The Centre for Policy Studies is calling for pensioners to be placed in “auto-drawdown” once they hit private pension age to stop them running out of money.
In a research paper released today, the think-tank argues that private pension age should rise from 55 to 60, and from then people should be defaulted into income drawdown, taking between 4 and 6 per cent of their pot a year.
The CPS says larger retirement incomes could be generated through economies of scale as providers received encouragement to set up diversified, low cost options for the remaining funds.
After “auto-drawdown”, the think-tank proposes a stage of “auto-annuitisation” from age 80, which would be indexed to stop inflation erosion, and remove market risks in later life when individuals’ assets were pooled together.
However, consumers would still be able to opt out of either or both periods.
CPS research fellow Michael Johnson says: “The objective is to substantially reduce exposure to financial risks in later life, including the premature exhaustion of savings, thereby also helping to protect the state.
“To be clear, everyone should be free to opt out of one or both phases of auto-protection to pursue alternatives, consistent with 2015’s liberalisations.
“There is no desire to prevent people from doing what they want with their own savings. The introduction of auto-protection would address a major policy inconsistency, whereby the state nudges and incentivises people to accumulate retirement savings, only to desert them at the start of decumulation.”