This new research comes at a critical stage with the new Budget retirement income reforms going live in April this year.
The research finds that the Budget freedoms are popular with DC savers. However once they begin to understand the full scale of choices and trade-offs involved in deciding how to access their DC pension pots at retirement they can quickly become daunted.
This suggests that disengagement and inertia amongst consumers from April 2015 is a key risk without the provision of effective default strategies and appropriate guidance and advice.
The idea of their pension scheme or existing provider offering a default investment or drawdown option into retirement resonated with DC savers, with some believing that providers even had a ‘duty’ to offer this – though they recognised the importance of wider individual and household circumstances and the need for there to be some element of choice for those who want it.
PPI author Melissa Echalier said: “The findings from the research were encouraging, in that while those with DC pensions were disengaged with the decisions they will need to make at retirement they were capable, when supported, of making some important trade-offs. These included trading-off their appetite for risk, the degree of protection they would like against rising costs of living in retirement, and the level of flexibility and ease of access they have to their DC pension funds. The risk is that without access to advice or suitable defaults in place they make poor decisions, which could include taking their fund as cash and placing it in very low return investments.”
Alistair Byrne, Senior DC Strategist at State Street Global Advisors added:
“We need to begin putting in place arrangements to implement the Freedom and Choice reforms now, and the PPI's research provides strong evidence to build on. It's clear that default investment strategies in DC plans need to cope with uncertainty around when people will retire and how they will access their retirement savings. The industry needs to put in place well governed retirement income defaults that provide members with value for money and flexible access to their assets, without overwhelming them with complex choices.”
The PPI has today published a report on defaults for DC savers under the Budget freedoms to be introduced in April 2015. The report, along with details of the analysis, can be downloaded from here |
