Smart Pension working on default retirement path

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Smart Pension working on default retirement path

Smart Pension and Legal & General (L&G) are working on what could be the first default retirement pathway in the UK market, using robo-advice.

According to FTAdviser's sister publication Pensions Expert, the master trust, with almost half a million members, has joined the pension provider – one of its shareholders – to create a product combining drawdown and annuities.

The pathway will also have two other pots – one for inheritance tax and a rainy-day fund.

Paul Budgen, director of business development at Smart Pension, told FTAdviser the project is now in the development phase, with a launch expected for the first quarter of 2019.

He said: "The idea is that we will invest it for you on your behalf, and between 67 and 80 you will exhaust the drawdown account.

"At age 80, we will then buy the most appropriate annuity for you, using the annuity and the rainy-day pot for that.

"Every year we will do an MOT to check if you are on track."

The new product comes after MPs called for a new form of standardised drawdown to protect pension savers, and that providers should be forced to offer the product.

The government-backed provider National Employment Savings Trust (Nest) has been supporting default retirement options since 2016.

However, current rules don't allow for master trusts to develop such a product.

Default decumulation options were also proposed by the Financial Conduct Authority in its Retirement Outcomes Interim Review out in July 2017. 

Smart Pension members will be allowed to arrange the funds in the different pots as they see fit.

However, if they don't change them, a default setting will be in place, starting when the customer retires.

Nevertheless, the master trust wants to start communication and engagement with its members about this from their mid-40s, Mr Budgen said.

Smart Pension trustees are now working on defining what will be the default strategy percentage for the different pots, with more details expected in the next few months.

The master trust will be using robo-advice in this process, which will be introduced alongside the project.

Mr Budgen said: "It is part of our development roadmap already. Good member communication includes robo-advice. We will use it for the default pathway, but it is a natural extension of what we were already thinking about doing anyway."

The provider is still deciding if it will build an in-house solution, or if it will use an external partner.

maria.espadinha@ft.com