The Pensions Schemes Bill, announced in the King’s Speech 2024, will require pension schemes to offer retirement products, so people will have “a pension and not just a savings pot when they stop work”.
This is not a quotation from this blog but a statement issued by the Government for what the Pension Schemes Bill will bring
The bill will do this by placing duties on trustees of occupational pension schemes to offer guided retirement products to members, including “a retirement income solution or range of solutions” and “default investment options”.
In a long article , Professional Pensions picks up the story
The bill followed the Conservative government’s consultation on a policy framework for supporting individuals on how to use their private pension savings at the point of access – Helping savers understand their pension choices – which was published in July last year.
But when it comes to solutions to the issue of a “default investment option”, the pensions industry seems as divided as it was when it was first asked to come up with a default investment option at the onset of Stakeholder pensions a quarter of a century ago.
Alyshia Harrington-Clark says the trade body is “super supportive” of the new duties – noting they were in keeping with the PLSA’s policy position of what it calls “guided retirement income choices“.
She explains: “We think that is quite important, because, if you speak to people and asked them what they need and what they want, they say: “I want a bit of everything”. Currently, that is quite difficult to do because you have to go out and buy everything separately, whereas the kinds of options the government is describing give you a basic route that doesn’t require you to do a lot of complicated decision making, which enables a good outcome for members.”
“Things like delivering a route for people that haven’t taken an active choice so that something good happens to them, rather than nothing or something bad happening to them because they haven’t taken an active choice. This has become more important post pension freedoms.”
Harrington-Clark adds the PLSA has also been supportive of another initiative the government is talking about in “blended solutions”, which are products and solutions that cover the different needs people will have in retirement – such as access to cash, or a long-term income.
Back in my house, we call the need for “blended solutions” – cake ism. We are sceptical that in an under saving environment, ordinary people will have the luxury of such sophisticated options, most people (80%) told a Scottish Widows survey that they just want a consistent income that lasted as long as they did and value for their family if they died before that income paid out.
This vague thinking is echoed throughout the article. Sophia Singleton tells us
“Different people do have different needs, so it’s not going to be right for everyone, but they are about avoiding foreseeable harms, we’d like to put in perfect solutions for everyone, but since we can’t, but we can at least protect them from stuff that we know might be harmful.”
Aon is equally vague
Aon DC partner Jit Parekh says the measures unveiled by the government represent a “welcome addition” and explains they didn’t come as a “massive surprise” – given it represents a continuation in the direction the Financial Conduct Authority (FCA) and Department for Work and Pensions (DWP) have been moving in for a while. Combined with the focus on value for money (VfM), consolidation in DC and looking to unlock more investment from schemes into the economy, he says it all follows the “right path”.
What isn’t defined is what the “wrong path” is and if there is a “right path” why is it so hard for ordinary people to find it. I have recently been through the process of trying to withdraw a quarter of one of my pots to pay off my mortgage. Following that path has taken me so far nearly four weeks, I have no certainty what my tax-free cash will be and I’m certainly no nearer knowing what Legal & General think I should be doing to “turn my pot to pension”.
Patrick Heath- Lay bemoans the lack of direction People’s Pension can offer to its millions of members. Heath-Lay
says the “complexity” regarding decisions savers have to make around decumulation mean the majority will not be in a sufficiently strong position to understand the strengths and weaknesses of the “myriad” approaches or options open to them. He adds that, due to the range of options available to members, it is not a surprise to see “sub-optimal” decisions being made.
While it is clear that people want to be liberated from their pension freedom, nobody is very clear who is going to take the risk of doing that. David Robbins of WTW warns
“To push people into a product, which kind of includes a cautious investment strategy alongside longevity pooling, seems difficult to mandate by default and obviously it would be portrayed as cancelling pension freedoms.”
It’s not clear what the product David is referring to is. Could he mean a collective pension or an annuity?
Aegon’s Stephen Cameron was sceptical of guaranteed and non-guaranteed pensions that pooled longevity, pointing to the fact that people live longer and shorter depending on what they do, where and how they live.
Standard Life’s Gail Izat sees all the tools as being at her disposal but struggles to see how she can use them
However, while insurers like Standard Life have got the building blocks to build innovative solutions for members, Izat says those solutions are “not just a product” and the days of providers selling a product to members that fulfil their needs in retirement are gone.
She explains: “This is about having the right products, having the right investment solutions, and having the right support, guidance and advice that we can wrap around the retirement journey… It’s only when those things all come together that you will really deal with sort of innovation in retirement.”
The picture is clearly not clear. The finest minds Professional Pensions could find to consider the answers can say only that the answer’s not here yet.
Sadly for the 700,000 a year of savers who are reaching the point when they want to turn pots to pension , we have yet to come up with a serious alternative to the annuity, failed to replace the company sponsored defined benefit pension scheme, failed to come up with something as simple and understood as the state pension.
This strikes me as either a failure of imagination or a failure of nerve. If the Government wants a way to turn pots to pension , it is saying it does not want a myriad of ways. We cannot be cakeist , we must be decisive. Innovation will come when a means to turn pots to pensions emerges. That is what I am setting my mind to and what you will be hearing a great deal more from me about.
