Personal Pension  

Pension schemes slow to embrace drawdown

Pension schemes slow to embrace drawdown

Nearly two-thirds (61 per cent) of trust-based pension schemes have yet to provide access to a flexi-access drawdown facility, nine months after the launch of pension freedoms, according to Willis Towers Watson.

This means that a significant proportion of members will need to find their own solution if they wish to take advantage of flexible drawdown in the immediate future.

The consultancy’s research considered more than 200 defined contribution trust and contract-based schemes in October, finding the number of trust-based schemes providing flexi-access drawdown within their trust remains very low, at just 7 per cent.

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However, a third of trustees are facilitating member access to a flexi-access drawdown facility by linking to a drawdown provider, or a choice of providers, to which a member can transfer their assets at retirement.

More than half of pension fund trustees have made some kind of material change to their scheme design, investment or member communications, over and above statutory requirements, to support the new pension freedoms, since Willis Towers Watson carried out its last such study in May.

John Cockerton, a senior consultant at the firm, said in one sense it is concerning to see such limited access to drawdown currently, however many more trustees may be intending to facilitate access to drawdown but are still going through thorough due diligence or waiting to see how the provider market evolves.

He said: “It is fair to say that trustees have had a lot of new regulation to contend with over the past year and, having prioritised implementing new legal requirements, they are now turning their attention to desirable but discretionary options like drawdown.

“Either way, we would expect to see the trend towards providing drawdown access accelerating in 2016.”

The research also found that of those trust-based pension schemes permitting members access to a lump-sum payment, known as an uncrystallised funds pensions lump sum, nearly three-quarters (71 per cent) will permit just one payment without the member having to transfer their savings outside of the trust.

The proportion of schemes permitting a maximum of two transactions increased from 12 per cent in May to 19 per cent in October.

According to the research, there is a significant difference in the make-up of the default investment options chosen by trust-based pension schemes and by contract-based pension providers.

The majority of trust-based schemes (62 per cent) are continuing to target tax-free cash and annuity purchase as their default option for members, whereas contract-based providers are offering off-the-shelf defaults, which 80 per cent of employers in the study select.

The Financial Conduct Authority’s latest retirement income market data revealed the highest levels of adviser use was for customers going into drawdown, at 58 per cent.

This of course meant 42 per cent of customers going into drawdown did not use an adviser, while 37 per cent of annuity purchases were made through an adviser.