Retirement guidance improving but decumulation challenges remain

Retirement guidance improving but decumulation challenges remain
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Support available to those approaching retirement is improving, particularly in master trusts, but a comprehensive framework is still required to ensure all savers get the help they need, according to new research.

The Pensions and Lifetime Savings Association created such a framework — known as guided retirement income choices — in 2019, which would require schemes and providers both to guide members through retirement, while also ensuring they have access to a full range of retirement solutions. 

Its new report, published on June 23, canvassed five large master trusts, two insurers and a number of single trust schemes and consultancy companies, in a bid to ascertain the extent to which the industry has innovated while taking framework into account.

Though the framework itself is not mandatory, the PLSA’s Retirement Choices report found that the industry, and especially master trusts, are already developing equivalently comprehensive solutions, which are increasingly opening up to the wider market.

It noted, however, that most single-employer trusts will not provide these solutions, and the report stressed the need to signpost members to schemes and providers that can support them.

“As the years go by, more and more schemes are seeking to provide such signposting. This is also becoming increasingly important as more people retire with a majority of pension wealth in [defined contribution] savings,” the report explained. 

“At present, people are still retiring with significant [defined benefit] entitlements, but this will not continue indefinitely. Through auto-enrolment, government and industry have together built firm foundations for people to accumulate pension savings throughout their working life.”

The report pointed to figures from Broadridge, which suggest that DC master trust assets will grow from around £87bn to £461bn by 2029, and data from the Pensions Regulator estimating that DC assets will overtake DB liabilities in the next 15 years.

“Therefore, now is the time for policymakers to take proactive steps to prepare for future years, when people will retire with a pot or a mixture of pensions rather than the default security of income of DB,” it continued.

“As such, we encourage government and regulators to take this opportunity to revisit any perceived barriers to the retirees of the future getting the help they will need, to ensure the savings they’ve built up through auto-enrolment are best utilised.”

The report found that master trusts are exploring more extensive member engagement, and guidance for decumulation solutions, as recommended by the GRIC framework.

It also found an increasing availability of “blended solutions”, also among master trusts, which afford members more flexibility earlier in their careers and more security later on, again as recommended by the framework.

It did, however, find that there is little interest in the short-term in rolling out of such solutions to the wider market, with most master trusts and insurers focusing on their own customers first. The PLSA said this was “understandable”, but warned that without significant scale, external single-trust businesses would not be “commercially viable” due to “low pot values”.