The Department for Work and Pensions (DWP) has launched a call for evidence on decumulation in the trust-based sector, building on the lead taken by the Financial Conduct Authority (FCA) for contract-based pensions.

The consultation explores what type of support pension savers need when accessing their hard-earned savings, as well as what pension products and investment options are currently available from pension schemes and what may be offered in the future.

The DWP said it was particularly seeking the views of consumer organisations and pension savers with an occupational pension about how they wanted to be supported in the lead up to taking their pension, when they access their pension, and after they have started to use their savings.

“Deciding how to use your workplace pension savings is one of the most important financial decisions many people will make,” said pensions minister Guy Opperman.

“Automatic Enrolment has introduced over 10.6 million people to pension saving and we want to ensure the record number of Brits now saving for retirement have the support and information they need to make informed choices about accessing their hard-earned savings.”

The DWP said it wanted to support savers by helping them understand the variety of options available when taking their pension savings, from wake-up packs or guidance to what pension products and investment options are currently available to them, all the while ensuring protections are in place for those who do not engage with pension choices.

Changes to ‘wake-up’ pack reminders and sending them earlier and more frequently were some of the requirements introduced by the FCA in the contract-based pensions market in the UK following its Retirement Outcomes Review (ROR) in 2018.

The DWP said it wanted to assess whether the findings of the ROR equally apply to members of trust-based pension schemes.

Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), welcomed the publication of the call for evidence and that it was seeking input on a range of existing and new solutions.

“Since the pension freedoms individuals have had more options regarding how they access their pension savings, but most people need support in making these important and complex decisions,” he said.

In its submission to a work and pensions committee inquiry into pension freedoms, the PLSA called for a new set of product, communication and governance standards, underpinned by legislation to pave the way for pension providers to give greater support to savers at retirement.

It previously called 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.

As part of its work on collective defined contribution (CDC) schemes the DWP has spoken to parties that are interested in exploring how decumulation only CDC models might work and what are the key challenges.

‘Flex first, fix later’ pension

Steve Webb, former pensions minister and now a partner at consultancy LCP, also welcomed the DWP call for evidence, albeit encouraging the government to focus not just on what happens at retirement but also on the journey through retirement.

“Most people will have modest pension pots and no access to financial advice, so they need products which will work for them without needing active engagement or investment expertise,” he said.

LCP is researching the concept of a ‘flex first, fix later’ pension product that could be one such product, according to Webb. The idea of such a product would be to give the saver the flexibility and growth potential of drawdown in the first part of their retirement before automatically switching some or all of their funds into an annuity in later life.

“I hope that this DWP consultation will give proper attention to what happens post-retirement, as the right strategy at retirement may not be the right strategy 10 or 20 years later,” said Webb.

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