DWP launches consultation on member support for decumulation

The Department for Work and Pensions (DWP) has launched a consultation on decumulation, as it seeks to understand what type of support savers need when they decide to access their pension pots.

The call for evidence asked consumer organisations and pension savers what pension products and investment options are currently available from pension schemes, and what may be offered in the future.

In addition, the government is keen to gather information on how savers want to be supported at three stages of decumulation: In the lead-up to taking their pension; when they access their pension; and after they have started to spend or further invest their savings.

Previous research into decumulation by the Financial Conduct Authority (FCA) found that many people choose the ‘path of least resistance’ when accessing their savings. This usually means taking an annuity from their current pension provider without shopping around, or without being aware of how their savings are being further invested in an income drawdown arrangement.

The DWP claimed that it wanted to support savers by helping them understand the variety of options available when taking their pension savings, while ensuring protections are in place for those who do not engage with pension choices.

It said that the consultation will dictate what, if any, action is needed to be taken to meet both goals.

The consultation also sought views on whether the range of decumulation options currently available to members of the Nest pension scheme could be expanded, as well as how collective defined contribution schemes could be extended from single employer to multi-employer schemes.

Pensions Minister, Guy Opperman, said that the government has issued the consultation as it wants to ensure that people have the support and information they need to make "informed choices" about accessing their savings.

"2022 marks 10 years since the introduction of automatic enrolment," he said. "Since 2012, the percentage of eligible employees saving into a workplace pension has increased by a third, meaning more people than ever will need to consider how to convert their pension savings into retirement income."

PLSA director of policy and advocacy, Nigel Peaple, said that the PLSA welcomed the consultation and the opportunity to engage further with the DWP on the topic.

"Since the pension freedoms individuals have had more options regarding how they access their pension savings, but most people need support in making these important and complex decisions," he said.

LCP partner, Steve Webb, added: “I warmly welcome DWP’s interest in what happens to people who have saved in a workplace pension and are now working out how best to use their pension pot in retirement.

“One priority for the DWP will be to focus not just on what happens at retirement but also on the journey through retirement. Most people will have modest pension pots and no access to financial advice, so they need products which will work for them without needing active engagement or investment expertise.

“The idea of a ‘flex first, fix later’ pension could be one such product, combining the best of both worlds – the flexibility and growth potential of drawdown and the certainty of a late life annuity. I hope that this DWP consultation will give proper attention to what happens post-retirement, as the right strategy at retirement may not be the right strategy 10 or 20 years later.”

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