Nest has outlined a three-stage retirement income strategy for its savers to take into account the pension freedoms, with each stage catering for pensioners when they reach certain ages.
In its proposals – the result of liaison with the industry and with providers from countries such as Australia and the US – Nest said it aimed to help people meet their income needs in retirement without either imposing too much risk or reducing people’s flexibility.
According to the government-backed pension scheme’s 38-page report, The Future of Retirement: A Retirement Income Blueprint, its pensioners aged from the mid-60s to mid-70s will be put into an an income drawdown fund, which will provide a steady income.
From their mid-70s to their mid-80s, the members will be in a cash lump sum fund. Finally, from their mid-80s on they will have a later-life protected income – although Nest has stressed this will not be akin to the traditional, inflexible regime under which, from 1976 until April 2011, people had to buy an annuity when they hit 75.
The rules were made more flexible in April 2011, when investors could choose between capped or flexible drawdown schemes at 75, but the latest pension freedoms have given people total freedom over their pension pots at the point of retirement.
Mark Fawcett, Nest’s chief investment officer, said: “Since the pension freedoms were announced, the challenge to the industry has been to help savers achieve a sustainable retirement income without removing freedom and flexibility.
“We believe this is possible, but it requires innovation.”
To help provide a sustainable retirement income for its various members, Nest is considering building advanced life deferred annuities (Aldas) into its new retirement income strategy, although it said these could end up being expensive for some consumers, and difficult for providers to underwrite.
A statement from the ABI said: “Deferred annuities would be possible now, and could be included in a toolkit.
“But the capital requirements a provider would face in guaranteeing a future income, and the customer’s option to switch to a different provider when they take the benefits, mean it is not particularly attractive to the provider or the customer.”
Tom McPhail, head of pensions research at Bristol-based Hargreaves Lansdown, said: “Nest have some good ideas here – however, their proposals do set a couple of interesting challenges.
“Insurance companies have shown precious little appetite for developing a deferred annuity market, though perhaps Nest’s blueprint will now stimulate more interest.”