One of the biggest and most ambitious of the Pension Schemes Act’s reforms is the introduction of ‘guided retirement’.
The policy will see defined contribution (DC) pension schemes required to offer a default option for members at retirement, whether it is something developed in-house – as with Nest’s offering, which it announced last year – or an ‘off-the-shelf’ option.
Last week’s regulatory update saw the guided retirement timetable adjusted to coincide with that of the collective defined contribution (CDC) rulebook, after several in the industry pointed out that CDC could be a viable decumulation option.
While aligning these two pieces of legislation has been welcomed, some have pointed out that any delay could have a negative impact on members due to retire soon, as they will not have the support offered through the guided retirement regime.
Making the work worth the wait
Lydia Fearn, head of DC consolidation at LCP, explained that “retirement support is not a side issue in DC; it is central to whether the system is delivering good outcomes for savers”.
Of the new roadmap and timeline, Fearn added: “The government is clearly trying to join up several big moving parts: value for money, consolidation, scale, contractual override and the development of retirement CDC. There is logic in that, and it is sensible to want a framework that is workable in practice rather than rushed.
“But the trade-off is that members may have to wait longer for the kind of default retirement solutions that could help them navigate complex decisions with more confidence. The key now is to make sure this revised timetable leads to better implementation, not simply slower progress.”
Chintan Gandhi, chair of the Association of Consulting Actuaries (ACA), welcomed the alignment of guided retirement and CDC timetables, saying this would give trustees “a fuller range of income-based solutions to pick from when setting their default pension benefit options”.
Gandhi added: “We hope the steps and dates set out are realistic rather than the earliest points at which we might get to the various stages – otherwise there is a real risk that delays in implementation are compounded well into the next decade.”
Support, guidance, clarity: what members want
One of the many documents released last week by the Department for Work and Pensions (DWP) was the findings from qualitative interviews with individuals aged 53 to 67, exploring how they understand, approach and make decisions about taking their DC pension.
Key findings included a need for trusted support when making decisions on pension income, as well as clearer and simpler information. Unfortunately, the study showed a broad lack of understanding around options, investment, charges and other factors.
Kelly Parsons, head of DC proposition at Broadstone, said the DWP’s findings showed improvements to engagement and understanding were “essential” to ensuring people could make good decisions about their pensions.
“By offering more relevant support at key decision points, these initiatives have the potential to help more people navigate complex retirement choices with greater confidence.”
She said: “Employers have an important role to play in making pensions more accessible and keeping retirement planning front of mind. Regular communication and financial education programmes can help meet the needs highlighted in the report by providing clearer, plain-English explanations, more personalised support and greater understanding of how DC pensions work, including how savings are invested and the options available.”
Parsons added that the combination of guided retirement and the ‘targeted support’ regime being developed by the Financial Conduct Authority was “significant”.
“By offering more relevant support at key decision points, these initiatives have the potential to help more people navigate complex retirement choices with greater confidence,” she said. “If delivered well, they should help overcome many of the challenges highlighted by this research and improve retirement outcomes for millions of savers.”
