Members of the Royal Mail Defined Contribution Plan have welcomed the scheme’s decision to default at retirement into an annuity broking service to maximise their retirement income.
NAPF report: key findings
50% of members of small-to-medium sized employer schemes currently have a default shopping-around option;
Only one in three members presently switch provider at retirement;
Trustees and employers have concerns about going beyond the regulatory minimum when supporting members at retirement;
People working for smaller employers, or with smaller pension pots, are most at risk due to the cost of setting up guidance and advice;
Non-advised guidance is the most popular way to support members at retirement.
The National Association of Pension Funds published a report this week showing only one in three scheme members switch annuity provider at retirement. Shadow pensions minister Gregg McClymont has warned that the annuity market “simply isn’t working”.
Speaking at the NAPF’s DC conference last week, scheme secretary Elizabeth Byrne said the company has defaulted members into an annuity broking business to promote their open market option and to “help [members] get the most from their pots”. So far only one scheme member has decided against it.
The DC plan was launched in April 2009 and now has 34,000 active members and around £75m in assets. The scheme guides its members through the annuity buying process – from understanding the various annuity options to underwriting.
“We don’t force them to go online, they can talk to a human being and conduct the whole process over the phone, by paper or, if they want to, online. It’s really what they are comfortable doing,” she said.
She said every member questionnaire she had seen showed a positive response and that it was the “best thing we could have done”.
But Byrne added she could understand why smaller schemes would be put off. While bigger schemes could negotiate the broker fees, smaller schemes may struggle to do so, and could also feel culpable should something go wrong.
The NAPF report noted DC pension providers were often “too scared” to go beyond the legal minimum in helping them at retirement, as they feared future legal action.
Mel Duffield, head of research and strategic policy at the NAPF, said shopping around “seemed like a no-brainer”, but that only half of the organisation’s fund members actually did it.
Schemes and employers have a role in helping choose an advisable broker at retirement, negotiating a good commission for the insurer and ensuring as much of the commission as possible gets rebated back into the member’s pot, she added.
On the findings, Duffield reported: “There was universal support for raising awareness, particularly this idea there were regulatory risks to helping members.”
Shadow pensions minister Gregg McClymont said in a press release following the report: “Savers can lose a fifth of their pension income because the market simply isn’t working. Ministers must now act on private pensions and ensure that there is fairness in the system – including in the purchase of annuities.
“It should be part of the duties of pension schemes to direct their savers to the best independent annuity brokerage service available, or to offer such independent brokerage services themselves,” he added.
