As the industry gets to grips with freedom and choice Helen Morrissey asks if signposting members to good quality retirement products can fuel informed decision making.
- Trustees need clarity on the amount of support they can offer members on retirement decisions.
- PLSA is working with regulators to allow schemes to signpost members to appropriate retirement products.
- A Retirement Quality Mark could help identify high-quality products.
The advent of pension freedom has caused real challenges for trustees. Many have faced a deluge of requests from members looking for more guidance on their retirement choices. These can range from simply needing more information to asking 'What would you do if you were me?'
This places trustees in a quandary. They know their members need help, but doing so risks pushing them into the realms of giving advice. Many trustees simply do not know where to turn and more clarity is needed on what they can and cannot do.
At a recent Pension and Lifetime Savings Association (PLSA) event, the organisation's head of policy and research Jackie Wells acknowledged the difficulties employers face in potentially straying into offering advice.
"It is important that we look at what can be done in this area," she said. "We would like to be able to say to those who want to go further than the bland leaflets saying 'Go to Pension wise' that they can do that without fear of litigation."
According to PLSA's director of external affairs Graham Vidler, schemes should be able to signpost members to options outside the scheme that they think are appropriate.
He added that such products should meet certain quality standards, but schemes should benefit from some kind of safe harbour agreement whereby members cannot pursue the trustees if they feel they did not get the outcome they wanted.
"The signposting piece effectively allows schemes to say that for most people, this option looks to be a good one. They will continue to signpost to services such as Pension wise and financial advice, so members can utilise these services if required.
"This process keeps the decision making very much in the hands of the member. I think it is a small change that could make a huge difference.
"However, we will need clarification of the regulatory position on what trustees can actually do and we need to really look at what a good retirement product actually looks like."
State Street Global Advisors senior DC strategist Alistair Byrne agreed that signposting has a role to play: "Being able to signpost people to good quality products is a great idea. Employers would be happier doing this knowing there was some kind of safe harbour arrangement in place.
"Colleagues in the US have been helped by this kind of thing and it enables employers to step up and do the right thing by their employees."
So far, the signs seem encouraging and discussions are ongoing with regulators. Vidler said: "We are confident that regulators are listening to us on this."
Financial Conduct Authority manager of decumulation Alex Roy agreed this is a challenging area to deal with: "The core of what we are looking at is having informed consumers in terms of the decisions they take and ensuring they know where to go to get help if needed. We need to look at where regulation might prevent a competitive market as people need innovative solutions.
"We also need to look at what information is out there if people are not accessing face-to-face advice. Some of the key hooks we place regulation on are disappearing (for instance, people don't know when they will retire so when and how do we communicate with them?). These are some of the issues we are grappling with at the moment."
He added: "Getting people to engage with Pension wise earlier is vital. Getting people to think about things in advance rather than being in a rush is vital."
While these discussions are ongoing, there are initiatives being carried out that could prove helpful. The PLSA's Pension Quality Mark (PQM) has done a lot to promote the provision of high quality occupational pensions, so could a similar initiative work well in retirement?
PQM chairman Adrian Boulding believes there is a strong case given that many retirement products are now bought on a non-advised basis.
Looking at income drawdown, which has grown in popularity since the introduction of the freedoms, Boulding argues there are four key questions that need to be answered:
• Where should the pension be invested?
• What is an appropriate withdrawal rate?
• What happens when the market falls?
• What would be a reasonable cost?
"The Retirement Quality Mark would recognise simple income drawdown schemes aimed at new investors that are good quality and help with things like investment and withdrawal rates," he said.
"This would help trustees and employers by signposting to good quality income drawdown products. It would also increase the number of people taking a retirement income rather than just cashing out."
Meetings on this are taking place later this month and Boulding believes a Retirement Quality Mark could be up and running as early as the middle of 2016.
We are only in the early days of freedom and choice, and we have a long way to go in terms of getting people feeling comfortable with retirement income decisions.
However, if trustees are enabled to do more for their members in terms of guiding them towards suitable products, then we will see rapid improvement.
Newton’s Curt Custard considers the investment outlook for 2021 and the implications for DC schemes
Master trusts’ investment strategies have grown and become more sophisticated over the last three years, but “growing pains” are hindering progress, according to the Defined Contribution Investment Forum (DCIF).
More than half of BlackRock’s flagship UK defined contribution (DC) default fund’s assets will be invested in ESG strategies by June 2021.
Graeme Bold says the right communications can improve both the level of savings and the outcomes for savers.