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”.
There may, therefore, only be a small market for decumulation-only master trusts, albeit one that could be aided by other regulatory changes, such as the drive to consolidate small pots.
“It is therefore worth noting that, over time as pension wealth continues to shift from DB to DC, the overall value of DC pots should increase and therefore viability of this business for decumulation providers should improve,” the report suggested.
Laura Myers, partner and head of DC at LCP, and chair of the PLSA DC committee, said: "In one fell swoop in 2015, the pension freedoms thrust individuals to the fore in terms of the big decisions they need to make to sustainably fund their retirements. Many welcome the new flexibility, but with freedom comes more responsibility and therefore risk. There is no doubt that retirees would benefit from an enhanced level of guidance.
"Many schemes will not have the resources to develop what can be complex and costly solutions, and we are seeing increasing numbers of schemes seeking to partner with someone who can provide a full range of decumulation solutions. So, the demand is growing. However, when it comes to wider support (beyond just providing flexibilities) there is still a big gap.”
She added that auto-enrolment had created a lot of small pots, many of which represent “wholly unprofitable business”, an equation she said would “need to right itself if we are to achieve a true mass-market solution which provides retirees the support they need”.
“I don’t believe this will happen without contributions from all parties in the pensions world,” Myers continued.
“In 2012, the industry, policymakers, regulators and consumer organisations all came together to lay the foundations for a workable accumulation regime. Now is the time to bring the same key players together to put a decumulation regime in place that will provide retirees with the level of support they need.”
Benjamin Mercer is senior reporter at Pensions Expert
