MPs have called for a new form of standardised drawdown to protect pension savers and have said providers should be forced to offer the product.
In its final report on the pension freedom reforms, published today (5 April), the work and pensions select committee recognised the danger posed by the 'advice gap' and said savers needed more support in both accumulation and decumulation.
It said the introduction of a default decumulation pathway alongside a fully functioning pension dashboard could address both.
The committee called on the government to allow Nest, the government-backed defined contribution (DC) pension scheme established to support automatic enrolment, to offer decumulation products.
But it also wanted to mandate providers active in the drawdown market to offer a default decumulation pathway suitable for their core customer group by April 2019.
Frank Field (pictured), the committee's chairman, said: "Automatic enrolment has been a runaway success, bringing millions of people on board in saving for their retirement.
"We want to expand that success story so that everyone, no matter how they are saving, has a simple, suitable, default pension option, with a low, capped fee.
"From that solid base, those who want to choose other options would retain complete freedom to do so. They would be armed with a new range of clear, transparent information in making their choices [stemming from the pensions dashboard]."
The product would be overseen by existing independent governance committees and subject to the same 0.75 per cent charge cap already in place for accumulation in automatic enrolment.
The MPs said the shake-up would create better consumer protection as well as a "properly functioning pension freedom market" as better-informed customers switch providers and demand cost-effective products.
Sir Steven Webb, a former pensions minister who is now director of policy at Royal London said the recommendations would "destroy the spirit of pension freedoms".
He said: "The whole reason for giving people ‘freedom and choice’ at retirement is that everyone has different circumstances, needs and objectives.
"It would be impossible for an individual pension provider or scheme to know what was the best option for a saver when they know nothing about [their] other pensions."
Nathan Long, senior pension analyst at Hargreaves Lansdown, said the proposals were akin to “tailoring a retirement straight jacket” and would not tackle the problem of people running out of money in later life.
He said: “The word default should be banished from the decisions made at retirement, as hugely personal choices don’t lend themselves to a one-size-fits all approach.
“It is important to inject a healthy dose of realism into these decisions, as drawing more than the income naturally produced by your investments puts you at the greatest risk of running out of money in retirement.”
Default decumulation options were already proposed by the Financial Conduct Authority in its Retirement Outcomes Interim Review out in July 2017.
In its paper the regulator envisaged a system where providers would be required to offer at least one default pathway with a high-level objective and a strategy set out to achieve this.