The government has said it is “not convinced of the merits” of default decumulation pathways as their implementation would be “inconsistent” with pension freedoms.

In its response to the Work and Pensions Committee’s report on pension freedoms, which was published on 5 April, the government also said that there was insufficient evidence to press ahead with the idea.

In the report, the Committee recommended that ministers begin nudging savers into a retirement benefits product from April 2019. It had argued that the success of auto-enrolment in the accumulation phase had offered “a template” for “strengthening pension freedoms” in the decumulation phase.

The Committee’s vision was based on the FCA’s proposal to transfer savers into a “suitable” and regulated default product if they did not make an active choice over their pension savings. If introduced, providers offering drawdown would have to offer a default solution aimed at their core customer groups that would be subject to the same 0.75 percent charge cap that auto-enrolment schemes have to currently adhere to.

“The pension freedoms have deliberately moved away from the idea of defaulting individuals into a single product, namely annuities,” stated the Government in its written response.

“There is insufficient evidence to suggest a common default pathway would be suitable for the majority of people at this time, particularly given that most people reaching retirement with DC savings now and in the coming years will also have other retirement provision to take into account in their planning.”

The government was however, open to another recommendation put forward by the Committee to allow NEST to offer a fuller range of decumulation services. It said that it would consider the prospect but that it would have to balance the needs of NEST employers and members, as well as the sustainability of NEST itself. At present, NEST is expected to break even by 2027 and to have repaid its government loan in 2039. Its outstanding loan totalled £539 million at the end of March last year and its total debts are expected to peak by £1.22 billion in 2026.

As the Committee notes, the government provides NEST with a loan facility. On the current projection, NEST is expected to break even in 2027 and to have repaid the loan in 2039.

Tom Selby, a senior analyst at AJ Bell, said that ministers had been right to take a pragmatic view on default drawdown. He said the Committee’s argument that nudging would work at decumulation was not clear-cut.

“Those advocating default pathways have yet to articulate how such a policy would be implemented in practise,” said Selby. “For example, at what point would someone be defaulted into an investment? How many defaults would be required? How would the opt-out process work? And what would providers be required to do to ensure the default remains appropriate as a customer’s circumstances change?

“Until these and other basic questions are answered it would be irresponsible to press ahead with such a fundamental change.”

Taking a similar line, Old Mutual Wealth’s head of retirement policy, Jon Greer, said that any move to introduce default drawdown was inherently risky. Greer pointed out that drawdown had to be designed to fit in with an individual’s specific circumstances: “Sleepwalking into a pre-selected solution will not necessarily provide good outcomes. Such a solution requires at least some level of engagement.”

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