Pension providers should be mandated by the UK regulator to provide a suitable default drawdown product for retirees, according to an influential group of politicians.

The Work and Pensions Select Committee – made up of MPs from the UK’s lower house – said the government and the Financial Conduct Authority should draw on the success of auto-enrolment to provide an option for people who had not engaged with their savings.

The committee called for the introduction of “default decumulation pathways” in a report published this morning.

It said that, by April 2019, providers of drawdown products should be required to offer a default option for their “core customer group” with a maximum charge of 0.75%, in line with the charge cap for auto-enrolment defined contribution (DC) schemes.

DC funds’ independent governance committees should also be tasked with assessing value for money for such products.

In 2015, the UK government abolished the requirement for all retirees to buy an annuity. Dubbed ‘freedom and choice’, the policy aimed to give pension savers more flexibility regarding how they received their retirement benefits.

Frank Field MP

Frank Field, chair of the Work and Pensions Committee

However, the committee’s report said the government’s hope for a “competitive and innovative market” had failed to materialise.

“[Retirees] are reliant instead on getting a good deal from their existing provider,” the committee said.

“The success of automatic enrolment in overcoming market failure in the accumulation phase offers a template for strengthening pension freedoms in the decumulation phase.

“People would still be free to choose to invest and spend their own money as they wished. But if they did not make an active choice, they would move into a suitable and regulated default product.”

The committee recommended that NEST – set up by government to facilitate auto-enrolment pension saving – should be permitted to develop a default decumulation product.

NEST had been working on a proposal since 2014 but last year the government rejected extending its powers, citing private sector providers’ “intention to innovate” for the at-retirement market.

“We recommend that the government allows NEST to provide decumulation products from April 2019, provided it remains assured of NEST’s ability repay its start-up loan,” the committee said.

“This should include establishing a default drawdown pathway, in line with our wider recommendation. In keeping with the spirit of pension freedoms, savers would remain entitled to move their money wherever they wished.”

The report also recommended the introduction of one-page “passports” to highlight savers’ options prior to retirement.

Nigel Peaple, deputy director of DC, lifetime savings and research at the Pensions and Lifetime Savings Association (PLSA), backed the idea of a default drawdown product.

He said: “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 while applying lessons from automatic enrolment to connect savers directly with retirement income products.”