PLSA proposes framework to battle ‘confusing’ pension freedom

PLSA proposes framework to battle ‘confusing’ pension freedom

The Pensions and Lifetime Savings Association (PLSA) has drawn up a regulatory regime whereby schemes would be required to support savers when making decisions about how to access their pension.

The trade association yesterday (July 28) published a call for evidence on proposals which would see schemes forced to support their members in making retirement income decisions without straying into the realm of advice.

PLSA said the framework was designed to protect savers when making those choices under the pension freedoms.

Pension freedoms were introduced in 2015 with the aim of giving people aged over 55 more control over how and when they could access their savings.

But according to the PLSA, the “confusing” range of options has been leading people to “choose not to choose” or make a decision that may not be in their best interests. 

While there are already rules in place to require pension schemes to inform members of the availability of pensions guidance at various stages of the decision process, as well as other requirements on default strategies, the PLSA said there is no overarching support model to ensure some savers do not “fall between the gaps”.

The PLSA stated: “Schemes are acutely aware of the risks inherent in not supporting savers with decumulation decisions (ie. the risk of doing nothing) beyond the statutory minimum requirements. 

“Recent research found that schemes believe the DWP and TPR have done little to mitigate these risks, as there is a perceived lack of guidance regarding regulators’ expectations of how trustees should support savers’ decumulation decisions. 

“This suggests that greater clarity regarding the government’s expectations of how schemes should support savers with their decumulation options would be welcome and could help to diminish [these risks].”

Under the PLSA’s proposals, support would be focused around the elements of member engagement and communications, providing or signposting to decumulation products, and adapting scheme or governance processes.

Under the PLSA’s plans, there will be a set of minimum standards for each of these elements as well as guidance to help schemes operate within these standards.

The PLSA wants schemes to make savers fully aware of all their options when entering drawdown as well as signpost them to guidance and advice so they are fully informed. But this would be done without straying into advice.

It also expects schemes to have a default investment strategy for savers who do not have a preferred option so they can manage the risks.

This could be offered either in-house or via a third party and would effectively be an 'off-the-shelf solution' for clients.

The PLSA stated: “This approach would facilitate the creation of retirement strategies for savers who choose not to engage in detail with their options. 

“In effect, it would require schemes to deliver what research suggests savers want: off-the-shelf solutions that meet their retirement income needs.” 

Lizzy Holliday, head of DC, master trusts and lifetime saving at PLSA, said: “Five years on from the introduction of the pension freedoms, it is clear that too many savers are struggling to understand the complex array of options they face at retirement and are at risk of falling victim to making decisions that hurt their retirement living standard.