Small pot consolidation and the roll-out of collective defined contribution products would go some way to meeting the challenge of encouraging young people to engage with their pension.
Delegates at the Pensions and Lifetime Savings Association's (PLSA) annual conference in Manchester (18 October) were also told that the Department for Work and Pensions will be launching a consultation on how best to implement and regulate CDC schemes in the next few months.
CDC schemes are a hybrid of defined benefit (DB) and defined contribution (DC) pension schemes and were the subject of a DWP call for evidence last year.
Julian Barker, head of CDC and DC decumulation policy at the DWP, said over 70 responses had been submitted to the consultation which took place earlier this year.
He said there appeared to be consensus around several issues including the onus on trustee decision making, and having a “more holistic” link between pension savings and retirement.
He also added that although lots of schemes were doing good things around CDC, “coverage was patchy and to bring the standard up some action from the government was needed.”
Barker said there was less agreement about the use of default options when someone starts drawing on their pension and there were practical considerations raised about pension providers partnering up, including where liability would lie.
He said: “The consultation was about the products so now it makes sense to focus on what is the best way of supporting members to get there.”
Pensions: A question of trust
In the session, entitled The future of retirement for the DC generation, James Chemimir, pensions director at Kingfisher said allowing savers to consolidate small pots would remove the temptation to simply take the cash.
He said the average pension pot held in Kingfisher was £22,000.
“Consolidation is good because [by combining all their pensions into one large lump sum] members will be less likely to cash a large sum of £100,000.”
Chemimir also claimed the pensions industry was experiencing a “trust deficit” which could be fixed by making pensions relatable and easy to understand.
He said: “Until we fix that, all the wonderful things we are doing around engagement will not work.”
Chemimir also pointed at the example of using artificial intelligence (AI) to write some of the pension information material, saying it made it much easier to understand.
Pensions: The earlier the better
Donna Walsh, head of master trust at Standard Life, added that the pension dashboard would be a useful tool in solving the small pots issue.
She said Standard Life’s Retirement voice report of over 6,000 adults had shown that the average saver started considering their retirement planning at the age of 36.
Walsh said: “50 is too late.We need to make sure we can engage with them earlier than that."
A poll held during the session showed that most delegates were in favour of offering a decumulation CDC to pension scheme members.
While 75 per cent agreed, 23 per cent disagreed and two per cent said it should be a default.
Chemimir said: “People in a DC (defined contribution) scheme have to take the risk on how long they will live, which never happens to DB members.”
“In DC there are so many choices it has become confusing, CDC will have to play a part with individuals who want some flexibility and some longevity risk.”
Julian Barker agreed: “The system now isn’t ideal but people have more choice and we need to build the systems to help people navigate that.”
He added: “I don’t believe we would go back to a world of [just] annuities.”
Samantha Downes is a freelance financial reporter
