A survey of over 100 employers by LifeSight, Towers Watson’s UK DC master trust, showed that only 43% intended to provide this choice.
This was despite the fact that nearly 87% of employers surveyed believed their staff would want to access some or all of their pension using the new drawdown flexibilities after the age of 55.
Fiona Matthews, managing director of LifeSight, Towers Watson’s master trust, said: “The issue of people wishing to access their pension pots flexibly and understanding what drawdown options are actually being offered is a major challenge for pension providers and employers.
“Our survey shows a significant demand from employees to use drawdown for some or all of their pension benefits. However many employers and trustees have been slow to respond as they have been careful to balance giving people what they want with mitigating risk.
“Regular, consistent communication is crucial - trustees must ideally engage with members many years before retirement and, most crucially, with those now aged over 55 to ensure that they are fully informed and empowered.”
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The survey revealed several reasons why pension plans have been reluctant to offer drawdown so far. It found that the majority (69%) believed the management and implementation of drawdown was too difficult. Governance issues (59%), no desire from the employer (53%), and cost (45%) were other barriers to adoption.
Approximately two thirds of trust-based schemes were continuing to target annuity purchase for their default. This was despite the fact that around 44% of members reaching 55 in the next 10 years were likely to want to use the new drawdown flexibilities.
Furthermore, 51% of trust-based schemes have not rolled out targeted communications to members aged over 55 since the new pension rules came into effect. This leaves trustees with a significant risk that retirees select an annuity, which is currently an irrevocable decision (notwithstanding the evolution of a secondary annuity market), and later regret it, Ms Matthews said.
She said: “Based on our analysis, the ability to use drawdown is as important as the option to purchase an annuity for many members. Clearly there are some key challenges with making the new drawdown rules work in practice.”
She said: “Now the new rules are in place the pensions industry must respond quickly to meet demand and agree best practices for drawdown. Once this happens I think we will see a tipping point where more employers and trustees feel able to compare a range of reliable products on the market, in order to consider partnering with a drawdown provider.
“Ultimately people should be well-informed about their options, and be able either to access drawdown within their own scheme or have the option to transfer their pots cheaply and easily so they can access the flexibilities via an alternative arrangement.”