TPR: Do better on decumulation

The Pensions Regulator has challenged the pensions industry to do better on decumulation, laying out seven challenges on the road to better outcomes for defined contribution (DC) savers.

Value for money

Value for money in the accumulation phase means investment returns, and services received, for the price a saver pays. In decumulation, this is less straightforward, Louise Davey, TPR’s interim director of regulatory policy, analysis and advice noted.

“What is clear is that the focus must be on a holistic assessment of value, not just cost alone,” Davey noted.

Innovation

More innovation is needed to propel DC savers – who will potentially have less pension wealth than their defined benefit predecessors – towards a comfortable retirement, noted Davey.

She said: “That is why we are playing a leading role to bring collective defined contribution schemes to the market, including decumulation-only models in due course. And why we will welcome other moves to extract greater value from DC pensions.”

End the separation between saving and retirement

“We need to break down barriers between the separate phases of saving and transitioning to retirement and beyond, and create a guided pathway supporting savers that runs through all phases,” said Davey.

The industry also needs to strike a guidance between providing generic guidance and giving agency to savers to make their own personalised decisions, she added.

Understand members

The data schemes hold about their members needs to get more sophisticated, argued Davey. “Data needs to be richer than it is currently if schemes are to design user-centred products and to empower savers to take decisions which consider their personal and financial circumstances.”

Pot consolidation

For schemes to give savers meaningful information, it makes more sense for them to consolidate their pension pots, Davey said. She warned that savers could be offered sub-optimal solutions because providers do not have a clear picture of their pension wealth.

Davey added: “Ahead of any long-term options from government, we need practical solutions involving a harder drive by schemes to encourage pot consolidation and master trusts getting ahead on consolidating the multiple pots they have for same individual.”

Consumer protection

There are issues with schemes and providers partnering with third parties for decumulation, such as apportioning liability between the partners and addressing consumer protection issues, warned Davey. These need to be addressed.

Offer the full suite – or else

The regulator expects schemes to offer retirement products to support people through the savings and retirement phase – either directly or through partnerships. “If schemes will not or cannot make that offer, they will come under pressure to consolidate,” said Davey.

What next?

TPR plans to engage with industry through a series of virtual roundtables in the new year. After that, the regulator will publish interim guidance, which will clarify key issues and give schemes a better idea of the way forward, in 2024.

Read Davey’s full blog here.