Should there be a default option for DC pension scheme members at retirement?
The Work and Pensions Select Committee, chaired by Frank Field, recently suggested there should be. Many scheme members find the choices available under the pension freedoms confusing and a well-governed default could help improve outcomes. The government response was unenthusiastic, and subsequently the FCA Retirement Outcomes Review has suggested instead a range of investment pathways to simplify decision making.
Individuals may have different circumstances and preferences for how they access their savings – as an income through retirement, in lump sums over a small number of years, or left to accumulate for ad hoc withdrawals and perhaps a bequest. Once the individual has specified their objective, the investment pathway removes the need for subsequent decisions about which fund to use. This makes a lot of sense to us – needs vary but few scheme members have much enthusiasm for investment decisions.
We’ve worked with clients on tools that help customers articulate their preferences for income vs capital, and perhaps these types of tools could help people choose between pathways. On the other hand, there will always be scheme members who do want to be more hands on with investment. In that case our attitude to risk and capacity for loss tools can be of help. Of course, there is no substitute for the high quality face-to-face personal advice that many of our clients deliver, but the unfortunate reality is that many schemes members won’t get access to that.
We’d love to hear what you think.