Industry calls for consistency in pre-retirement support

Industry experts have urged the government to follow the Financial Conduct Authority's (FCA) lead on pre-retirement communications to ensure a consistent approach across trust- and contract-based pension schemes.

The Department for Work and Pensions (DWP) recently launched a call for evidence on decumulation in an effort to understand what type of support savers need when they decide to access their pension pots.

In response to this, industry experts have stressed the need for consistency across different scheme types, with Aegon head of pensions, Kate Smith, suggesting that “it’s of little interest to individuals whether they are saving in a contract-based group personal pension, a trust-based master trust or a single employer scheme”.

In addition to this, Smith argued that in an auto-enrolment world with millions saving ‘by default’, it makes "no sense" to have different regulatory requirements around communications, including in the run-up to retirement.

She continued: “Many employees will spend time contributing to both group personal pensions and master trusts, so different timing and content of communications can only add to member confusion, creating a barrier to engagement.

"Now’s the time for full consistency in regulatory member communications and for greater use of innovative digital approaches to really engage savers.

“The FCA has led the way in helping savers understand their pension freedom choices; wake-up packs are issued every 5 years from age 50 and newly introduced investment pathways will hopefully help non-advised drawdown customers with investment choices.

"Trust-based regulations have been stuck in a time warp, with wake-up packs required only a matter of months before savers’ retirement date, far too late to aid engagement and planning.

“It’s time to level up retirement communication so that all pension savers get clear, consistent communications, starting early, to help them with their pre-retirement decision-making."

In light of this, Smith called on DWP to "take a lead from the FCA, rather than reinventing the wheel", stressing that members of trust-based schemes need "better timed and simpler wake-up packs, coupled with earlier nudges".

Phoenix Group also said that it does not see inherent differences between the needs of those who save into contract or trust-based pensions, and is broadly supportive of the expansion of the FCA’s Retirement Outcome Review to include trust-based arrangements.

This sentiment was echoed by Scottish Widows’ head of policy, Pete Glancy, who argued that it is “critical” that there are consistent rules and processes across trust and contract-based schemes to enhance the customer experience.

In particular, Glancy pointed out that whilst Investment Pathways are required for drawdown in contract-based schemes, they are not required in occupational schemes, arguing that there "really is no need for this disparity" given that both sets of customers have the same needs regardless of how their scheme is structured.

He continued: “Pathways should be offered in any scheme that provides drawdown to non-advised customers and there is a real opportunity here for the DWP and FCA to align their approaches so that customers, who may have multiple pots in different types of pensions, don’t face unnecessary differences.

"The same principle applies to pre-retirement communications, to avoid instances of customers in different schemes receiving multiple communications with different content that’s hard to compare.”

More broadly, Smith suggested that there is potential for further improvements across the whole pensions world, using digital communications with improved personalisation rather than piles of unread paper.

“We hope Treasury and FCA will in future allow regulated firms to offer more personalised guidance, tailored to the individual,” she stated, suggesting that this, along with pension dashboards, could create a "step change" in pensions engagement.

Phoenix Group chief executive savings & retirement and Standard Life CEO, Andy Curran, also raised concerns in this area, arguing that generic information is not enough, with real innovations in personalised guidance needed to close the guidance gap.

“Currently it is difficult for pension schemes to do that as there is a significant risk that steps taken to support customers in this way could be seen as providing financial advice,” he stated.

“We would welcome policy changes that allow more flexibility for pension providers to help support customers to make choices for their retirement and we have been calling for a government-led review to look at how best to support consumers to manage their finances.”

Improved timing could also prove key, as the Association of Consulting Actuaries argued that it is "critical" to go beyond the period pre-retirement in order to engage individuals throughout their journey, and to achieve the goal of helping savers understand their pension choices.

ACA DC Committee chair, Tess Page, commented: “Providing information and support (however well-designed and delivered) only around the retirement point will fail if engagement has not been built and maintained throughout.

“The majority of members of occupational pension schemes are invested in a default investment strategy during the accumulation phase and can be part of a scheme without ever needing to make a single active decision on investments or benefits.

"The at-retirement and decumulation world marks a significant departure from this arrangement.

“In future, we see key roles for low cost, transparent, and easy-to-manage income drawdown products to better support individuals, including potentially via “default” decumulation pathways that mirror the FCA’s investment pathways.

"Collective defined contribution (CDC) schemes will also have a part to play. There is much scope for industry innovation in decumulation.”


This article first appeared on our sister title, Pensions Age.

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