The Pensions and Lifetime Savings Association (PLSA) has called on the government to implement regulations for schemes to better assist savers with complex decisions regarding pot access at the point of retirement.
The recommendations - announced today (13 October) during the PLSA's annual conference - come after a 12-week consultation which set out the trade body's vision for a new defined contribution (DC) decumulation framework earlier this year.
While the trade body says the final framework published today is "broadly unchanged" from what it outlined in July, it has added the call for a statutory requirement on pension schemes to support their members when they are making decisions about how to access their pension.
"It is clear that the economic risks and decision-making risks faced by savers need to be addressed more actively, and also that schemes are well placed to offer further assistance," the PLSA said in its framework. "But there are some significant barriers preventing schemes [from] taking action, including litigation that can arise for schemes in providing additional support, including signposting. This can best be mitigated by radical change - namely regulatory requirements."
Under the proposed framework, schemes are be required to signpost to products that meet minimum quality standards to support their members' decision-making process.
Speaking at the PLSA's conference this afternoon, Lane Clark & Peacock head of DC and PLSA policy board member Laura Myers said the framework would help support schemes unsure of how to balance the risks of signposting.
"A lot of schemes felt they were facing a lot of risk crossing the line into the advice space and the risks and litigation concerns about signposting and recommending products," she said. "The risks of not acting were also a significant concern for some others but there is not necessarily a clear path through all the risk."
The framework will outline a list of ‘minimum standards' for communications, engagement, and governance to ensure a simplified approach.
"By creating a statutory requirement on schemes, we can generate a stronger demand side, grow and utilise the information and expertise within the industry for the good of the saver, and also help mitigate litigation risks and some costs for schemes," the PLSA said. "It will also support a more consistent saver experience across the numerous schemes they may be part of."
Key objectives the PLSA hopes to meet with the framework include an extended provision of support to savers who do not engage with their options, while still supporting freedom and choice for those who do.
The trade body said it was also looking to "facilitate and influence future product development" with a wider view to managing the risks for savers as dependency on DC derived incomes increases and DC pots grow.
A further key objective outlined was to mitigate litigation, financial and operational risks savers and scheme are facing. The PLSA is also looking to use the framework "to utilise the benefits of scale and mechanisms such as the trust-based fiduciary duty within master trusts and trust-based schemes and the responsibilities of independent governance committees".
Policy board chairwoman Emma Douglas said: "The decumulation framework we are recommending today responds to the evolution of the pension system.
"It will provide vital support to savers and help bridge the gap between the inertia which makes auto-enrolment such a success, and the range of choices - which can be confusing - savers face when electing how to draw their pension at retirement."
Which? head of policy, money and consumer rights Paddy Greene said the framework would also help simplify the role of the saver at the point of accessing their savings.
"This framework has the potential to help because we have created a pensions environment full of decisions made on behalf of savers, yet when it comes to getting those funds, savers are expected to make a range of personal decisions," he said.
"Lack of take up of advice remains a major risk and in the absence in advice and guidance, we can be sure there's a risk of poor outcomes. Therefore, poor member engagement is also still a major concern. Complexity encourages savers to disengage and we know from other markets that when savers face these tough choices, they can often make suboptimal decisions."
PLSA head of DC, master trusts and lifetime saving Lizzy Holliday added: "DC pot sizes are growing, reliance on DC saving is growing as defined benefit falls away - and there is great potential in the future for growth and development of DC decumulation products. But we can't wait, we need to be ready and shaping the future.
"We need to be on the front foot and shaping what we want things to look like. We must act now because savers are coming to decumulation today."
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