“Pension freedoms were first introduced in what seemed a supersonic speed of policy making, leaving the industry and public in a state of shock. That is why, three years after the reforms were introduced, policymakers are still asking questions.
“Is it reasonable to default people automatically into a vehicle, when people reach pension age with different aims and pension provision? This is the question of default drawdown in a nutshell and we’re pleased the government has recognised the risk of such a move. Auto-enrolment has proved that inertia is a powerful policy tool, but there is danger in that power. Drawdown needs to be designed to fit with an individual’s specific circumstances so sleepwalking into a pre-selected solution will not necessarily provide good outcomes. Such a solution requires at least some level of engagement.
“Initiatives like the mid-life MOT and encouraging the take up of advice through the use of technology are steps in the right direction. Innovation should continue to be focused on boosting engagement. The upcoming findings from the FCA Retirement Outcomes Review may shed further light on the direction of travel.”
“Nest’s over 6.4 million members need to have the same opportunities for a prosperous retirement as the rest of the public. These members typically have smaller pots and so their choices are limited in the current market.
“Nest should be allowed to develop innovative products to fit their members if the market does not provide suitable options for their members, who typically will be people with smaller pension savings. In 2015 Nest insight put forward a “retirement blueprint” outlining three building blocks for retirement income: an income drawdown fund; a cash lump sum fund and a later life protected income fund.
“This has been put on hold at the current time , but that should not preclude it being developed in the future. However, we urge the move into such a decumulation strategy to be an active choice rather than a default which kicks in automatically at a specified date. Spending in retirement is highly dependent on personal circumstances and requires at least some level of engagement.
“However, nothing in life is free and NEST has a large outstanding loan, totalling £539m at the end of March last year. This debt is expected to peak to £1.22bn in 2026. If NEST is to develop further decumulation options it needs time and money. The government will need to consider if they should extend the loan so NEST can confidently spend time developing further options and whether that represents value for money since it will be Nest members who will ultimately pay back the principle loan and interest.”