Pension schemes need more innovation: DC Forum
The recent pension changes have provided an opportunity to engage members, but more product innovation is needed, a report has found.
The Defined Contribution Investment Forum’s 20-page report, At Retirement Solutions for the new Pensions era: A Study into the Impact of the Pension Freedoms of DC Schemes’ Retirement Strategies, argued the flexibilities could act as a call to action on member engagement.
The report said: “The pension freedoms have provided fresh impetus to the long-term challenge of improving member engagement.
“Early stage engagement needs a value focus – the value of pension saving needs to be stressed at an early stage if members ultimately want access to the full range of flexibilities.”
But through a summary of interviews carried out with trustees and pension managers from nine DC schemes in March 2015, the DCIF found that schemes had different stances on what they could offer, and demanded more innovation.
The interviews, carried out by Spence Johnson, found that most schemes were likely to offer uncrystallised funds pension lump sums (UFPLS), with the biggest factor in their decision often being whether their providers could handle the administration involved.
Most schemes planned to facilitate some form of DB to DC transfers, with this mostly taking the form of allowing partial transfers out of the DB scheme internally or to a third party.
Those schemes involved in the research called for greater innovation in the area of drawdown.
The report said: “The lack of available products is a major block to in-scheme drawdown.
“None of those interviewed have yet implemented a crystallised drawdown solution. For most of those interested in doing so, considerable product development still needs to occur.”
But respondents also highlighted various emerging products aiming to capture drawdown flows, including short-term and deferred annuities.
| Key points |
| The lack of available products could be a block to in-scheme drawdown, with more innovation needed. |
| Pension changes have created an opportunity for engagement with scheme members. |
| Schemes seek to offer some form of DB transfer, but this depends on the providers. |
Adviser view
Ed Holder, chartered financial planner for London-based Holder & Combes, said: “More innovation from providers in the guaranteed drawdown space would be welcome, since being able to ensure a client simply does not run out of money is a very powerful tool in financial planning.”
