Wednesday, 25 April 2018 15:18

Claire Trott: The dangers of default decumulation processes

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Claire Trott, head of pension strategy, Technical Connection Claire Trott, head of pension strategy, Technical Connection

In the final report of its inquiry into pension freedom and choice, the Work and Pensions Committee calls for a simple package of measures to create better informed, more engaged pensions savers – and offer a default decumulation pathway to protect the less engaged.

The report says “Every  pension  provider  offering drawdown  must,  by  April  2019,  offer a default  de-cumulation  pathway suitable  for  their  core  customer  group, subject  to  oversight  by existing Independent  Governance  Committees and  subject  to  the  same  0.75%  charge cap already in place for accumulation in automatic enrolment.”

I am not a big fan of default anything really, I think that it is a cop out and just shows that a default option is easier to force on providers to implement than to try and actually get those are impacted truly engaged. I don’t feel that drawdown is right for those that aren’t willing to take control and responsibility or take advice to help them. However, it is where we are and it will need to be dealt with but finding the right default to meet most people’s needs will be a challenge.

Providers will have a target market made up of their core customer group but we all know that just because consumers may be similar in one way they may have very different requirements when it comes to other issues. Default will need to try and anticipate how retirement works for a large group of people and I know that retirement means so many different things to different people.

Take for example the issue of longevity, I am not sure how this can be dealt with under any kind of default. If you go with an average, 50% of people will run out of cash and 50% will die with pension assets still in their pot. I think I would rather be in the second part but it may well mean that your standard of living would be impacted in life.

I don’t really like the concept of default investment funds, but at least they are less likely to have such a negative impact on someone’s life in retirement. Multiple default funds are better but you are therefore at risk of directing consumers down one route or another, even if it is just by asking them pre-determined questions.

I know that getting consumers engaged in pensions isn’t easy but given the swing from annuities to drawdown since the introduction of the pension freedoms we are already starting to see a level of engagement we didn’t before. It will take time for those who have been saving with the knowledge that the outcome isn’t determined at a single point in time to come through to retirement. Hopefully we will start to see more engagement before it is too late and options start to be taken back.


Claire Trott, head of pensions strategy, Technical Connection Ltd

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Read 957 times Last modified on Thursday, 26 April 2018 08:10
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