The Work and Pensions Committee (WPC) has proposed that the government should take steps to introduce an automatic drawdown pensions option, as well as allowing NEST to offer decumulation products. In the final report of its inquiry into pension freedoms, the WPC has suggested that, by April 2019, the government should offer a default decumulation pathway which will allow pension members to access their pension pots in retirement, in a bid to protect those who are less engaged with the pensions environment.
In the light of the success of auto-enrolment, the WPC suggested that a default drawdown option, certified by the FCA and scrutinised by independent governance committees, should be introduced “so that everyone, no matter how they are saving, has a simple, suitable, default pension option, with a low, capped fee”. The option would be subject to a 0.75% charge cap and targeted towards uninformed savers who are less able to make a decision at retirement. The WPC’s proposals also call for NEST to be allowed to provide drawdown products to its five million savers in order to make way for a competitive and “properly functioning pension freedom market”. Moreover, it called for a single, publicly hosted pensions dashboard instead of the current plans for multiple dashboards which could “add complexity to a problem crying out for simplicity”.
The proposals have been met with a mixed response from the pensions industry, with Royal London director of policy, Steve Webb, suggesting that it would “destroy the spirit of pension freedoms”. Webb suggested that while the idea makes sense for pension savers, it fails to add benefit to later life:
“In particular, people may have built up several different pension arrangements with different providers and schemes. It would be impossible for an individual pension provider or scheme to know what the best option for a saver was when they know nothing about these other pensions.”
Conversely, Just Group communications director Stephen Lowe thought that the WPC’s suggestions could inspire a “retirement income market where confident and informed consumers can access suitable and good value products”. Further, Nigel Peaple, deputy director of DC, lifetime savings and research at the Pensions and Lifetime Savings Association noted that it supported the changes as “one of the hardest problems we face is connecting DC pension savers with suitable retirement income products…the report shows how it is possible to preserve retirees’ freedom to choose whilst applying lessons from automatic enrolment to connect savers directly with retirement income products”.