Defined contribution (DC) pension schemes are taking significant steps to prepare for the upcoming guided retirement duty, according to a survey from The Pensions Regulator (TPR).
The new duty, which is part of the government’s Pension Schemes Bill overhaul, is expected to transform the UK’s “savings system into a pensions system” by requiring schemes to offer members default retirement options.
TPR’s DC survey shows that schemes are reviewing, launching, or partnering to provide decumulation solutions ahead of the new legal duty.
Pension decumulation is the stage when savers start drawing an income from their pension after retirement, turning the money they’ve built up into funds they can live on. It’s the opposite of the accumulation phase, when savings are built up through contributions and investment.
Decumulation can involve buying an annuity for a guaranteed income, keeping funds invested and taking flexible withdrawals (drawdown), or withdrawing lump sums as needed. Because these choices affect how long savings last and how much tax is paid, schemes and regulators are increasingly focused on providing guidance and default pathways to help members make informed decisions.
Currently, all pension master trusts offer decumulation options at retirement. But the picture is different across the rest of the market, with 73 percent of DC schemes failing to offer any benefit options at retirement.
While 98 percent of large and medium schemes and all master trusts provide support to members with their retirement decisions, 31 percent of small schemes and 40 percent of micro schemes offer no help beyond statutory communications.
Nausicaa Delfas, chief executive officer at TPR, said: “This survey provides positive indications that the upcoming guided retirement duty to provide default retirement solutions is already starting to transform a savings system into a pensions system, as DC schemes ready themselves for the Pension Schemes Bill.
“Many small and micro schemes, however, are currently not doing enough to prepare for the duty, leaving their members to navigate complex choices alone as they transition into retirement. Schemes that struggle to support savers with their retirement decisions should consider consolidation into schemes that can offer value for money solutions that work for different kinds of savers.”
TPR’s data shows that just over half (51 percent) of schemes aware of the new duty have started reviewing their decumulation offerings. Thanks to proactive master trusts, 91 percent of all members (around 27 million savers) are now in schemes that are reviewing their decumulation options.
Larger schemes are leading consolidation efforts, with 44 percent of medium and 35 percent of large schemes having begun or planning to transfer members into a master trust, compared to only 12 percent of small and 4 percent of micro schemes.
Delfas added: “As the guided retirement duty takes shape under the Pension Schemes Bill, TPR is working with government and industry to ensure trustees have the clarity and support they need.
“Our new service, TPR Innovation Support, is available to help schemes discuss early stage ideas as they seek to bring new retirement products to market safely and effectively. We encourage schemes to engage with us.”
