How can the sector make sure that people can trust their pension scheme?
How can schemes deliver what’s needed to help their members achieve a comfortable retirement?
This is an important question that Nest, among others, is tackling.
As a trustee, with a legal duty of care to the scheme’s members, it’s one of my primary considerations.
But is there scope to expand the debate? Currently it’s focused on protecting members while they build a retirement pot. What about when members take their money out?
We know from our consultation, the future of retirement, that our members’ top priority for their pension pot is to provide a sustainable income for life.
People like the flexibility that the pension freedoms have introduced, but they also don’t want to run out of money. This is a tight balancing act for savers to walk.
Making informed choices about how to use your pension pot can be difficult even for people who pay attention to the stock markets each day. The reality is that most people aren’t investment experts and they don’t want to be.
Post pension freedoms, how do we meet our duty of care to our members and ensure they don’t run out of money during retirement?What is the solution? Advice and guidance services are key, but more and more research, from the PLSA to the Pensions Policy Institute, is showing that many don’t and more importantly can’t use these resources.
So although they’re an important element there’s no silver bullet, particularly for lower earners.
Evidence from our consultation suggests this is particularly the case for the new auto-enrolled generation.
Given that Nest is a scheme with more than three million members, this is a big issue for us.
In the old world, the fact that annuities were virtually the only option meant we knew our members would be getting a secure income for life if we could help guide them towards suitable deals.
But post pension freedoms, how do we meet our duty of care to our members and ensure they don’t run out of money during retirement?
We think that a big part of solving this puzzle involves signposting members to suitable solutions in the new world of choice.
The Nest retirement blueprint describes the key features of what we think ‘suitable’ means for our members; a strong probability of good outcomes, a path to a guaranteed income in later life, but also flexibility and freedom for members to change their minds about what they want from their retirement pot as their needs change during later life.
But what about the ongoing management and governance of these solutions? We know that ‘set and forget’ drawdown profiles can be risky. Who is checking that the income level won’t result in an empty pot too soon? Or that market conditions won’t end up with the same result?
As a trustee I feel my legal duty to protect members’ interests means these questions can’t be left to chance. We think that someone needs to watch over these sorts of issues.
Trustees already have this sort of role as a member builds their retirement pot. What scope is there to extend this duty through retirement?
Otto Thoresen is chairman of Nest
