DWP seeks input on improving pensions decisions

21 June 2022

The Department for Work and Pensions (DWP) has launched a consultation to explore what support occupational pension scheme members need to help them make decisions about how to use their savings.

The call for evidence will also seek to understand what support and decumulation products are currently on offer to members, the DWP said.

It follows research by the Financial Conduct Authority which found that pension savers often choose the “path of least resistance” when it comes to accessing their pension savings, with many opting to take an income from their current pension provider rather than shop around for the best product.

The DWP said it hopes to achieve better outcomes for people saving into occupational pensions, ensuring access to support which would allow them to make more informed decisions.

The consultation will look at what information and support pension savers expect in the lead up to and at the point of accessing their savings, as well as after they have started to use their pension savings.

It will ask pension savers a range of questions about the information they receive, what more could be done to improve the information available, whether they expect pension schemes to offer guidance and support on the options available and where they expect to find other sources of support.

It will also call upon consumer organisations as well as trustee and scheme managers for evidence. The consultation which opened on 14th June will run for 6 weeks, ending on 25 July 2022.

Jon Greer, head of retirement policy at Quilter, said the call for evidence was not only needed but critical to a generation of savers making the most of the pension freedoms.

He said: “People now have unprecedented choice when it comes to their pensions but the majority have very little knowledge about what they need to do or how to do it. Navigating these options will represent one of the most important financial decisions they make in their life, yet many people understandably choose the past of least resistance.

“The current rules in place for contract-based pension schemes like wake up packs at age 50 and investment pathways are good ideas and the same should apply to trust based occupational schemes. The current lack of a joined-up approach is disappointing and could cause confusion for consumers who have pensions in both contract and trust based schemes. This is a complicated landscape and at the very least we should be applying the rules evenly across the market so that consumers know what to expect.

“Trust-based schemes don’t have similar correspondence requirements and it’s arguable that they should be closer aligned. Similarly, savers should be given assistance with the choice of fund when they choose to use drawdown on a non-advised basis.”

Greer says that while scheme members would benefit from help much earlier during their working life to ensure they are building up sufficient savings.

He added: “The government must, as a priority, look at the boundaries of financial advice and guidance so that the latter can become more impactful and enable providers to give more personalised guidance to those who may not require fully-fledged financial advice. Too few people are seeking any help whatsoever and at a minimum everyone should be seeking financial guidance at some point during their life.”

Whilst there are requirements for pension providers in the contract-based market to issue information at age 50 and every 5 years thereafter, there is currently no such requirement in the trust-based market, despite many people unwilling or unable to access financial advice.

Tom Selby, head of retirement policy at AJ Bell, also called upon the government to do more to provide non-advised savers with support.

Selby said: “Although providers stand ready to do more, regulation remains a significant barrier. As things stand providers have to make a risk-based decision when deciding on the support to provide savers, with even relatively simple interventions risking straying over the boundary into regulated advice. Until this is addressed, the level of support people at all stages of their retirement saving journey will receive will be constrained.

“This call for evidence also shines a light on the slightly odd regulatory framework that exists in the UK, with ‘trust-based’ schemes subject to different requirements versus ‘contract-based’ schemes.

“As a result, you end up in a situation where investment pathways have been introduced for platforms – where they are much less likely to be appropriate – but not for trust-based schemes, where savers are often disengaged and therefore more likely to choose a pathways investment.”

Selby added: “More broadly we agree that, when it comes to member communications, keeping things as simple, clear and relevant for savers as possible is the right way to go. There is clearly a role for both providers and policymakers, who set certain mandatory communication requirements, in ensuring savers receive relevant information without being bombarded by complex jargon.”

Professional Paraplanner