DWP has today launched a call for input on what happens to members of occupational pension schemes when they reach retirement and plan their later life finances.
With the FCA having taken the lead for ‘contract based’ pensions, introducing investment pathways and other ‘nudges’, DWP is now looking at whether something similar is needed in the trust-based world.
With millions of people being automatically enrolled into Master Trusts, the focus has so far largely been on getting them started on pensions and building up a decent pot. But a key issue is what happens at and post-retirement, and this has so far received little attention from policy makers.
Research from LCP published last year entitled ‘is there a right time to buy an annuity’, highlighted the fact that for many people an annuity should still remain part of retirement planning but perhaps be bought well into retirement, not at retirement.
LCP are researching the concept of a ‘flex first, fix later’ pension product which would give the saver the flexibility and growth potential of drawdown in the first part of their retirement before automatically switching some or all of their funds into an annuity in later life, providing a secure income and insurance against uncertain life expectancy.
Commenting on today’s paper, Steve Webb, partner at LCP said: “I warmly welcome DWP’s interest in what happens to people who have saved in a workplace pension and are now working out how best to use their pension pot in retirement. One priority for the DWP will be to focus not just on what happens at retirement but also on the journey through retirement.
“Most people will have modest pension pots and no access to financial advice, so they need products which will work for them without needing active engagement or investment expertise.
“The idea of a ‘flex first, fix later’ pension could be one such product, combining the best of both worlds – the flexibility and growth potential of drawdown and the certainty of a late life annuity. I hope that this DWP consultation will give proper attention to what happens post-retirement, as the right strategy at retirement may not be the right strategy ten or twenty years later”.