SPP backs consolidation, decumulation and CDC
Support for a consolidator
For solving the small pots issue, the SPP suggested a consolidator model would be an effective option and, if there were multiple consolidators, a central registry should be created. However, over the longer term, the SPP suggests the DWP consider the pensions dashboards as an effective way of bringing this together with a resource for those who wish to consolidate pots of any size proactively.
However, the SPP notes that schemes may not wish to participate as consolidators given the breakeven points are £1,000 per pot. They also stress that there would be a need for an efficient process for authorisation, and for identifying and transferring pots, which still must be determined.
Consideration should also need to be given to removing very small pots from the system if that would not detract significantly from income in retirement or messaging around the importance of saving for later life, said SPP.
Focus on at retirement long overdue
On helping savers understand their pension choices, the SPP said a focus on decumulation is long overdue and builds on the progress made in accumulation with auto enrolment.
SPP welcomed the notion of a signpost from schemes to a pathway covering all options available without bias – including those not offered by the scheme – giving members access to the full range of available options and understanding of how to access them. Legislation must be clear about implementation, but SPP would not seek to prescribe how trustees and employers decide how they would meet the framework’s requirements.
Any charge cap for decumulation should not simply mirror the accumulation one, said SPP, as options are more complex.
Martin Willis, chair of SPP’s defined contribution committee said: “The current system relies heavily on defaults in accumulation, while allowing considerable flexibility in decumulation, which brings risk for members.
“Available options are in opposite ends of flexibility and certainty when most individuals would value a bit of both. And so the aim must be to ensure not only are negative decisions minimised, but members are guided and informed towards positive ones.
“This consultation is a first step towards providing solutions for those that cannot reasonably take complex financial decisions at retirement.”
Martin Willis
“This consultation is a first step towards providing solutions for those that cannot reasonably take complex financial decisions at retirement, highlighting the importance of providing support to members at this point, whether that be well-functioning defaults or guidance around well-constructed and accessible options.’’
SPP supports the possibilities of CDC
Finally, the SPP believes the master trust market will provide the scale needed to deliver CDC. It called on measures to encourage development of both accumulation and decumulation only CDC models through a default solution, tax incentives or government loans to help seed investment solutions for providers.
