Emma Ann HughesJul 7 2017

Pension freedom architect admits default options needed

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However, rather than pay a hefty price tag and wait for ages to be served some Belgian chocolate delight, if you only have 50p in your pocket most people would happily be swiftly handed a Mini Milk from an ice cream van.

Greater choice on what you can do with your pension pot granted by former chancellor George Osborne has ultimately created similar ‘Brain freeze’ headaches for the vast majority of the nation.

Love them or loathe them, I think it was good to have the option of third way annuities in the UK.

Choice sounds a fabulous thing, but it can cause anxiety if you aren’t sure what the best decision is for you.

Post-pension freedoms, nobody has to buy an annuity. They can opt for tax free cash, income drawdown, etc.

The Association of British Insurers Long Term Savings conference this week featured a debate on whether, in a bid to tackle the ‘Brain freeze’ faced by many savers, the industry should push for the return of a default option.

Huw Evans, director general of ABI, said we are in danger of defaulting back into defaults and recognised that the reason for this is the very same one that has made automatic enrolment a success.

Most people can’t be bothered – or don’t feel well informed enough – to make a decision about what they should do to make sure they are comfortable in retirement and not shivering next to a heater.

Mr Evans said: “It is complex so let someone else do it. Why should we resist these seductive arguments?

“Cutting and pasting auto-enrolment is inherently risky. Is it really the best thing for people in their 50s who need to be engaging in what they want?

“We have to engage to shake it and make it happen. To live the lives we want to live.

“We have the ability to engage with these choices. We just have to learn to do it better.”

Mr Evans urged more should be done to increase engagement and educate savers about the array of retirement income options they face in order to make sure they get the best deal possible for their circumstances.

Former pensions minister Steve Webb, now head of policy at Royal London, drew parallels between pension freedoms and trying to find your way in a foreign country you are unfamiliar with.

While some are happy to study the maps before setting off, hire a vehicle and find their own way, many more feel happier telling a taxi driver with local knowledge the destination they want to get to and then being taken there.

Mr Webb said: “Yes I could get a map out and I am not opposed to that but most people are happy to have a local taxi driver take them to their destination."

He said: “The overwhelming thing we know works is defaults.”

I must say, I agree with Mr Webb.

It is time for a return to a default option that is not based on what most people want but what they need.

What most people need is some form of guaranteed income and that is why I was sad to see MetLife retreat from the wealth management space this week.

Love them or loathe them, I think it was good to have the option of third way annuities in the UK.

These products are investments that offer a guaranteed investment return for a fixed period of time, including fixed term annuities and investments with guaranteed returns.

They generally attempt to deliver some of the flexibility and investment growth that can be achieved via drawdown and some of the security of income that can be achieved by investing in an annuity.

Given the road many savers have gone down post-pension freedoms, this product seemed more relevant now than it was back in 2007 when MetLife entered the market.

But ultimately, many advisers were put off recommending these deals as with the benefit of guaranteed funds comes a higher cost of paying for it.

It is a shame more savers failed to grasp the concept.

emma.hughes@ft.com