Default decumulation pathway
One of the recommendations set out in the report is that every pension provider offering drawdown must, by April 2019, offer a default decumulation pathway in order to ‘protect consumers who do not engage with their pension saving’.
Tom Selby, senior analyst at AJ Bell, comments:
“While the idea of default drawdown pathways sounds sensible in theory, it risks hard-wiring inertia into the pensions system when the focus should really be on empowering consumers to make their own decisions and boosting access to advice. Indeed, once you start thinking about the practicalities of creating drawdown defaults it becomes clear they are potentially fraught with danger.
“Default options work where people are building up a pension pot through automatic enrolment but there is a fundamental difference with drawdown. Where auto-enrolment is based on ensuring those who do nothing get a decent level of capital – and so it is fair to assume people might not engage as they get to the point of taking a retirement income – savers who invest in SIPPs tend to be more engaged and so the need for a default is much less clear.
“If a customer is already invested and moves into drawdown but makes no changes to their investment choices, as is most often the case, does that count as not making an investment choice when entering drawdown and result in them being defaulted into a different fund? There is a clear risk of consumer detriment here if someone is automatically moved into a fund that doesn’t match their own preferences.
“Likewise, if a customer transfers to a provider, takes their tax free cash, but then wants to wait for a month for volatile markets to calm down, does the pension provider take this as someone who hasn’t made an investment choice and so default them into a fund that they haven’t chosen?
“How long do providers wait before defaulting the customer into a fund? A day? A week? A month? Three months? There is no right answer to that question without knowing the personal circumstances of the individual involved.
“The range of personal circumstances and needs is vast and so the chances of a default fund not being suitable is high. Policymakers need to think long and hard about this proposal and the risks is poses to pension investors.”
A single, Government-run Pensions Dashboard
The Committee’s report also urges the Government to introduce a single, state-run, industry-funded Pensions Dashboard by April 2019.
Selby comments: “It would frankly seem odd if the Government attempted to block providers from using the information available to show customers the value of all their pensions. It would also be concerning if the DWP feels pressured to meet the April 2019 deadline – now just 12 months away – at all costs. Nobody wants to see the launch of the Dashboard becoming plagued by technical problems because implementation was rushed through.
“The long-term goal of the Dashboard project is to allow as many people as possible to view their retirement pots on a single screen. Surely the best way to achieve this is for a central Dashboard to be available to all, with providers allowed to display the same information to their own customers? Provided the information provided doesn’t vary, it’s hard to see how this adds complexity.”