PLSA framework to help savers navigate ‘confusing’ freedoms

The trade association on Tuesday published a call for evidence setting out a framework that it says is designed to protect savers who are confused by pension freedoms and the choices they are required to make come retirement. These plans could see schemes forced to support their members when making these decisions.

Pension freedoms were introduced in 2015, with the aim of giving people aged over 55 more control over how and when they can access their savings. 

But according to the PLSA, the “confusing” range of options is leading to people “choosing not to choose”, or making a decision that may not be in their best interests. 

While there are already rules in place that require schemes to inform members of the availability of pensions guidance at various stages of the pension freedoms decision process, as well as other requirements on default strategies, the PLSA said there is no overarching support model to ensure some savers do not “fall between the gaps”. 

The PLSA stated: “Schemes are acutely aware of the risks inherent in not supporting savers with decumulation decisions (ie the risk of doing nothing) beyond the statutory minimum requirements. 

“Recent research found that schemes believe the Department for Work and Pensions and the Pensions Regulator have done little to mitigate these risks, as there is a perceived lack of guidance regarding regulators’ expectations of how trustees should support savers’ decumulation decisions. 

“This suggests that greater clarity regarding the government’s expectations of how schemes should support savers with their decumulation options would be welcome and could help to diminish [these risks].” 

Under the PLSA’s proposals, support would be focused around three elements, including member engagement and communications, providing or signposting to decumulation products, and adapting scheme or governance processes. There will be a set of minimum standards for each of these elements, as well as guidance to help schemes operate within these standards. 

The association wants schemes, through their communications, to make savers fully aware of all their options when entering drawdown and signpost them to guidance and advice so they are fully informed.It also expects schemes to have a default investment strategy for savers who do not have a preferred option so that they can manage the risks. 

It said the standards will ensure that any communication or guidance provided by the schemes does not enter the advice space. 

While it expects schemes to help savers choose a decumulation strategy, the PLSA has clarified this does not mean that every scheme would have to offer its own bespoke products. 

Instead, schemes would have to develop a retirement income strategy that would be delivered either in-house or should signpost savers to a third party. 

The PLSA stated: “This approach would facilitate the creation of retirement strategies for savers who choose not to engage in detail with their options. 

“In effect, it would require schemes to deliver what research suggests savers want: off-the-shelf solutions that meet their retirement income needs.” 

Lizzy Holliday, head of DC, master trusts and lifetime saving at the PLSA, said: “Five years on from the introduction of the pension freedoms, it is clear that too many savers are struggling to understand the complex array of options they face at retirement and are at risk of falling victim to making decisions that hurt their retirement living standard. 

“Pension schemes want to support savers more effectively than at present by improving the help they get when they are thinking about drawing their pension and setting a path that protects them from poor outcomes. But many are looking for the support of a clear framework. 

“Our proposals seek to provide support to savers to make better decisions and give clarity to schemes about their obligations towards savers at this stage of their retirement savings journey. We look forward to hearing the views of everyone with an interest in ensuring more people achieve a better income in retirement.” 

The call for evidence closes on September 4, with the PLSA intending to publish final recommendations in October. 

On Tuesday, the work and pensions committee launched an inquiry into the impact of pensions freedoms and the level of protection that exists for pension savers.

The inquiry will first focus on pension scams, which have excelled since the freedoms were introduced, before moving on to accessing pension savings and saving for later life, with a call for evidence expected to be published next year.