Britain moves towards a Retirement Income Covenant.

We learned last week of an important shift in Government thinking on how we turn pots into pensions. If intentions turn to action ,we could be seeing an equivalent to Australia’s Retirement Income Covenant, in the UK within the decade.

The Department for Work and Pensions (DWP) is expected to announce DC schemes’ requirements to provide a decumulation product for members in its response to its Helping savers understand their pension choices call for evidence last year.

The quotes below are  brought to us by Pensions Age, I arrived late for the session but I had a chance to speak with DWP’s Julian Barker after the session who confirmed the import.

“ we would want to place duties on trustees to consider the needs of their members at the point of accessing their pension. That would mean that, whilst we would not be prescriptive, we would require schemes to provide some sort of product for members to expect to get at the end of their DC accumulation journey”.

“whilst we don’t expect schemes to necessarily provide that themselves, we would expect them to partner up and do other things to make sure that while the member is in accumulation, they have got a pathway and communication journey towards what’s expected”.

Barker stopped short of calling for a default

“as we want members still to have choices because we recognise that no one pension scheme solution could fit everybody, but we do think it is important to ensure that members have at least some sort of expectation”.

But he was clear that collective decumulation was very much on the table

“Laura Trott, is very keen that, in time, that duty to provide products would mean that amongst the products available to members, it is important to have a CDC product”.

This idea that CDC could be a “product” available to members at retirement is new to Government (but not to this blog).

Julian Barker told me that the DWP was open to approaches from organisations that would like to bring such products to the market and he insisted that they needn’t be regulated as CDC schemes (avoiding a non-refundable application fee of over £70k)

“It shouldn’t be hard”

At a seperate session , Stefan Lundbergh told a small audience that creating such funds should not be hard. Indeed funds that provide longevity protection by sharing the risks of those within the fund are springing up in Australia, Canada , the UK and the Netherlands.

But other ideas are on the table. Franklin Templeton promoted a product that locked in investment gains by swapping them with annuities.

Steve Webb and LCP are keen on later life annuities  where pots turn to pensions when pensions are most valued.

Legal and General’ Jesal Mistral spoke about investment pathways.

In short, we are already well down this road. What is needed is for the DWP and TPR to come to the table and provide the leadership we have seen from the Australian Government and Regulator.

Thankfully, it looks like we are finally getting there. But we must not allow this project to disappear down the rabbit-hole that the dashboard is down. We must keep our eye on the prize and realise that with the wealth of experience we have -and can draw on from around the world – it shouldn’t be hard.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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