A UK Parliament committee has proposed that the National Employment Savings Trust (NEST), a government-backed defined contribution pension established to support automatic enrollment, provide a “default decumulation pathway” to protect less-engaged participants entering retirement.
In the final report of its inquiry into pension freedom and choice, the Work and Pensions Committee has called for a simple package of measures to create better informed, more engaged pensions savers. The committee said that a default impartial guidance appointment just before participants access their pensions as they retire would result in better consumer outcomes.
“Far too many people are currently taking vital decisions in the dark, putting them at greater risk of suffering irrevocable financial detriment through scams or choices contrary to their interests,” said the report. “As ever greater numbers of auto-enrolled savers approach retirements during which they will rely on defined contribution pots for retirement income, the need to boost engagement with pension guidance will grow increasingly acute.”
In its recommendations, the committee said the government should allow NEST to provide decumulation products beginning a year from now, including a new default drawdown pathway that would allow participants to move their money wherever they wanted.
“Every pension provider offering drawdown must, by April 2019, offer a default de-cumulation pathway suitable for their core customer group,” said the committee, “subject to oversight by existing independent governance committees, and subject to the same 0.75% charge cap already in place for accumulation in automatic enrolment.”
The committee also recommended a single, publicly hosted pensions dashboard that covers state, defined contribution, and defined benefit pensions, which would be funded by the industry levy, and in place by April 2019. It said that the multiple dashboards currently planned, and hosted by “self-interested providers,” would only “add complexity to a problem crying out for simplicity.”
It said that competition between pension providers over the presentation of the required information risks countering competition in the pensions market.
“Instead, government should mandate all pension providers to provide the necessary information to the single pensions dashboard, hosted by the new single financial guidance body,” said the committee. It added that single page pension passports increase consumer engagement with pensions options, and that pension providers should therefore be required to issue them.
“Automatic enrolment has been a runaway success, bringing millions of people on board in saving for their retirement,” said Frank Field, chair of the committee, in a release. “We want to expand that success story so that everyone, no matter how they are saving, has a simple, suitable, default pension option, with a low, capped fee.”
Tags: National Employment Savings Trust, Pension, UK, Work and Pensions Committee