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Press comment: default drawdown won't fix implications of supersonic pension reforms 

22/06/2018

If you’re covering the government’s response to the Work and Pensions Committee recommendations for pension freedoms please see the following comment from Jon Greer, head of retirement policy at Old Mutual Wealth. He explains the risks of default drawdown and why NEST should be allowed to develop its own drawdown products. 

Jon says:

Jon Greer“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 products

“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.”

For more information contact

Kathleen Gallagher023 8072 629307990 004932kathleen.gallagher@quilter.com

Notes to Editors:

About Quilter plc:

Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £118.4 billion in investments (as at 30 June 2019).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions; and discretionary fund management.

The business is comprised of two segments: Advice and Wealth Management and Wealth Platforms.

Advice and Wealth Management encompasses the financial advice business, Quilter Financial Planning; the discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.

Wealth Platforms includes Old Mutual Wealth UK platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

The Quilter plc businesses are being re-branded as follows: 

  • Quilter Financial Planning (previously Intrinsic)
  • Quilter Private Client Advisers (previously Old Mutual Wealth Private Client Advisers)
  • Charles Derby Group (becoming Quilter Financial Advisers)
  • Quilter Financial Adviser School
  • Quilter Cheviot
  • Quilter Investors
  • Old Mutual Wealth (becoming Quilter Wealth Solutions in 2020)
  • Old Mutual International (becoming Quilter International in 2020)

This press release is for journalists only and should not be relied upon by financial advisers or customers.

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This communication is issued by Quilter plc.  Registered office: Millennium Bridge House, 2 Lambeth Hill, London EC4V 4AJ, United Kingdom. Registered number: 6404270.  Registered in England.