DWP issues call for evidence to explore support for pension savers

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DWP issues call for evidence to explore support for pension savers
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The Department for Work & Pensions has published a call for evidence to explore what support members of pension schemes need to make informed decisions about their savings.

In an open consultation titled 'Helping savers understand their pension choices', DWP said it wants to understand what support and decumulation products are currently on offer to members, and what may be offered to them in the future. 

The call of evidence, published today (June 14), is aimed at individuals who want to understand savings and welcomes input from pension scheme members, consumer organisations as well as trustees and scheme managers.

The consultation builds on research by the Financial Conduct Authority which found many people who save into a pension scheme choose the "path of least resistance" when it comes to accessing their pot. 

Often they take an income from their current pension provider without shopping around for the best product, or without being aware of how their savings are being invested. 

Based on this research, the FCA introduced measures for personal pensions, aimed at supporting people to get the most out of their pension savings.

DWP said it wants to achieve similar and hopefully even better outcomes for people saving into occupational pensions. 

Pensions minister Guy Opperman said: “Deciding how to use your workplace pension savings is one of the most important financial decisions many people will make.

“Automatic enrolment has introduced over 10.6mn people to pension saving and we want to ensure the record number of Brits now saving for retirement have the support and information they need to make informed choices about accessing their hard-earned savings.”

"Better guidance and affordable access to financial advice is needed now more than ever." - Becky O’Connor, interactive investor

DWP said those saving into these pensions should also have access to support that allows them to make informed decisions and achieve what they want from their pensions. 

LCP partner Steve Webb welcomed the government's move but said there need to be more focus on the post-retirement landscape.

“One priority for the DWP will be to focus not just on what happens at retirement but also on the journey through retirement,” he said. “Most people will have modest pension pots and no access to financial advice, so they need products which will work for them without needing active engagement or investment expertise.”

He added: “The idea of a ‘flex first, fix later’ pension could be one such product, combining the best of both worlds – the flexibility and growth potential of drawdown and the certainty of a late life annuity.  I hope that this DWP consultation will give proper attention to what happens post-retirement, as the right strategy at retirement may not be the right strategy 10 or 20 years later”.

The call for evidence aims to find out, in particular from people saving into workplace schemes, what information and support they expect in the lead up to taking their pension, at the point when they want to access their savings and after they have started to use their savings.

DWP said it is also essential to understand from schemes what support is on offer when their members make these decisions and what schemes are considering offering their members in the future.

Interactive investor's head of pensions and savings Becky O'Connor, said: "Pension freedoms gave people many options for how to invest and take an income from their pensions and this is important, but the flip side of freedom is confusion and possibly mistakes that can cost people dearly in retirement. 

“Planning pensions can be fiendishly complex. Trying to do it on your own without any knowledge can feel like wandering around in the dark without a torch.”

O’Connor said pensions are “not all created equal” and many people have more than one, with different features, protections and restrictions associated with each. 

She argued that it can be very hard to make confident decisions on your own and the rise in the cost of living and stock market volatility makes it even harder to navigate.  

"Should I consolidate? Should I take my full 25 per cent tax free lump sum? Should I keep working? How much income can I take annually without eroding the value of my pot? Should I remain invested in growth stocks? These are just some of the questions swirling around in the minds of people planning retirement,” she added.

"Better guidance and affordable access to financial advice is needed now more than ever. 

"We have 'investment pathways', an FCA initiative to overcome the tendency to put too much in cash rather than remaining invested; we now also have the ‘stronger nudge' to pensions guidance from Pension Wise. It will be interesting to see what the government's latest call for evidence can recommend."

Nest's role

The DWP is also interested in gathering views on the current offer available to National Employment Savings Trust (Nest) members, and whether there is a role for it to further develop what it offers.

Following the introduction of Freedom and Choice in 2016 and a separate consultation paper, Nest introduced uncrystallised funds pension lump sum (UFPLS), so that members can access their full pot as cash or take regular withdrawals - alongside having the option to transfer to another pension scheme or purchase an annuity from the open market. 

In March 2020, Nest introduced its guided retirement fund which is an investment solution designed to provide life-long sustainable withdrawals using UFPLS.

But the government will look at whether Nest should be able to deliver the full range of income solutions for members unwilling or unable to access decumulation options without support. 

Pensions and Lifetime Savings Association director of policy and advocacy Nigel Peaple, said: “We welcome today’s publication of a call for evidence on decumulation in the trust sector and that it is seeking input on a range of existing and new solutions. We look forward to engaging further with the DWP on this topic throughout the consultation process and beyond. 

“Since the pension freedoms individuals have had more options regarding how they access their pension savings, but most people need support in making these important and complex decisions.”

The call for evidence will run for 6 weeks and will end on July 25. 

DWP said the responses to this call for evidence and other stakeholder engagement will inform its policy position.

sonia.rach@ft.com 

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