The National Employment Savings Trust’s consultation on future retirement options has found an emerging consensus that a significant majority will need to be offered “default pathways” to achieve good retirement outcomes.
As an interim response, Nest has published six principles for the design of retirement income products to meet the needs of the new mass market of defined contribution savers.
The six principles for designing retirement defaults for auto-enrolment savers are:
• living longer than expected and running out of money is the key risk in retirement and a critical input into retirement income solutions;
• savers should expect to spend most or all of their pension pots during their retirement;
• income should be stable and sustainable;
• managing investment risk is crucial as volatility can be especially harmful in income drawdown-type arrangements;
• providers should look to offer flexibility and portability wherever possible; and
• inflation risk should be managed but not necessarily hedged.
The guiding principles set out represent key areas of broad agreement on product development for default offers, based both on evidence presented in responses to the consultation and emerging insight from other organisations.
Mark Fawcett, the auto-enrolment scheme’s chief investment officer, said: “What we are seeing is a strong consensus emerging on good quality default retirement income solutions playing a central role in helping these savers achieve better retirement outcomes.
“Much of the evidence we are analysing indicates broad agreement that helping savers mitigate the risk of outliving their savings will be a key feature for default solutions right for the DC-dependent generation.”
Nest will be publishing a full consultation response later in the year.