Govt urged to allow Nest to offer drawdown

Govt urged to allow Nest to offer drawdown
Credit: Pexels/ Maitree Rimthong

The government has been told to amend legislation to allow Nest members to drawdown their pension pot, as well as extending investment pathways to trust-based schemes.

The Investment and Saving Alliance made this suggestion in its response to a call for evidence on savers’ understanding of their pensions, which closed on July 25.

The Department for Work and Pensions said that it wanted to understand what support and decumulation products are offered to members, along with what might be offered to them in the future. 

Article continues after advert

Officials were also interested in gathering views on the current offer available to Nest members and the scope for its development.

“We believe legislation should be changed to enable Nest to offer drawdown to all of its members,” Tisa head of retirement Renny Biggins said. 

The Society of Pension Professionals stated in its own response that it had no objections to Nest offering a full suite of income options for members.

“Nest should also be exposed to the same market pressures and restrictions as other providers to level the playing field and ensure a fair and functioning market,” Biggins continued.

Nest encouraged to set fees in line with the market average

The government has asked the industry whether Nest should “be able to deliver the full range of income solutions for members unwilling or unable to access decumulation options without support”.

After pension freedoms were introduced, Nest offered uncrystallised funds pension lump sums so that members could access their full pot as cash or take regular withdrawals. It also gave them the option to transfer to another pension scheme or purchase an annuity.

Tisa queried why a full range of income options — which it interpreted as “flexi-access drawdown” — should only be available to Nest members, proposing that these be offered to all.

It argued that drawdown may be the preferred option for many members reaching their normal minimum pension age. 

Noting that members wanting to access drawdown need to find a provider and then arrange a transfer — which often incurs charges — it said that “this cannot be considered a good customer outcome”, and called for drawdown to be made available to Nest members via changes to legislation. 

Tisa suggested that Nest needed to begin acting more like its commercial counterparts and be more easily comparable to the rest of the industry, which would include “operating a fee structure which is broadly comparable to market average”.

Offering drawdown could allow Nest to “significantly reduce the number of smaller transfers for the purpose of flexible access”, it said.

Meanwhile, the SPP said: “Ultimately, we see no issue with Nest offering the full range of income options for members.” 

It endorsed flexible investment strategies, such as having target retirement points wider than a single year, and derisking into retirement.

The industry body acknowledged the daunting nature of switching to a new arrangement for some members, and observed that this can come with cost. 

“We note that at present the number of pots within Nest, where income withdrawal over time is a realistic option (as opposed to lump sums), may be small but clearly it will increase over time,” the SPP said.