UK's 'disjointed' DC pension system has vast potential - ACA

The Association of Consulting Actuaries (ACA) has stated there is strong potential in the UK’s “disjointed” defined contribution (DC) system, but warned of a “black hole” in the guidance and advice arena.

Responding to the Work and Pensions Committee’s call for evidence on options and advice in the realm of pension freedoms, the ACA said the hole in the guidance and advice system “urgently needs to be filled by good value, transparent solutions that link more seamlessly with pre-retirement pensions delivery”.

The organisation added that it believed many savers were not currently receiving the necessary advice and guidance to make informed decisions, noting that there was an inequality in the level in support and access that employees received based on the size of their employer.

The ACA therefore called for earlier engagement with pension savers, as well as initiatives to improve the financial literacy of the general population.

The call for evidence specifically asked for information about the options open to people when they come to access their pensions, the advice and guidance available, and the information people need to make an informed choice about retirement products.

ACA said the current system had flexibilities that offered potential to provide good outcomes for individuals, but warned that access to the full range of flexibilities was mixed due to a disjointed system across contract-based group schemes, own trusts, master trusts and personal pensions.

It also listed barriers to savers enjoying good outcomes, which included complexity, perceived poor value, low levels of understanding, poor availability of personalised guidance and insufficient DC saving due to reliance on auto-enrolment compliance.

It added that a combination of regulation, innovation and greater consolidation would be needed to create a pension system which serves the needs of savers in an easy to navigate and helpful way.

ACA DC Committee chair, Tess Page, said: “Levelling up is required in order to maximise the potential that the flexibilities have to provide better outcomes for individuals, with the appropriate safeguards.

“Fears of Lamborghini blow-out spending have been misplaced, but there is more to be done to ensure every pension saver has access to the right mix of solutions for them, with good value advice at their fingertips.”

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