Nest refers to CDC-style decumulation option in WPC response

Nest has referred to a structure similar to collective defined contribution (CDC) as a 'potential option' for the decumulation phase of the retirement journey in its submission to the Work and Pensions Committee's inquiry into pensions freedoms.

Nest said it would welcome further discussion on the option with the government and industry, although it clarified that it was not actively seeking talks.

Nest's 'retirement blueprint', originally published in 2015, said this structure would be similar to a CDC scheme in that members would be “pooled into cohorts and their later-life protected income allocations paid into a collective but uninsured mortality pool”.

It would therefore not be subject to the same risk-based capital requirements as a life company providing an annuity, which the scheme argued could enable it to operate with lower costs and offer better value for money for members.

However, the scheme did acknowledge that this would require “robust governance frameworks” in order to ensure that income was fairly paid out and Nest said that it was not pushing for it as a route for itself to take.

The scheme also referred to the purchase of deferred annuities in the earlier years of retirement, another option in its blueprint, although it conceded that “it may not be possible to source value for money policies due to the size of the premiums and the variability of mortality risk in the later years of life”.

Meanwhile, responding more broadly to the call for evidence, Nest stated: “The pension freedoms have introduced a new set of set of economic risks for savers. These include longevity risk - the risk of running out of money altogether, or not living as well as they might due to fear of running out of money.

“Also, ongoing exposure into retirement to investment risks and the need for ongoing management of those investments. Due to cognitive decline as we age, members are also likely to become less able to make decisions about their retirement savings over time.”

The scheme argued that savers had “a strong desire for a product which provides some flexibility in the early years of retirement, but in the long-term provides a secure, consistent retirement income that keeps pace with inflation”.

However, it stressed that savers required support without engaging themselves, pointing to the fact that the Money and Pensions Service has estimated that around half of the people accessing defined contribution pots in 2018/19 did not receive either regulated guidance or Pension Wise advice.

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