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CPS: Place pensioners in “auto-drawdown”

Johnson
CPS research fellow Michael Johnson

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.”

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(Another) downhill stroll — retirement planning

A report published this morning by the CIPD (CIPD Employee Outlook March 2015) provides yet more interesting data to the changing landscape of retirement planning. It should be remembered that we are in a period of genuine flux here given that the default retirement age was scrapped three years ago, and new pension freedoms come online in April. Both of these alterations will have a huge impact on how employees plan for their retirement.

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. 6% p.a. Auto-DrawDown followed by Auto-annuitisation after age 80? On what planet does this guy live?

  2. Seriously? I don’t really know where to start with this. Are they proposing that the tax-free cash will be paid out automatically, regardless of whether the individual needs it or wants it? Will this happen at age 60, regardless of whether or not the individual is still working? What will the funds be invested in and, when the individual is automatically annuitised at 80, what basis will the annuity be set-up on?

    They’re talking about automating some of the most important decisions that people will ever make and trying to push everyone into the same solution, regardless of their circumstances.

  3. I do not believe that this concept should be a ‘one size fits all’ and indeed, the offer is there to opt out. Not a bad concept.

  4. So people are too stupid to draw their own money out of their pension and will sit there starving to death while their pension pot sits there.

    Hang on, I thought the problem was meant to be that ill-informed customers would take too much money *out* of their pension pots.

    Why are people still going on about “nudging”? This is the era of Brexit, nobody cares about nudging anymore.

  5. So at the point clients typically see their income requirements reducing (assuming no care costs yet) and at a time they perhaps don’t want to make complicated financial decisions the proposal is to take their potentially ‘spare’ capital and give it up for a secured income.

    In practice, the reverse is currently much more likely to be happening and for the surplus pot to become an inheritance (or hedge against future care costs).

    Ideally, lets tackle the big issues affecting those who are 80 rather than kicking it down the road time and again – the (potentially irrational) fear of care fees, the risk if care is indeed needed and the inefficiencies in that market which are seeing the current pressures on the system.

  6. Christine Brightwell 23rd March 2017 at 11:51 am

    Oh dear

  7. I have never seen something so stupid

  8. Sometimes you have to help people to help themselves. Given that:
    1) It’s a widely known fact that many people are probably not saving enough for retirement.
    2) People are probably going to have to work longer to have sufficient income in retirement. They will certainly have to wait longer to get a state pension.
    3) Everybody knows it’s a good idea to save for old age and yet some people weren’t – until auto enrolement came along. Now a large chunk of people aren’t using that money for everyday life, but saving for retirement instead – without them having to lift a finger.
    4) Now you’re proposing to automatically start paying out some of that retirement fund to the same people – without them having to lift a finger.
    5) Pension pots need to achieve growth against inflation and market movements. When you start drawing down from a pension fund, you forgo some of that growth.
    How is this a good idea?

  9. And I thought Gordon Brown had left the building!

    This is nonsense – shoe horning is never smart and this paper is not worthy of consideration its simply an exercise in keeping CPS in the media

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