Don't end default at AE

In his article, Chris Wagstaff, head of pensions and investment education at Columbia Threadneedle Investment, makes a strong argument for defaulting savers at retirement.

“One solution might be to use the experience and expertise of those mastertrusts with well-proven credentials in the accumulation phase. In pooling investment and longevity risks, they would determine the default investment strategy and income withdrawal rate for those defaulted, introducing a guaranteed minimum income," he writes.

"This could be achieved via phased annuitisation throughout retirement, a deferred annuity much later in retirement when long-term care needs become the priority, or both.”

The idea of a default option at retirement has been bubbling along for some time: at last year’s launch of the Pensions Policy Institute’s Future Book, most of those in the room were in favour of introducing a decumulation default.

Perhaps the baby was thrown out with the bath water when pension freedoms were introduced. An easy way to opt-out of a default would arguably lead to better outcomes than to get rid of a default altogether – particularly when the idea has proven so successful in the accumulation phase.

It would also make for more credible and coherent policy to follow up on auto-enrolment by offering a default at retirement for those too inert or unable to make not just a choice, but an informed one.

But policy, as we have seen in pensions, can be far removed from reality. Just recently the government has published the finance bill 2017. As expected, the bill includes the reduction in the money purchase annual allowance to £4,000 from previously £10,000.

Introduced largely to combat the perceived exploitation of a tax loophole, the measure lacks data to justify the change. Saving is desirable also in later life, but reducing the allowance to this extent could make for a powerful disincentive.

Sandra Wolf is editor at Pensions Expert. You can follow her on Twitter @SandraCWK and the team @pensions_expert.