A trustee's duties in the era of freedom and choice

So far for trustees that has meant adapting our investment strategies to align more closely with members’ new retirement options.

But as the line between work and retirement has blurred, might change also be on the horizon for trustees’ responsibilities towards their members?

Doing away with compulsory annuities has clearly been popular. When it comes to deciding what to do with their pension pot, millions of people now have options and opportunities that simply were not open to them before.

But there are risks too. Whose responsibility is it to help manage these?

Sustainable income

We know from our 'Future of retirement' consultation that members’ top priority for their pension pot is to provide a sustainable income for life. After all, this is why people have been saving – in many cases for their entire working lives.

Trustees are responsible for looking after members’ interests throughout their savings career. Is it now time for that responsibility to be mirrored in retirement?

The flexibility now on offer means working out how to achieve that can be difficult for many retirees. 

Most people do not like annuities because they mean handing over all their cash once and for all. While they may provide security, buying an annuity at retirement feels too much like a one-off gamble when people have little idea how the future will pan out.

Drawdown products are attractive because they offer a sense of control. But they also mean having to manage a lot of risk, such as dealing with investment market volatility or running out of money too early.

We know that only a small minority of savers will feel confident making these types of decisions. Most people are not investment experts and they do not want to be. 

Of course advice and guidance services are key to helping people decide what to do with their money. They are an important piece of the puzzle for those who seek them.

But we believe that focusing on advice alone risks missing a big part of the picture. Research from organisations like the Pensions and Lifetime Savings Association clearly shows that millions of retirees will not seek this type of help.

Evidence from our consultation suggests savers who have been auto-enrolled into pensions may be even less likely to do so. 

Post-retirement governance

As trustee of an auto-enrolment pension scheme with currently around 2.5m members, we believe it is our responsibility to make sure our members can still get good results even if they choose to do very little.

Where we previously had an annuity panel, we now need to consider what we can do to help members get the most out of their pots given the new flexibilities. 

As a minimum, trustees should be able to signpost members to well-governed solutions that offer strong probabilities of good outcomes and give people the freedom to change their minds along the way. 

The major question that remains for us is around the ongoing governance and oversight of these solutions.

We know that ‘set and forget’ drawdown profiles can be risky, for example. Who is checking that the income level is sustainable or that market conditions will not dramatically increase the chance of running out of money too soon? 

Most people want to spend their retirement years enjoying life. They do not want to have to actively manage their finances, particularly when the ability to do so declines with age.

How do we give members peace of mind right the way through retirement? Trustees are responsible for looking after members’ interests throughout their savings career. Is it now time for that responsibility to be mirrored in retirement?

Otto Thoresen is the chair of Nest Corporation