that the industry may move towards letting employees choose their own workplace pension provider. Butler-Jones did not seem disappointed that has been dropped by policymakers, saying it could have caused panic among consumers.
But she added: “We need to build more trust in the workplace and provide more tools, so we’re aligned with retail, where engagement has been stronger due to better user experiences.”
She said that initiatives like voluntary Isas and services like Care Concierge are helping increase trust and engagement, as members opt into these products. “Over time, these efforts will chip away at barriers and foster greater engagement,” she added.
The delegates also discussed the positive progress towards launching the dashboards, with the first stage provisionally going live in April, but there were concerns expressed about potential delays to the commercial dashboard, and the need for certain factors to be finalised before starting the process.
Croker stressed the importance of not letting the perfect be the enemy of the good. “If we can get most of the modern schemes on there, that’s a big step change.” He said a dashboard that has all AE schemes, master trusts and large GPP providers on it would be significantly better than what we have now and the dashboard should not be delayed for a few older closed legacy schemes. “This will help build trust, and encourage use of the dashboard enabling people to make better decisions.”
Gen Z
Butler-Jones stressed the need to help people start saving as soon as they begin working, especially with changes in the workforce. “In two to three years, a third of the workforce will be Gen Z, and they’re more engaged, less cynical, and more trusting than previous generations.”
She added that providers will have to adapt their communication strategies, to target and reach these younger generations, and as a result will have to utilise social media more effectively. Getting Generation Z on board early will be key, she added.
Parish added: “We’re now dealing with decision makers who are Gen Z and haven’t had that pensions experience or pensions knowledge. The development in the market is fast paced and it’s not consistent across the provider market. Our role is to keep employers up to date so they can proactively go out to their staff.”
Hadley also agreed that the industry needs to engage with Gen Z through social media. She added: “Gen Z is less cynical about pensions because they’ve seen their parents face retirement challenges, but intergenerational conversations in the workplace are key — if older workers don’t have that knowledge, they’re likely to be more cynical.”
Overall those at the event were optimistic that the workplace pension sector would adapt to meet the decumulation challenges they face both today, and in the future. By addressing functionality gaps, offering clear guidance, improving communication and leveraging pathway solutions, the industry can provide better retirement outcomes and improve member retention.
