Guided retirement solutions could play a critical role in improving how individuals navigate retirement income decisions, but they may need to act as an ongoing pathway rather than a one-off decision, a new report from the Pensions Policy Institute has revealed.
The report ‘Designing Guided Retirement Solutions: Meeting Member Needs’ found solutions will need to use partial information, grouping individuals into broad, data-informed categories based on characteristics that schemes can reasonably observe or infer.
Segmentation will need to be placed at the centre of solution design, while remaining simple enough for members to engage with, the report says.
However, it noted that while the Pension Schemes Act emphasises the provision of a regular income, it does not specify the extent to which solutions should seek to mitigate risks such as longevity, inflation or investment volatility, or the degree to which schemes and providers should guide member choice.
The analysis found that related objectives such as income security, flexibility, simplicity and the ability to respond to changing circumstances over time cannot all be maximised simultaneously, meaning different approaches to design will reflect these varying priorities among memberships.
As a result, the Pensions Policy Institute said guided retirement may need to operate as an ongoing, dynamic pathway, rather than a one-off decision at the point of access, creating implications for when the pathway begins, how it evolves over time and how members are supported to navigate shocks and revisit decisions.
According to the pensions think tank, member communications will play a critical role in this area, underlining more widely that the effectiveness of guided retirement will be shaped by how it interacts with existing and emerging forms of support, including Pension Wise, targeted support, and regulated financial advice.
Mariana Garcia Requejo, PPI senior policy researcher and lead author of the report, said: “Guided retirement has the potential to play a critical role in improving how individuals navigate retirement income decisions, but many questions lie ahead over its design and implementation.
“Competing objectives such as income security, flexibility, and simplicity present clear challenges for default solutions to meet a diverse range of member needs. In order to meet them as best as possible, it’s vital these solutions are understood as a gradual development towards a new layer of retirement support within the UK pensions system, rather than a single product innovation.
“During this crucial next phase of regulatory development, the PPI is delighted to deliver new independent insights to support informed guided retirement policy decision-making.”
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