The UK’s pension fund association has proposed that a new regulatory regime be established that would require pension schemes to support their members when making decisions about how to access their defined contribution (DC) savings.
The Pensions and Lifetime Savings Association (PLSA) is seeking industry views on its proposal with a view to launching a formal recommendation aimed at government on the occasion of its annual conference in October.
The background to the association’s proposal is the 2015 pension freedoms reform, which gave savers greater choice about how to access their retirement savings, and the PLSA’s assessment that evidence shows “the confusing range of options is potentially leading to poor decision-making and poorer retirements”.
The proposal that the PLSA put forward today aims to protect people who don’t engage with or fully understand the financial choices they face when they move towards semi- or full retirement.
It is calling for a new regulatory regime that would create a statutory obligation for pension schemes to support their members in respect of decumulation decisions, with minimum standards to apply to three specific elements: member engagement and communications; providing or signposting to decumulation products; and scheme/governance processes relating to the design and/or selection and ongoing delivery of the aforementioned elements.
One of the aims of setting out such minimum requirements is to enable the development of products that help manage risks for savers as DC savings grow and dependence on DC-derived incomes increase.
As well as protecting savers, the PLSA’s proposal is also intended to address the risks that schemes face when supporting members in their at-retirement decisions.
For example, schemes fear legal action if they provide more comprehensive support but savers then feel trustees have not acted in their best interests or have not delivered the best outcome.
Lizzy Holliday, head of DC, master trusts and lifetime saving at the PLSA, said: “Pension schemes want to support savers more effectively than at present by improving the help they get when they are thinking about drawing their pension and setting a path that protects them from poor outcomes. But many are looking for the support of a clear framework.
“Our proposals seek to provide support to savers to make better decisions and give clarity to schemes about their obligations towards savers at this stage of their retirement savings journey. We look forward to hearing the views of everyone with an interest in ensuring more people achieve a better income in retirement.”
According to the PLSA, research it has conducted shows that nearly three-quarters (71%) of savers in DC funds want support when deciding how to access their pension, including some wanting to be guided by their pension scheme to a ready-made retirement income option.
The association’s consultation comes as the Work and Pensions Select Committee, a group of members of parliament, announced the launch of a three-part inquiry into the impact of the pension freedoms. The first part will focus on pension scams, but future work will examine accessing pensions savings and saving for later life.
The PLSA’s consultation, or “call for evidence”, is open until Friday, 4 September. The supporting report can be found here.
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