In its response to the Work & Pensions select committee's final report on the pension freedom reforms, published today (22 June), the government said the new rules introduced in 2015 “have deliberately moved away from the idea of defaulting individuals into a single product, namely annuities”.
“There is insufficient evidence to suggest a common default pathway would be suitable for the majority of people at this time,” it argued.
This is due, in particular, to the fact that “most people reaching retirement with defined contribution savings now and in the coming years will also have other retirement provision to take into account in their planning”.
“Pension providers necessarily have a limited view of their customers’ financial position,” the government added.
In the report published in April, the Parliamentary committee recognised the danger posed by the 'advice gap' and said savers needed more support in both accumulation and decumulation.
The committee stated the introduction of a default decumulation pathway alongside a fully functioning pension dashboard could address both issues.
The government also argued that the Financial Conduct Authority stated, in their response to the committee, that “consumers’ needs and circumstances differ significantly in decumulation, so a default pathway may not be appropriate for all of them”.
The FCA proposed, however, that providers develop several default decumulation options in its Retirement Outcomes Interim Review out in July 2017.
Under the FCA's proposals 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.
The committee also called on the government to allow Nest, the government-backed defined contribution pension scheme established to support automatic enrolment, to offer decumulation products.
The government’s view is that Nest members “should be able to access appropriate retirement solutions so that they can transition seamlessly from saving to decumulation”.
So, if the market doesn’t provide “suitable low-cost solutions aimed at small savers that Nest members are able to access easily and meets their needs, then there could be a case for Nest to provide such solutions directly,” the officials noted.
The government will consider the findings of the FCA’s Retirement Outcomes Review, which was due to be published in the second quarter of this year, “with interest in this respect”.
Officials also said that the government “will work with the FCA and the pensions industry to test new ways of delivering a stronger final nudge towards guidance”.
The evidence of what works will inform the rules and regulations that will be made by the FCA, the Department for Work & Pensions (DWP) and the Department for Communities Northern Ireland (DfC NI), “in consultation with the new single financial guidance body that will stipulate how pension holders will be referred to guidance when they seek to access their pension savings,” it added.
This evidence based approach is aimed at moving towards a position where taking pensions guidance becomes the default option for those who are accessing their pension savings, it concluded.
The plans for a single financial guidance body were announced by George Osborne, the previous chancellor of the Exchequer, in 2015 to create a more "joined-up approach".
It will bring together the functions of the Money Advice Service, The Pensions Advisory Service and Pension Wise into a single body.
The bill creating the body received Royal Assent on 10 May, but HM Treasury has said the body itself would not come into existence until autumn at the earliest.
maria.espadinha@ft.com
