The UK’s pension fund association is calling for a new regulatory framework to help savers with the complex decision of how to access their pension pots at retirement.

This recommendation is being made following a three-month consultation that set out the Pensions and Lifetime Savings Association’s (PLSA) vision for a new defined contribution (DC) decumulation framework in July.

The PLSA announced today that there would need to be a statutory requirement on pension schemes to support their members when they are making decisions about how to access their pensions.

The proposed framework would also deliver a set of minimum standards for the saver communication and engagement journey as well as product design and governance.

The association said this new framework was designed to meet several key objectives:

  • to provide more support to savers who do not engage with their options;
  • to facilitate and influence future product development with a view to managing the risks for savers as DC pots grow and dependency on DC-derived incomes increases;
  • to use the benefits of scale and mechanisms such as the trust-based fiduciary duty within master trusts and trust-based schemes and the responsibilities of independent governance committees (IGCs);
  • to support similar saver experiences across the market, whilst enabling innovation to flourish;
  • to mitigate or help manage some of the risks savers are facing; and
  • to mitigate some of the key risks schemes are facing – including litigation, financial and operational risks.

This framework, the PLSA said, would represent an evolution of the pension freedoms – enabling freedom and choice and providing the support savers need.

Emma Douglas, chair of the PLSA policy board, said: “The pension freedoms radically revised the journey for savers when they reached retirement, bringing new opportunities, challenges and risks to savers and pension schemes.

The decumulation framework that PLSA is recommending will provide “vital support to savers and help bridge the gap between the inertia which makes automatic enrolment such a success, and the range of choices (which can be confusing) savers face when electing how to draw their pension at retirement”, Douglas explained.

Lizzy Holliday, head of DC, master trusts and lifetime saving for the PLSA, said the recommended framework is designed to provide pension schemes with the “certainty to better support savers with their at-retirement decisions”.

Mark Jaffray, head of DC consulting for Hymans Robertson, said he was hugely supportive of PLSA’s initiative, adding that “the area of decumulation in DC pensions is developing and evolving quickly and is one that the industry must address as a priority.”

He highlighted that there would be a significant impact if consumers “sleep-walk into retirement” without being supported by good communication, appropriate advice and tools to support key decisions.

“Financial advice is often inaccessible for the masses, but now data analytics and digital tools, alongside clear communication and engaging guidance, can deliver good retirement outcomes, without advice for many of these members,” he continued.

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