New research indicates that the millions of people saving into defined contribution (DC) pensions need more help and guidance to make sure they access the right user-friendly retirement products for their personal circumstances.
A report issued today by The Pension Policy Institute (PPI), sponsored by The Pensions Regulator (TPR), assesses the UK retirement income market and explores the challenges to delivering value for money in decumulation leading to TPR to call for a retirement 'sat nav'.
The research warns that many retiring savers take full cash withdrawals or stay in investment strategies designed for pre-retirement, not post-retirement, needs. In many cases, neither option may be the best way for them to meet their long-term retirement goals.
TPR said it wanted the PPI's findings to spark a conversation, particularly as DC pots will continue to grow, on how industry can support better saver outcomes and develop a consensus on the challenges to delivering value post-retirement.
Patrick Coyne, Interim Director of Policy and Public Affairs at TPR, said: "Automatic enrolment built a nation of savers. Now we must move from a savings system to a pensions system, and that requires a 'sat-nav' for retirement which simplifies options and empowers savers to make informed choices.
"Without the right support, savers may find themselves forced to work for longer or find themselves strapped for cash when they should be enjoying older life.
"Plans for a Guided Retirement duty in the Pension Schemes Bill present a fantastic opportunity for industry and policymakers to provide products and services suitable for different kinds of savers. We are keen to help and that is why next month we are also launching an innovation design service to get new ideas off the ground."
Data
The regulator said it wanted greater transparency over post-retirement investment strategies and for schemes to make better and more systematic use of the data they have to better understand their savers' characteristics and circumstances. This would help trustees to know how best to support their savers to navigate decisions at retirement, including through more tailored communications and targeted nudges.
It added trustees would increasingly need to better understand their savers' needs and behaviours, which is why its data strategy sets out TPR's ambition to work across the whole industry to drive consistent, coherent and, where possible, open standards for data on the metrics that matter.
TPR said it would continue to focus on data as it supported schemes to prepare for pensions dashboards and had already launched a video campaign to get industry dashboards ready.
Consolidation
The pensions watchdog said it would continue to support further pension scheme consolidation, particularly in the master trust sector, as this could reduce charges, improve scheme governance and services and offer opportunities to improve investment approaches, including consideration of a wider variety of post-retirement options such as in productive assets.
Where schemes lack the scale to improve, particularly in the use of data, member communications or investment transparency, they should consider if consolidation is in their members' best interests.
Working in partnership
TPR will continue to work closely with the Department for Work and Pensions (DWP) and the Financial Conduct Authority (FCA) to put in place the right frameworks to encourage innovation in savers' interests and ensure pension savers across contract-based and trust-based schemes are appropriately supported to navigate complex retirement choices.
This includes working with the FCA on its review of the boundary between advice and guidance and targeted support as well as the DWP's proposals for a Guided Retirement duty.
Notes for editors
- Assessing the UK Retirement Income Market: Defaults, Active Choices, Innovation, and the existing gaps and challenges for Delivering Value for Money, a PPI report sponsored by TPR was published on the PPI website on Wednesday 14 May. The research is based on a review of existing literature, stakeholder interviews, and available data on the DC landscape including figures from the DWP, Financial Conduct Authority and the Institute of Fiscal Studies.
- Patrick Coyne, Interim Director of Policy and Public Affairs at TPR, gave a speech on decumulation, guided retirement and innovation which calls for a retirement 'sat nav' at a launch event for the research today.
- Government has signalled its intention to introduce a Guided Retirement duty in the forthcoming Pension Schemes Bill. This will mean trustees are required to offer their own decumulation services or partner with another provider.
- This summer, TPR will launch an innovation support service, which empowers the pensions industry to deliver better outcomes for savers and boost economic growth. The service will remove barriers to pension innovation, allow innovators to come to TPR with early stage ideas for informal discussion and share good practice in innovation. Launching the service was one of TPR's commitments to the Prime Minister as part of the wider government focus on growth.
- The Pensions Regulator is the regulator of work-based pension schemes in the UK. Our statutory objectives are to:
- protect members' benefits
- reduce the risk of calls on the Pension Protection Fund
- promote, and improve understanding of, the good administration of work-based pension schemes
- maximise employer compliance with automatic enrolment duties
- minimise any adverse impact on the sustainable growth of an employer (in relation to the exercise of the regulator’s functions under Part 3 of the Pensions Act 2004 only)
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