TPR slams DC schemes' retirement literature
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The Pensions Regulator has found that 30 per cent of the 97 trust-based defined contribution pension schemes whose literature it recently assessed have breached retirement disclosure regulations and has referred 6 per cent to casework teams for further work.
TPR assessed the schemes to determine the level of adherence to legislative requirements, clarity and good practice in areas such as the description and prominence of the open market option.
The regulator found levels of compliance varied widely across the DC market.
It found 98 per cent of schemes offered the Omo although take up has remained low at 23 per cent of DC members.
Almost 60 per cent of schemes had some scope for improvement in the standards of the retirement information sent to members.
Thirty per cent had alleged legislative breaches of retirement disclosure regulations while 6 per cent were referred to regulator casework teams to follow up the substantial changes required to their retirement literature or processes.
TPR will now send a letter to 4,500 schemes highlighting the findings of the investigation and encouraging trustees to review the pre-retirement literature sent out to their members.
Executive director of operations June Mulroy says: “Compliance with the legislative requirements is important as a minimum standard.
“But we expect to see adoption of good practice as the norm. This will help members to make the right decisions at retirement, which we recognise can make a significant difference to the income they receive.
“It is encouraging to see examples of excellent practice, but we do recognise that there is room for improvement.”
Pensions Income Choice Association chairman and Hargreaves Lansdown head of pensions research Tom McPhail says: “The Pensions Regulator report serves to highlight even more the need for change to the way that people select their income in retirement.
“With the increase in number of Brits going into retirement over the next 20 years, a huge underclass of retirees will emerge if changes are not made to the current system, whereby people see “ticking the box” to remain with their current provider as the easy option.
“In spite of the huge amount of work that has been focused around this issue, TPR’s research shows just one in four scheme members taking up their option. This is a shameful waste of employees’ retirement savings.”
Readers' comments (1)
Anonymous | 28 Oct 2009 6:45 pm
“A ‘chicken and egg’ situation has developed which does need to be addressed. Historically, most retirees have bought lifetime annuities, so
the majority of the information from the employer, trustees, Pensions
Regulator and Pensions Advisory Service focuses on how to choose a lifetime
annuity. By failing to take a balanced approach that considers other options, they are reinforcing sales of lifetime annuities and so the cycle continues.
“This is assuming acute importance because of the changing nature of retirement – such as the growing need for people to work to a greater age – that is raising many questions over how people should structure their finances. Should they take some benefits early, or defer with the goal of securing a higher income later? Should they commit all their funds at one time to one type of product, or phase their purchase or spread their fund across a range of plans? With retirement now set to last on average 20-30
years, should they take an income but retain the flexibility to adapt it to their changing circumstances such as fading health or death of a spouse?
The retirement information provided by DC
schemes must be improved to highlight all the options available to the 21st Century retiree. For many, this will be the biggest investment decision of their lives and mistakes can’t be corrected once they are locked into a
lifetime annuity.
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