Mercer has welcomed a report from the National Association of Pension Funds (NAPF) and Pensions Institute into how members of defined contribution (DC) pension schemes can best secure their retirement income, and highlighted the urgent need to make good-quality pre-retirement advice to members mandatory for all DC schemes. Mercer has long-maintained that many DC scheme members wipe out all benefit gained from the active management of their DC pots with one poor decision at retirement.
Gail Philippart, a Principal in Mercer’s DC consulting team, said: "We believe a good quality broking service, free to members, should be a compulsory element of all workplace DC schemes in the UK. The stakes are too high to not provide this service. Time and time again we see members not shopping around when purchasing an annuity, resulting in retirement incomes being reduced by thousands of pounds in one fell swoop.
“Once these basics are in place these services should be extended to help members decide whether an annuity is indeed the right way to spend their DC pot or whether they should consider other options such as flexible drawdown.”
Mercer also believes it is essential that members have access to a broking service that fully explores and explains the potential for increased levels of income if impaired life annuities are utilised.
Richard Tuff, a Principal in Mercer’s Outsourcing business said: "A broking service has several essential parts, it should be whole-of-market and it should aim to ensure the member fully understands all the elements of their decision. It should also make sure that, if appropriate, enhanced annuities are made available to those with potentially shorter life expectancy. Perhaps most importantly this needs to be embedded in a robust and compliant framework to ensure this happens for every retiree using the service.”
Ms Philippart added: "When DC schemes were first established as an alternative to defined benefit schemes, few employers thought ahead to what a member’s pre-retirement process might look like. With more and more DC members coming up to retirement it is crucial that they get the help to plan ahead and consider the options available to them. The result can be a halving of a member’s retirement income if the wrong annuity provider is selected.”
“Employers pay millions of pounds into these schemes every year, so they should also have a keen interest in ensuring their money is put to good use and not simply thrown away.” concluded Ms Philippart.
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