Aviva has launched a new ‘flex first, fix later’ guided retirement service and product for its workplace customers.
Initially the blended solution will be available to people saving through Aviva’s master trust, with plans to roll it out to group personal pension (GPP) customers in future. (See below for the difference between pension structures).
This blended approach combines drawdown strategies in the early years of retirement before shifting to an annuity product later in life. The retirement option is designed to support savers who don’t pay for financial advice and want help with the complex decisions around taking income in retirement.
The solution aims to provide a sustainable income by dividing customers’ pension savings into three pots: a flexible income pot, a guaranteed income pot and an occasional spending pot. This model is designed to prioritise flexibility in the early years of retirement and security in the later years.
Before splitting the pension money between these pots, members have the option to take up to 25 percent as a tax-free cash lump sum. Aviva says that while each pot is designed to meet a different need, members have a practical framework in place to help them feel more confident about spending throughout retirement.
Customers opting for this guided retirement option will have access to modelling tools, designed to facilitate alterations to spending levels and saving into these different pots as and when their circumstances change.
The recently announced Pension Schemes Bill outlines key measures for those nearing retirement, including a likely requirement for pension schemes to provide clear and accessible default options for converting savings into a sustainable retirement income.
Simon Ellis, commercial director for workplace pensions at Aviva, said: “This innovative solution demonstrates our commitment to delivering retirement products which reflect the changing needs of retirees today and in the future.
“It’s great to see the Pension Schemes Bill focusing on the full retirement journey. At Aviva, we want to help savers get ready for better retirements by ensuring their pension savings last a lifetime – and the Aviva Guided Retirement solution is built around that principle. This means we’ll be able to offer a solution that not only meets regulatory requirements but also reflects what members have told us they want: a retirement journey that offers both flexibility and security.”
Aviva Master Trust chair Chris Noon adds: “The launch of Aviva Guided Retirement marks a significant step forward in our commitment to supporting Aviva Master Trust members with innovative and practical solutions that adapt to their evolving needs.
“By blending flexibility with long-term security, this solution empowers members to approach retirement with greater confidence. It also endorses the Aviva Master Trust’s leadership in defined contribution provision across the UK – setting a new benchmark for how pension schemes can deliver lasting value and guidance throughout the retirement journey.”
Different UK DC pension structures
Contract-Based Pension Schemes
- Set up by the employer, but the pension contract is between the employee and the pension provider (usually an insurance company).
- Examples are Group Personal Pensions (GPPs) and Group Stakeholder Pensions.
- These schemes are regulated by the Financial Conduct Authority (FCA).
- There is no trustee board to manage governance, instead, the pension provider manages the scheme. Some employers set up an Independent Governance Committee to oversee it on behalf of members.
- Employers have limited governance responsibility with this type of scheme. The provider handles most of the ongoing decision-making and administration.
- One advantage is that this means there is less administrative burden for employers as it is professionally run by financial institutions.
Trust-Based Pension Schemes
- Set up by the employer, who also appoints a board of trustees to run the scheme.
- Examples of this type of scheme include Master Trusts such as Nest and The People’s Pension, and single-employer trust-based schemes.
- These schemes are regulated by The Pensions Regulator (TPR).
- Governance is managed by trustees with a legal duty to act in the best interests of members.
- Employer roles have more governance responsibility with this type of scheme structure as they must ensure the trustees are appropriately managing the scheme.
- Advantages of this type of scheme are stronger member protection through trustee oversight and more tailored governance.
