PLSA seeks input on plans to improve support for people navigating pension freedoms
Nearly three quarters (71 per cent) of savers in defined contribution (DC) funds want support when deciding how to access their pension, including some wanting to be guided by their pension scheme to a ready-made retirement income option, according to research by the Pensions and Lifetime Savings Association (PLSA).
The 2015 Pension Freedoms gave savers greater choice about how to access their retirement savings. But a significant body of evidence shows the confusing range of options is potentially leading to poor decision-making and poorer retirements. Too often the complexity results in people ‘choosing not to choose’ or taking a decision that may not be in their best interests. This can have significant negative consequences for their retirement living standard.
In a bid to address the problem, the PLSA has today opened a call for evidence on a proposal for a new solution designed to protect people who don’t engage with or fully understand the financial choices they face when they move towards semi- or full retirement.
The PLSA asked 2,000 pension savers and retirees about their current and future plans for drawing their pension. It found that whilst a majority of workplace savers with DC pensions who were yet to retire said they knew they would have to make a choice as to how to take their money, 30 per cent either didn’t know about or understand their options, and only 28 per cent had a clear plan about how they would do so.
The consultation published today (28 July) by the PLSA seeks views on proposals to establish a new regulatory regime that will require pension schemes to support their members when making decisions about how to access their pensions – including by offering or signposting to products that meet minimum quality standards.
The aim is to provide a proper framework that helps deliver a broadly consistent customer journey for savers across all the pension savings they may have.
The proposed framework builds on the PLSA’s vision for guided at-retirement outcomes, set out in its Hitting the Target report (2018), in which pension schemes and providers would play a more prominent role in ensuring that savers achieve good retirement outcomes.
Lizzy Holliday, Head of DC, Master Trusts and Lifetime Saving, PLSA, says: “Five years on from the introduction of the Pension Freedoms, it is clear that too many savers are struggling to understand the complex array of options they face at retirement and are at risk of falling victim to making decisions that hurt their retirement living standard. Pension schemes want to support savers more effectively than at present by improving the help they get when they are thinking about drawing their pension and setting a path that protects them from poor outcomes. But many are looking for the support of a clear framework.
“Our proposals seek to provide support to savers to make better decisions and give clarity to schemes about their obligations towards savers at this stage of their retirement savings journey. We look forward to hearing the views of everyone with an interest in ensuring more people achieve a better income in retirement.”
The call for evidence closes on Friday 4 September 2020. Following analysis of responses, the PLSA intends to publish final recommendations in October 2020. More information about the proposals and instructions on how to submit views to the call for evidence, visit the PLSA website.