Regulatory support is needed to help pension scheme trustees help savers better understand their at-retirement options, a panel of experts has urged.
Industry experts were discussing how to make sure savers were aware of all their options as they approached the end of their working life.
The issue of the default option on retirement was debated during the session - Investing for the future of DC retirement - at the Pensions and Lifetime Savings Association annual investment conference in Edinburgh this week.
The default option and how to help pension members on retirement was one of the consultations which emerged from the Mansion House reforms on helping savers understand their pension choices.
Advice, guidance and the default pension option
One of the main points discussed was the level of support pension scheme trustees could offer scheme members when it came to choosing the default option.
Ruari Grant, policy lead (DC) at the PLSA, said that the role of trustees was crucial.
He said: “There will be a line where guidance is and advice is, around the default option.
“A lot of this stuff is going to need primary legislation and there is nothing on the horizon for this year.
“The FCA says that as long as they keep assets within the scheme then [trustees] won’t need to worry [about giving advice and guidance].”
He said that in smaller pension schemes where trustees may be more pushed and have to use third parties, regulatory issues could arise over advice versus guidance.
Grant added: “Both regulators will need to work together on advice and guidance for trustees to comply with reforms without overstepping any regulatory lines.
“But this is about improving member outcomes by helping them access their pensions in a sustainable growth-oriented manner.”
Pension default option and making the right decision
Jesal Mistry, head of Legal and General Investment Management’s DC proposition and governance, said formulating a pre-retirement investment strategy was one of the trickiest elements of pension scheme investing.
He said solutions existed but there was not one default option that met the needs of all individuals.
Mistry said the line between advice and guidance may need to be blurred to help with best practice.
He said: “Where people take advice most of them want a basic level of advice and needs are not complicated in the majority of cases.”
Mistry said the pensions industry had all the tools to help all members. “Linking it to the member engagement journey with the right tools at the right time is critical.”
Michael Jones, partner Eversheds Sutherland, said trustees could provide a more tailored level of support. “How that is accessed is critical and can help trustees to help members make the right decision.”
Managing pension expectations
Lizzy Holliday director of public affairs and policy at Now Pensions, said whatever default option was offered schemes were always going to have a cohort of people who are not going to have a big enough pot.
She said schemes might, in these cases, need to help members to get the most out of the savings they did have.
Holliday said: “It might not mean income for life, it might mean what sort of income can you expect and then supporting members through that process.”
“It may be about making an offer to a member they may want to tweak. “So between a complex choice and default there is a middle path - putting an offer and making it understandable and allowing them to engage with that.”
Samantha Downes is a freelance journalist.
