Pension schemes and trustees – including NEST – could get new responsibilities to offer decumulation options to members at retirement.
As part of his Mansion House Reforms announced last night, the Chancellor said he wanted to give pension savers more choice at retirement.
A consultation paper published by the DWP today – ‘Helping Savers Understand their Pension’ – outlines ways to give pension savers better options at retirement, including how they can use decumulation options to boost retirement income.
The government is concerned that since the arrival of the Pension Freedoms many people are spending too little time considering what to do with their pension pots at retirement, with many seemingly taking their funds in cash or opting for default solutions without shopping around.
In its conclusions the paper says that the government will look at “…placing responsibilities on schemes and trustees to offer decumulation solutions to each of their members…we believe this will give individuals access to a range of options to help them optimise their pension savings for later life income.”
The DWP says that consistent feedback it has received for proposals to reform pensions underlined a need to encourage members of most occupational pension schemes to become more engaged with their workplace pensions; to support members to make informed choices about how to optimise their later life income and to ensure that decisions made at the point of access remain the ones that individuals want to continue with.
The DWP paper says: “The intention is to place a duty on trustees to offer decumulation services, which are suitable for their members and consistent with pension freedoms.
“Trustees must establish a service offering that meets the generality of their members. At decumulation members will have the option to either choose this default service offered by the scheme or access the products and services available under the Pension Freedoms if they choose to opt for these instead. As part of these duties, trustees would either need to offer these services in-house, or partner with another supplier who could provide these services.”
Rules over the NEST auto-enrolment scheme may also be relaxed to allow it to offer decumulation options to members at retirement.
The paper sets out the feedback the Department for Work and Pensions (DWP) received to the products and services elements of its call for evidence on pensions which ran between 14 June and 25 July 2022.
That section of the call for evidence concentrated on what support and decumulation products are currently on offer to members and what may be offered to them in the future.
Pensions Minister Laura Trott says in the document: “The UK has seen significant growth in the number of people saving into an occupational Defined Contribution (DC) scheme from a total of 2.3m memberships in 2012 to now over 26.3m (including hybrid schemes). This expansion alongside the introduction of Pension Freedoms means that many more people will need to make important decisions about how they want to access their pension savings.
“In July last year, the call for evidence ‘Helping savers understand their pension choices’ was open for responses from occupational pension scheme members, customer representative groups and the pension industry.
“I am very grateful to all who took the time to provide comments to inform our policy thinking. I am launching this consultation to set out our proposals for, and seek views, on a decumulation framework that will provide support at the point of access.
“In addition to the existing choices available to members under the Pension Freedoms, this could include an offer of a Collective Defined Contribution (CDC) arrangement in retirement. We believe that a higher-allocation to high-growth businesses, as part of a balanced portfolio, can increase overall returns for pensions savers leading to better outcomes in retirement.
“In addition, we want to ensure that our high-growth businesses of tomorrow can access the capital they need to start up, scale up and list in the UK. DWP have been working closely with HMT on this wider package which was set out by the Chancellor in his Mansion House speech.”
• Helping savers understand their pension choices – GOV.UK (www.gov.uk)
