“Decumulation will form part of the value for money framework in the future enabling trustees, employers, and eventually pension savers, to better understand the value of different services and products on offer in the decumulation market,” she said.
“And we do need to see more innovation to help the DC generation. A generation facing smaller pension wealth.”
Delfas said there should also be a real onus on the pensions industry to promote solutions which help members extract more value from their savings.
“That is why we are supporting the government’s efforts in getting collective defined contribution solutions off the ground and why we will welcome other moves to extract greater value from DC pensions.”
- Principle two – All savers should be helped with decision-making – Savers should be encouraged and supported to make key decisions whilst saving for their pension, and in preparation for decumulation
“We need to break down the barriers which are perceived to exist between accumulation, decumulation and retirement,” she said.
Delfas explained that a guided pathway should run through all three phases.
“The first priority should be to empower informed long-term decision-making from savers, but in my view, there should also be a strong safety net default solution for those that fail to make a decision,” she said.
- Principle three – Schemes should put the saver at the heart of decumulation – Trustees should consider the best interests of savers and proactively help DC savers to mitigate the risks they face at and in retirement
Schemes can help to mitigate those risks not only through the guidance provided to savers, but also in the design of the decumulation products they offer.
She explained that trustees should only offer decumulation products – including any default 'safety net' solutions – that are in the best interests of their members offering real value for money.
- Principle four – The market must innovate to provide genuine choice for savers – The saver should be given a choice in how to decumulate their pension savings considering their personal circumstances
Savers should be offered several pathways offering products which provide flexibility and more certain income streams and a combination of the two.
“We know there is a big gender pension gap,” she said. “Decumulation solutions must help close that gap.”
- Principle five – Schemes should provide wrap around and personalised support in the lead up to and during decumulation and in post-retirement
Delfas said support should be targeted at those that need it most and who are at greater risk of experiencing poorer later life outcomes, for example: women, people from some ethnic minority groups, people with disabilities and carers.
“I have set out five simple principles for how we want the 'at retirement' market to develop,” Delfas said.
“We will now engage with the sector on the development of these principles through a series of virtual roundtables early in the new year.
“As a regulator we will work with you to support innovation at and post-retirement.
“Learning from the insight of this report we need to work collectively to promote what innovation in this space looks like, rather than passively waiting until issues arise.”
sonia.rach@ft.com
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