Govt urged to revise at-retirement guidance

Panelists at the Pensions and Lifetime Savings Association’s investment conference have called for a revised framework for at-retirement guidance to allow trustees to give more support to members considering their options.

Regulators must reform the framework for advice and guidance at retirement to help pension schemes develop decumulation options, panelists said.

Speakers called for an overhaul of regulations to empower trustees to make decisions in the best interests of their members. 

Alicia Harrington-Clark, head of DC, master trusts and lifetime savings at the PLSA, said: “There is further clarification needed about what trustees can and can’t do for savers at retirement and in retirement. 

“This led us to recommend a completely new and different framework to support trustees to take decisions on behalf of savers in their best interests and in the right way.”

The Department for Work and Pensions is planning to conduct research into the decumulation market and a call for evidence is expected imminently. Harrington-Clark said she expected the DWP’s work to produce similar findings to those of the PLSA’s work in this area.

“Trustees will say they have issues giving [members] the information that they need because they worry about the advice/guidance boundary, for example,” she said. 

“I would expect the DWP will find very similar issues associated with perceived barriers or limitations — and real barriers or limitations — on trustees acting on behalf of savers.”

Harrington-Clark argued that the at-retirement framework needed to be restructured to make it riskier for trustees “to just leave people to make their own choices” and not engage with decumulation.

Darren Philp, director of policy and communications at Smart Pension, said trustees can sometimes think they are “minimising risk” by only doing the minimum required with regards to decumulation options for members. However, this was not a sustainable stance, he contended.

He said: “If you’re not helping people at retirement and if you’re not providing good decumulation solutions, if you’re not properly providing guidance or signposting to appropriate guidance, members will say, ‘Why didn’t you help me? Why didn’t you support me?’”

However, while there remained an issue regarding guidance and advice, and where a scheme’s communications cross from one into the other, Philp maintained that there was a lot more the industry could do “before we cross into the realms of personalised recommendations”.

To highlight the importance of guidance around retirement options, Harrington-Clark and Philp both cited the high proportion of retirees that take their tax-free lump sum and put it into a cash Isa or similar arrangement. 

A recent PLSA survey found that, of those that took their tax-free cash at retirement, 76 per cent of them put it into a cash Isa.

Harrington-Clark said that, while savers value the tax-free cash option highly, “particularly in a very inflationary environment, we would not want that to be what people are doing on average”.