M&S weighs drawdown option for mastertrust members

The March Budget was presented as freeing savers from the effective obligation to annuitise at retirement, but concerns have been raised about some savers running down their pension pots too quickly. The industry has also debated how involved schemes should be in their members’ decumulation choices. 

Julie Parker-Welch, pensions strategy specialist at M&S, told delegates at the Westminster Employment Forum on Tuesday: "We will probably have drawdown as the default." 

Parker-Welch later added that M&S had “a feeling that [drawdown] will be popular” among its staff and potentially will be simple to implement through the mastertrust, but she stressed a final decision is yet to be made and will depend on what the provider can offer. 

A recent survey by corporate benefits adviser Wealth at Work found less than half (45 per cent) of employers intend to have the resources in place to provide the new pension flexibilities.

M&S’s DC plan is a mastertrust operated by Legal & General, which is looking at ways to enable members to take income from the scheme. Currently, members of the M&S plan can contribute 3-5 per cent to receive a 6 per cent employer contribution, or 6 per cent or more to receive 12 per cent from the employer. 

Paul McBride, head of governance at Legal & General Assurance Society, said it views offering members access to the basic flexibilities from April as essential. “That is, without them having to transfer benefits into a different pension scheme or retirement product,” he said.

McBride added it had received a “great deal” of interest from its current client base and other employers who, rather than facilitate the flexibilities themselves, are looking to provide a simple transfer option for their members. 

Inertia v engagement 

The idea of defaulting at retirement was touched on by the Financial Conduct Authority’s annuity market study published this week, which found many people are failing to exercise their right to shop around for the best annuity as consumers tend to buy from their existing provider. 

The FCA said it expected to see more “hybrid” products that combine aspects of annuity and drawdown. But the report added: “However, there is a risk that greater choice and more complex products will reduce consumers’ confidence and appetite to shop around and thus weaken competitive pressure to offer good value in this market.” 

McBride said he did not see an issue in offering members drawdown as a default, saying it would not inadvertently diminish member choice as they would still be free to transfer to another product at any time. 

He said: “It seems counterintuitive that it is better to force members into a potentially more expensive open market product prematurely – or indeed at all if their needs are straightforward and can be met in-scheme.” 

Ian Neale, information scientist at Aries Pensions, which provides technical information and training tools for trustees and advisers, said he did not foresee any problem in putting in place a default transfer option for members who decline to shop around, “provided they are properly informed of their statutory right to transfer to a provider of their choice”. 

Neale added he would be “surprised” if more than a handful of employers decide to offer drawdown in light of the administrative and financial burden. 

He added: “Some might, provided the member withdrew their entire fund at once; although even then I expect the trustees would be wary unless the scheme was indemnified.”