Hymans Robertson issued a press release yesterday that I thoroughly endorse.

Hymans’ analysis concludes that

DC pension members could increase retirement incomes by as much as 20%¹ if new risk sharing options were made available at the point of retirement.

This is entirely in line with the pricing of scheme pensions v annuities I have seen from independent actuarial analysis.

Hymans is  calling on the government to unlock the opportunity through two specific policy interventions:

allowing providers to default members into decumulation retirement plans and creating a broader, more permissive regime for retirement risk sharing rather than focusing solely on CDC as the answer.

I was visiting in Westminster yesterday asking for the very same

A default retirement model would allow the industry to harness inertia and quickly gain scale for new risk sharing ideas that could deliver better member outcomes, rather than just trying to solve it through central government design of CDC.

The time for better retirement options is now, we have talked about this too long. CDC is a great solution but it is taking too long to deliver and is likely to be available as a sponsored solution, there is a queue of those over 55 awaiting their pension

The need for change to help members was backed up with results of a poll at the firm’s recent risk sharing webinar *. Only 1 in 10 respondents² said that current options and support offered to DC members was good. Three times as many respondents (30%) thought that the options and support in fact delivered bad member outcomes. According to three quarters (74%) of poll respondents³ at the webinar, the Government must do more to help trustees and providers use inertia to help get members into high quality products delivering good member outcomes, for innovation to succeed.

The reality is that innovation isn’t happening because it is being blocked. It’s being blocked by insurers who seem to feel they own “decumulation”, it’s being blocked by the Treasury, who don’t know the difference between a scheme pension and an annuity and it’s being blocked by a collective failure to deliver product to the market place by those who run commercial occupational schemes – specifically the master trusts.

Paul Waters, Head of DC Markets, Hymans Robertson is prepared to say it as it is

“The UK is hurtling towards the massive issue of poor DC decumulation outcomes and the industry’s running out of time to solve the problem for millions of members. The polling results from our webinar show overwhelmingly that the pension industry’s view is that the current option for DC members is not providing good enough outcomes. It’s vital that a range of new options at the point of retirement are developed and adopted.”

I can assure Paul, that I am working hard to deliver his request.

“While the Government’s recent mansion house reform recommendations go some way towards recognising that something must be done, it is far from enough. Putting all our eggs in the basket of CDC will miss the opportunity for the industry to innovate more widely for the benefit of members. The industry must be more visionary and not accept being pushed down one single decumulation route by Westminster. It must be encouraged by the Government to innovate rather than be straightjacketed into a favoured design.

We are talking the art of the possible. CDC is not dead, but its gestation is longer than a whale’s. We need to use what tools we have in our current toolbox, we should not be waiting on new legislation , but using current legislation better.

“To truly help members at the point of retirement the Government needs to create a legislative regime that can leverage inertia to help DC Members and develop more of these risk sharing options.

This is how I see the FCA’s vision of targeted support working, those who want something done for them, and think they have bought a pension from their workplace pension plan, deserve an oven-ready solution.

It seems right now that there is sufficient demand for change, for Government to see an open goal ahead of them. There is no further legislative window this parliament, but there is an opportunity to shape the choice architecture available to DC savers like you and me.

*. Hymans Robertson tooling analysis

Poll held at Webinar on 2 Nov 2023 (industry representatives polled including providers, employers, pensions managers, PITs and trustees):

2. 69 respondents