On the go: The Association of Consulting Actuaries has argued that fixing the “disjointed” and “fragmented” system that is UK pensions provision is vital if the full potential of pension freedoms is to be unlocked.
In response to the Work and Pensions Committee’s inquiry into pension freedoms, the ACA said that access “to the full range of flexibilities is very mixed”, with a “disjointed system across contract-based group schemes, own trusts, master trusts and personal pensions”.
This is compounded by a “black hole” in the guidance and advice system, which needs to be filled by “good value, transparent solutions that link seamlessly with pre-retirement pensions delivery”, the ACA stated.
Two-thirds of respondents to its 2020 annual pensions survey said greater flexibility in retirement savings options, covering accumulation and decumulation phases, would encourage more saving and therefore better retirement outcomes.
Though the range of options that are technically available in both accumulation and decumulation phases, combined with other savings and insurance vehicles, ought to provide good outcomes for members (and have the potential to do so), the ACA highlighted a range of barriers that restrict members’ ability to access these options.
The complexity involved, including within the tax regime, was cited as one such barrier to individuals, as well as to employers and trustees looking to offer “flexibilities” to their members.
Other barriers include “perceived poor value”, low levels of understanding, inadequate or small defined contribution savings pots, and the poor availability of, and access to, personalised guidance and advice at a “transparent, good value price”.
In its response, the ACA called for “a combination of regulations, innovation, and greater consolidation... to drive forward a pensions system that serves the needs of individuals in a manner that is easy to navigate and helps people to make the right decisions at the right time”.
It said some of this could be accomplished by expanding the role of the Money and Pensions Service, and highlighted roles for Maps in, for instance, “providing individuals with sufficient impartial information to be able to understand the options available to them (at a headline level) around their retirement and their differences; for example, explaining the difference between drawdown and annuities”.
Maps should also help people identify where they can find additional information if needed, support them getting the right information and the right question to take to an adviser, and provide tools that are “balanced and objective”, like the existing pension calculator, adjustable income tool, investment pathways drawdown comparator tool, and an annuity comparison tool.
“In the short term, we would like to see the pensions dashboards prioritised so individuals have easier access to the whole picture, so they can make better informed choices,” the ACA said.
“In our view, the priority for the dashboards project should be to have a functioning/viable product to support DC arrangements before extending to other forms of pension provision; for example, defined benefit and the state pension, etc.”
Tess Page, chair of the ACA’s DC committee, said: “Levelling up is required in order to maximise the potential that the flexibilities have to provide better outcomes for individuals, with the appropriate safeguards.
“Fears of Lamborghini blow-out spending have been misplaced, but there is more to be done to ensure every pension saver has access to the right mix of solutions for them, with good value advice at their fingertips.”
