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Govt rejects default pathways for decumulation

The government has rejected a recommendation to introduce default decumulation pathways saying it would be inconsistent with pension freedoms.

In April the work and pensions select committee published a report on pension freedoms where it proposed ways outcomes for savers could be improved.

Among the recommendations, the committee said every drawdown provider should offer customers a default drawdown solution and this should be subject to oversight by trustees of independent governance committees.

The committee also suggested drawdown should be price capped with an annual management charge of 0.75 per cent.

In its response the Department for Work and Pensions says the pension freedoms deliberately moved away from the idea of defaulting individuals into a single product, namely annuities.

It says there is a lack of evidence that a common default pathway would be suitable for the majority of people.

The DWP says: “We await the publication of the FCA’s final retirement outcomes review in summer 2018 in order to consider fully its proposals on decumulation pathways, a charge cap on decumulation products and extending the role of independent governance committees.

“The government will continue to engage with the FCA, industry and consumer groups, to ensure that customers are treated fairly and benefit from appropriate protections.”

The committee also said there is a clear role for automated services in providing cheaper advice.

Its report called on the FCA to conduct and publish a review comparing consumer outcomes from face-to-face and automated advice.

Here the government says it recognises the importance of ensuring that consumer outcomes from face-to-face and automated advice are of a high standard and supports the FCA’s work in this area.

Royal London policy director Steve Webb says: “The government is right to reject the idea of a one-size fits all approach at retirement.

“The whole point of pension freedoms is that everyone is different and has a different pension history and different goals for the future when they reach pension age.

“Much more can and should be done to help people make the choice that is right for them, but defaulting them down the route that the provider thinks is best is not the answer.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Also, this is approach is extremely consistent with the Government’s approach to auto enrolment…

    Not!

  2. Julian Stevens 23rd June 2018 at 4:55 am

    If clients/policyholders haven’t supplied details of a bank account into which payments can be remitted, how could the provider set up IDD on a default basis?

    Also, what level of default IDD has been proposed? Anything other than natural income or a sensibly prudent percentage of the ongoing value of the fund (e.g. 4% p.a.) raises the spectre of pound:cost ravaging, that being the single biggest risk of IDD.

    I still hold to the view that the only default for maturing pension funds should be OM, with a voucher system to cover (at least most of) the costs of advice.

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