Why can't savers have it all?

NEST's Mark Fawcett says we can come up with solutions that really meet people’s needs

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As NEST consults on the design of retirement solutions Mark Fawcett believes we can come up with solutions that really meet people's needs.

The customer is always right. This maxim seems to govern every area of consumers' lives right up until they start saving for their future.

Customers say they want ‘the impossible' - healthy food that tastes indulgent, cheap clothes that are nevertheless fashionable - and companies strive to give them what they want.

But what does the evidence tell us consumers want from their pension? For some, it would seem they may be asking for the unattainable.

Getting to the right solution demands innovation and we are looking to gather evidence through our consultation on possible solutions that address the issues at play.

In NEST's ongoing consultation on designing future solutions for our members, we present a wide range of evidence, including insights on our members' needs and expectations.

We know people have a strong desire for a guaranteed consistent retirement income. They say they value retirement income products that keep pace with inflation and protect them against outliving their retirement assets, but with the ability to take ‘bonus' style lump sums from time to time.

In many respects, our research told us that when it comes to pensions, people really do ‘want it all'.

But pensions are different from other consumer offers. It used to be possible to ignore the need to save for retirement, but if you had saved you were told what to do with your money at the other end. Now we face a new world order where on the whole you don't choose to start saving, but you can choose how to deploy your pot more freely.

While there may be trade-offs that need to be made, we owe it to consumers not to squander this once-in-a-generation chance to start the pension design process from their side of the table.

For example, we know consumers don't have binary expectations. So we should not constrain our thinking in a way that opposes drawdown against annuities, risk against security.

Getting to the right solution demands innovation and we are looking to gather evidence through our consultation on possible solutions that address the issues at play. These include governance and setting pay-out rules, asset allocation and risk management, flexibility for members and incorporating insurance for both market and longevity risk.

In the US we have seen scheme guidance evolve to allow for different ways of integrating the benefits of deferred annuities into people's pension planning. Savers might, for example, pay money as a ‘long life insurance premium' throughout their savings career, buying chunks of deferred annuity units with their pension contributions.

We know people don't like handing their money over all in one go. We also know the so-called ‘annuity purchase lottery' was seen as one of the big drawbacks of compulsory annuitisation. This approach allows savers to not only put in place some guaranteed income for life, but also jump these psychological barriers.

There's no direct comparison with the UK, but international perspectives are illuminating and we hope to gather deeper insights from across the globe as we try to design what's right for our members.

We appreciate it may not be possible to always give savers exactly what they want. But we feel strongly that entrenched thinking based on existing retirement products should not cloud our vision. Our starting place should be to work together to design solutions that truly put savers' needs and expectations first.

Mark Fawcett, chief investment officer, NEST

Go to www.nestpensions.org.uk to find out more about the Future of Retirement consultation

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