MPs call for mandatory default drawdown option

The firm would ask the consumer to express their desired retirement outcome and then offer them the default pathway which most closely matches their retirement choice. 

Firms would actively review the appropriateness of the default investment pathways to ensure they remain appropriate for their customers. If their retirement choice changes, they may need to switch into another investment pathway, the FCA stated.

Stephen Barclay, then Economic Secretary to the Treasury, told the Work and Pensions Committee the government was actively considering this approach.

But he cautioned there was a danger of defaulting individuals into unsuitable products.

Another former pensions minister, Baroness Altmann, said the committee was right to recommend providers should design good value standardised options for people who can't make their own investment choices.

She said: "Given the lack of competition, providers have not felt pressure to innovate at the withdrawal phase of pension saving. They have stuck to the old drawdown products, which are often expensive and require customers to choose their own investments.

"Of course, in an ideal world, one would want everyone to make their own choices, but investments and pensions are complicated concepts and having a recommended pathway can help people manage their money more effectively through their later years."

She also endorsed widening the role of Nest to the decumulation market.

"Allowing Nest to introduce its own standardised drawdown products by April 2019, with controls on the charges, would force more firms to innovate, or face losing customers to Nest's better value options," Baroness Altmann said.

The committee also called for a centralised pension dashboard, saying the case for multiple dashboards hosted by "self-interested providers" was "far less convincing" as it would add more complexity where simplicity was needed.

The MPs acknowledged the existence of the advice gap and the positive effect advice has historically had on people's savings. They also recognised the potential benefits in offering cheaper forms of automated advice.

They recommended the FCA carry out a review comparing automated and face to face advice.

Mr Long endorsed the committee's openness to new forms of technology but he criticised its negative stance on having multiple dashboards.

He said: "Technology is rightly flagged as having a role to play when improving retirements, but the report pushes its use in providing financial advice, yet is less keen when it comes to opening up our pension data across multiple pension dashboards.

"Open banking has put people firmly in control of elements of their own finances, yet pensions are not seemingly being treated with the same urgency. People will struggle to make confident retirement planning decisions without innovation."