Industry supports Government's reluctance to take 'one size fits all' approach to pension freedoms

The DWP Select Committee has today published the Government’s response to the Select Committee’s report on Pension Freedoms.

Related topics:  Retirement
Amy Loddington
22nd June 2018
Houses house of parliament commons government govt gov

In that report, the Committee recommended that savers should be defaulted into particular ‘pathways’ at retirement unless they made an active choice. The Government has rejected this recommendation, adding:

"The Government is, at this stage, not convinced of the merits of default decumulation pathways and is concerned that measures to require individuals to be placed into particular products would be inconsistent with the freedom and choice reforms. The pension freedoms have deliberately moved away from the idea of defaulting individuals into a single product, namely annuities."

Commenting, Steve Webb, Director of Policy at Royal London said:

“The Government is right to reject the idea of a one-size fits all approach at retirement. The whole point of pension freedoms is that everyone is different and has a different pension history and different goals for the future when they reach pension age. Much more can and should be done to help people make the choice that is right for them, but defaulting them down the route that the provider thinks is best is not the answer”.

The DWP response also says that on the pensions dashboard, there is a ‘strong case for compulsion’.

Steve Webb added:

"It is very welcome that the Government seems to have accepted the case for participation by pension schemes in the dashboard project to be mandatory. Without this, people would only be able to see a partial picture of their pensions. We now urgently need to see the DWP feasibility study so that the project can be driven forward."

Steven Cameron, Pensions Director at Aegon comments:

“The Work and Pensions Select Committee’s Inquiry into pension freedoms came at a time when the FCA was concluding its deep and thorough review of the ‘at retirement’ market. We support the Government’s decision to defer any further interventions until the FCA reports back on its final decisions, due later this month. We support the FCA’s focus on additional protections for those using income drawdown who have not benefitted from seeking advice.

“As the Government says, pension freedoms are there to allow each individual to use their pension fund in a way that suits their retirement needs. The Select Committee’s recommendation for providers to offer default decumulation pathways went several steps too far, potentially defaulting individuals into a product type, level of income and investment fund choice which might have been wholly inappropriate for an individual’s circumstances. For those entering retirement, the focus should be on improving engagement. Three years into pension freedoms and with the market continuing to evolve, it’s far too early to focus on defaults which would effectively be admitting failure to better engage.

“We also support the Government deferring making any decisions on pension dashboards until the DWP completes its feasibility study. While the Select Committee favours a single dashboard, we believe this would directly conflict with the need to allow the industry to engage creatively with customers.”

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