Industry has broadly welcomed the government’s recent consultation about decumulation which closed on Monday. While some want engagement to start earlier in the saver journey, industry seems split about the relevance of collective defined contribution as a decumulation vehicle. 

 

The Department for Work and Pensions issued a call for evidence last month to explore what support members of pension schemes need “to help them make informed decisions about how to use their savings”. It also wanted to understand what support and decumulation products are currently on offer to members and what may be offered to them in the future. 

 

The call for evidence followed a recommendation by MPs that investment pathways should have the same form for contract-based and trust-based schemes, as part of an inquiry into pensions freedoms by the Work and Pensions Committee. The DWP said in April that it would not be appropriate to simply introduce investment pathways to trust-based schemes until it knows what is already on offer and what scheme members’ expectations are. 

 

    

 

Industry has welcomed the intent behind the consultation, but the Association of Consulting Actuaries has stressed that to achieve the goals outlined by the government, action needs to be taken “much earlier” than immediately before retirement. 

 

Tess Page, who chairs the ACA’s DC committee, said it was critical to go beyond the period pre-retirement to engage individuals, including in education before entering work, and even post-retirement.  

  

“Providing information and support, however well-designed and delivered, only around the retirement point will fail if engagement has not been built and maintained throughout,” she warned. 

  

She highlighted the significant effort required to change from an accumulation phase where the saver can be entirely passive, to a decumulation phase that requires decisions and actions. 

 

“In future, we see key roles for low cost, transparent, and easy-to-manage income drawdown products to better support individuals, including potentially via 'default' decumulation pathways that mirror the FCA’s investment pathways. CDC schemes will also have a part to play. There is much scope for industry innovation in decumulation,” she said. 

 

 

Bringing investment pathways into trust-based pensions would create consistency across DC products, highlighted Pete Glancy, Scottish Widows’ head of policy, as they are already a requirement in contract-based pensions. 

 

“Both sets of customers have the same needs regardless of how their scheme is structured, so there really is no need for this disparity in approach,” he said. 

 

The same alignment should apply to pre-retirement communications, to avoid instances of customers in different schemes receiving multiple communications with different content that is hard to compare, he added. 

 

  

Glancy said using CDC as a decumulation option could provide more choice for customers making decumulation decisions, “but more work is needed to understand the appetite from customers who are not in CDC arrangements for accumulation”. 

 

He added: “We do not expect to see employers with DC schemes defaulting members into CDC at retirement, nor do we expect a large number of employers to adopt the ‘to-and-through’ model used by the Royal Mail. It may be more likely to be viable for customers to choose for themselves,” he said. 

 

Doing so comes with other issues, he acknowledged: “This does pose challenges, as CDC is complex, and cusers will need to understand the risks and opportunities. The work being done across industry and government to increase access to advice and guidance could play a big role in unlocking this.”