Patrick Coyne, Interim Director of Policy and Public Affairs, delivered a speech at the PPI retirement income report launch entitled 'Helping people with their retirement choices'.
Thank you for inviting me today to speak today at the launch of this new report.
It makes an important contribution to the debate around how we support people financially in older life.
And this debate really matters, because most of us hope to actually retire someday.
I look at my parents, reading the papers, pottering round the garden and hopping on cheap flights to far off places and think – I’d quite fancy that.
And the pension system is there to help make that vision – or something like it – a reality.
The irony is that, although some might have a blurry idea of what they want in retirement, the only reason there will be options for many is the miracle of automatic enrolment.
A policy intervention which has built a nation of savers – whether they know it or not.
11 million more people automatically enrolled. A doubling of private sector pension participation.
By any yardstick a fantastic success.
But a story only half written.
And the next chapter in pensions has to be one where people are guided and supported into the right retirement solutions for them.
A page-turner which sees a savings system becomes a pensions system.
So where do we start?
It’s better if people make a choice
Well, it starts by rethinking what we know about success in pensions policy.
Inertia has been the gift that keeps on giving. Building pots under the radar and creating wealth for millions of people so they can have choice in retirement.
94% of people stay within an automatic enrolment default.
And for trustees, the task is more straightforward.
Provide those people with the largest pot possible, investing in a diversified portfolio with tolerable risk.
But it is much less straightforward when it comes to accessing that pot and turning it into something that will support you in old age.
People's wants and needs are very different in retirement.
Some people own their own home. Some people rent.
Some people can’t wait to stop work or are forced to by personal circumstances. Others can’t let it go.
Some people play bridge and stay active throughout their 90s. But many others suffer ill health and need help to undertake basic daily needs.
All of these factors could have a significant impact on your retirement.
There is no silver bullet or pathway that caters to all these diverse circumstances.
Inertia has been a powerful tool and a huge success. But it's not the answer to decumulation.
We must empower people to make the right choice for them in retirement.
To help people after a lifetime of saving, to access their money in a way that suits them.
And people really do need help.
Three-quarters (75%) of DC pension holders aged over 45 do not have a clear plan on how to take their money or even know that they have to make a choice.
And when they do, they don’t seek advice, or often, even guidance.
And why would they?
For decades, our pension system was like hopping on a train.
You settled in and after a long journey you arrived at the destination – a guaranteed income for life.
The journey was predictable, and you didn’t have to make many decisions along the way.
But in a world of defined contribution, retirement isn't a single destination – it's an open road.
People want to go to different places and sometimes face bumps along the way.
Yet, we still act like our savers are waiting at the station.
That is why we need a sat-nav for retirement – a dynamic system that guides the way, adjusting for people and where they want to go to.
The government has signalled its intent to introduce a new Guided Retirement duty in the forthcoming Pension Schemes Bill.
That will mean that trustees are required to either offer or partner with a provider of decumulation services.
With simple choice architecture and communications to help guide people into products that are right for people like them, along with a default safety-net for those unable or unwilling to make a choice.
This is a fantastic opportunity for all of us to get our heads together and provide a suite of products and services which are suitable for different kinds of savers.
Even if, as I suspect and indeed this report shows, for many people that is a product that provides a regular and stable income for life.
As a regulator we want to work with schemes and providers to encourage innovation in product design and member comms in particular.
That's why we are launching our innovation design services over the summer to facilitate and test a range of services with the market.
Part of this is bringing together a coalition of the willing to bash through problems and spark ideas.
Joint forums which enable creativity to flourish, the first of which, a hackathon, is next month.
Our goal is to create a regulatory framework which helps stimulate new ideas and support what’s already there.
To provide certainty to businesses – schemes and administrators but also software and technology providers – that when they put money into research and development, they are not wasting their time.
And to help market participants know and access a clear process which enables new products and ideas to market in a way that is cost efficient for them, and always in savers' interests.
What does good look like in decumulation?
But what does good look like in decumulation? What are key features and settings of a good retirement satnav?
I don’t think there is a one-sized-fits-all approach to product design.
Although clearly, there are good processes to follow – such as defining the problem or opportunity clearly, prototyping, user testing, etc.
But at TPR we do believe there are 5 principles which must be considered:
First, that all savers receive value for money, right across their pension saving journey.
In accumulation, value for money means the investment returns, and services received, for the price paid. In decumulation, it’s not quite as simple.
But what today's report really drives home is that we need to look at the overall value, not just the cost.
This will mean coming up with sound metrics that will measure and provide comparisons for:
- investment performance beyond the point of accessing a pension pot
- the impact on retirement outcomes of different products
- the quality and impact of schemes' communications and member support, both in the run-up to and throughout their retirement
Easier said than done of course, and we’d welcome industry’s help in forming appropriate metrics that allow us to measure the value delivered by the suite of products offered post-retirement.
Which of course, we expect to be included in the value for money framework over time.
Second, that savers are helped with their decision making, with a clear system and prompts along the way, and importantly robust default safety net for those who do not make a decision.
A big part of this is schemes tooling up and using richer data to design user-centric communications and guidance journeys, helping savers take decisions which are right for their personal and financial circumstances.
This support should be available not just at the point of access, but throughout key stages of the saver journey, reflecting the evolving nature of work and retirement.
With Pensions Dashboards and planned reforms to automatically consolidate small pots, savers should be able to track their pensions and make informed decisions about
Third, that product offers are designed with members’ best interests at their heart – mitigating longevity risks in the design of product offerings, and recognising in investment strategies that often retirement is not a cliff edge for many.
Schemes can help to mitigate those risks not only in the design of the decumulation products they offer, but also through the guidance and support provided to savers.
This means taking action to understand the needs and circumstances of savers in the design of effective decumulation strategies, considering their financial and household circumstances in the round.
Fourth, there must be genuine choice for people to make the right decision for them based on their personal circumstance.
With combination products which allow both stability and flexibility for people who want and need different things at different stages of their lives. For many though, a stable income for life will be essential.
Savers should have access to multiple pathways that provide flexible and certain income streams, or a combination of both. These pathways should support individuals throughout their retirement journey, from the early years to the later stages.
And where the default safety-net is used, there should be clear off ramps for savers to do something different where their circumstances change.
And finally, personalised support. Support that is tailored to those that need it most and who are at greater risk of experiencing poorer later life outcomes. And actually, support which is purposeful and leads to something – an active saver choice.
That naturally raises the question of the advice-guidance boundary – how far can schemes go in support savers without straying into FCA regulated territory.
Too often, trust-based schemes hold back – even where the boundary allows for meaningful engagement. That needs to change.
DWP reforms will require schemes to take a more active role – not just working with MaPs and advisers, but directly helping their savers navigate retirement.
This isn’t about crossing the line. It’s about using the space within it. And as the system evolves, TPR, FCA and DWP will continue to work closely to support schemes in doing just that.
Our door is open and we’d welcome dialogue with you in our supervisory and market engagements to get your ideas and to help put flesh on the bones to any secondary legislation that supports the forthcoming bill.
What good looks like now
But in advance of the Bill there are things that we would like to see now to make sure savers get good outcomes from pensions.
Globally we are in choppy water, with economic volatility across the world brought about by US trade tariffs.
Concerns around inflation, interest rate movements and global growth are contributing to a dynamic and unpredictable investment environment which is likely to continue for some time.
Trustees need to understand their membership and how different cohorts are affected by these market movements.
We’d want and expect you to monitor things like additional queries, withdrawal requests and fund switches to cash.
And to talk to people with clear information about the implications of current market conditions and what it might mean for them.
But it is also critically important that trustees continue to employ the highest investment governance standards and take a long-term strategic approach to investment.
Effective decumulation begins with strategic pre-retirement investments designed to balance risk and return over the long-term.
But post-retirement portfolios should aim to balance flexibility, protection, and income sustainability, rather than defaulting to low-risk options unless that is the member’s explicit want.
We’re not all on a train to an annuity so we should try not to design all strategies with that always in mind.
Savers' needs may be dynamic and will evolve and change.
And establishing that comprehensive post-retirement support to address changing needs effectively is really important.
Where next?
So where next?
Guided retirement turns a savings system into a pension system.
But I think that trustees can only truly design good retirement products if they understand their members, and there is an ability to see an individual’s broader financial wealth.
Pensions can’t be viewed in isolation.
Dashboards and the improvements in data quality may allow pensions to be better integrated into the fabric of the wider financial ecosystem over time.
And through our data strategy we are working with industry to pursue common, and where possible, open, data standards to help make that possible.
We recognise the scale of the task with 1 in 4 schemes still having some form of paper records, but it has to happen if we are to harness the transformative power that the digital and date revolution presents. And in this, we hope and expect that master trusts lead the way.
The pensions industry should be very proud of the fact that 8 in 10 workers are now saving into a pension.
And those people want and expect after 30, 40, or 50 years of saving that they can support themselves financially in older life.
Let’s make sure they can.
Thank you.
