New reforms released
In the final report of its inquiry into Pension freedom and choice published today, the Work and Pensions Committee calls for a simple package of measures to create better informed, more engaged pensions savers – and offer a “default decumulation pathway” to protect the less engaged.
In its report on pension scams the Committee argued that a default impartial guidance appointment immediately prior to accessing a pension pot would result in better consumer outcomes, and the Government is moving towards that position in the Financial Claims and Guidance Bill, currently awaiting report stage in the Commons.
But greater engagement earlier in life is necessary to ensure people have pension pots worth seeking guidance on. The Committee calls for a two-pronged package to create “informed and confident savers … more likely to shop around and take sound financial decisions about their retirement … equipped to exert that competitive pressure”.
The Committee proposes a new, simple, standard drawdown pension:
- the introduction of a new default decumulation pathway to support the disengaged - and protect their savings - including through NEST
- a new system of transparent and accessible information
A default pathway
- NEST, the Government-backed DC pension scheme established to support Automatic Enrolment has over 5 million savers. Currently, NEST is not able to offer those members decumulation products.Government should allow NEST to provide de-cumulation products from April 2019, including a new default drawdown pathway. In keeping with the spirit of pension freedoms, savers would remain entitled to move their money wherever they wished
- Every pension provider offering drawdown must, by April 2019, offer a default de-cumulation pathway suitable for their core customer group, subject to oversight by existing Independent Governance Committees and subject to the same 0.75% charge cap already in place for accumulation in automatic enrolment.
A system of default decumulation pathways will protect consumers who do not engage with their pension saving - but the “real prize” is a properly functioning pension freedom market which offers suitable and good value pensions for more people. This can be driven by a virtuous cycle of better-informed customers switching providers and demanding cost-effective products.
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