'Not bad' is not acceptable

Last week, the Department for Work and Pensions dismissed proposals made by the Work and Pensions Committee. These included default retirement income pathways for those saving in defined contribution pensions and allowing Nest to offer its members retirement options.

In doing so, it has spurned a valuable opportunity to introduce higher standards into the retirement phase.

As I argued previously, there is mounting evidence that savers are at grave risk of getting a poor deal at retirement.

There simply is not a proper system in place to cater to the many DC savers who want a reliable lifelong retirement income.

And the early evidence is of savings being cashed in or funnelled into the expensive drawdown offering of a saver’s existing provider. The Financial Conduct Authority’s Retirement Outcomes Review interim report showed that 94 per cent of non-advised drawdown sales are made to existing customers.

In the short term, only regulators can put this right. The FCA is expected to publish the final report of its Retirement Outcomes Review imminently. Its interim report combined robust data on consumer behaviour with proposals, including default retirement pathways.

But caution is required. It would not be the first regulatory intervention that started with a bang before fizzling out as nerves failed and policymakers failed to set a strong lead.

Coasting along

In its justification for inactivity, the government trotted out a tired argument about defaults being inconsistent with the principles of pensions freedom.

This wilfully ignores the fact that you can have default pathways as well as allowing those who wish to do their own thing to do so (or pay someone to advise them).

Ministers seemingly feel they can coast along so long as evidence of severe consumer detriment is limited; that ‘not bad’ will suffice. But this is not good enough.

Retirement policy is a key part of social policy. Savers and providers look to the government for leadership.

Savers left vulnerable

What does a good outcome look like in retirement? How should providers shape their offers? How can a saver make the best decisions?

Failing to answer these questions risks betraying those very low and middle-income workers in whose interests auto-enrolment and associated reforms were instigated. A cap on costs and the launch of Nest established the principle that mass market savers should receive a high quality service at a reasonable price.

Abandoning them to fend for themselves at retirement leaves them vulnerable to being sold expensive products, at risk of overspending if they live longer than expected, or underspending in fear of the rainy day that might never come.

Such savers deserve as high quality a service in retirement as government policy aims to provide in accumulation. 'Not bad' is not acceptable.

Tim Sharp is a policy officer at the Trades Union Congress focusing on pensions and investments