In its consultation "Helping savers understand their pension choices", the DWP is consulting on the support and products to be made available to members of DC occupational pension schemes, particularly when members are reaching the point when they wish to take their benefits. The consultation document also sets out the feedback the DWP received in response to its 2022 consultation, also entitled "Helping savers understand their pension choices".
Proposals that schemes should be obliged to offer "decumulation services"
"Decumulation" is the term used for members taking benefits from the scheme. The Government intends to place a duty on trustees to offer decumulation services which are suitable for their members and consistent with pension freedoms. At decumulation, members will have the option either to choose their scheme's default service or access other products and services. Trustees will either need to offer the decumulation options "in-house" or partner with a supplier able to offer the services. The Government says it is not looking for precise consistency, as it believes schemes should adapt the options they offer based on their membership.
The Government says that it wants to create a CDC (collective defined contribution) market that allows access to a CDC product as an option. It says that the advantage of a CDC product over flexi-access drawdown is that the latter leaves an individual member more susceptible to market volatility. The consultation seeks views on what the Government can do to help a CDC-in-decumulation market emerge.
The consultation seeks views on what the minimum requirements should be as regards putting in place support for members facing decumulation. It suggests that schemes should develop the products and services they offer and guide members towards them based on the following questions:
- Do you only want a regular income?
- Do you only want flexible access to your pension benefits?
- Do you want a combination of both?
- Do you want to do something else?
The consultation asks whether issues may arise with the proposed approach with regard to the boundary between guidance and advice.
A role for NEST in providing centralised decumulation services?
The Government says that it understands the issues that small schemes may have in meeting the type of obligations proposed. It seeks views on when it would be acceptable for schemes to partner with others rather than offer services themselves. It also asks whether there is a role for a centralised scheme to deliver decumulation options where trustees are unable or unwilling to offer these directly, and raises the possibility that NEST could be used for this purpose. The Government says it is comfortable if its proposals result in a smaller number of larger schemes.
Timescale for implementation
The Government says it intends to legislate "when parliamentary time allows", but indicates that in the meantime it intends to work with the Pensions Regulator (TPR) to issue guidance "to show how the objectives of these policies can be met without legislation being in place". The consultation asks what timeline the Government should work to in order to implement the changes and asks whether any legislation should apply solely to master trusts in the first instance.
The consultation runs until 5 September 2023.
Our thoughts
Feedback to the Government's previous consultation was that there should be alignment of the requirements applicable to personal pension schemes regulated by the FCA and DC occupational pension schemes regulated by TPR. There is currently a somewhat arbitrary mismatch between the level of support decumulation support required by the two types of scheme. For example, since 2020 the FCA has required large providers of drawdown from of personal pension schemes to offer their non-advised customers a selection of "investment pathways" designed to help ensure an appropriate investment strategy. In contrast, for occupational pension schemes, the question of what options and support are offered to a member at the decumulation stage is largely left up to individual schemes.
The Government's consultation proposals are currently at an early stage. The fact that the Government intends to work on guidance initially rather than legislation suggests that it will be some time before we see any change in the law. It seems questionable whether those schemes which currently provide little support to members on decumulation will be prompted to change their behaviour in the absence of a legal requirement to do so.
