Initial responses to the Department for Work and Pensions’ (DWP) recent consultations have begun to roll in, revealing support for a number of the proposals, although concerns over the practical implementation have emerged.

The government previously announced a package of defined contribution (DC) reforms designed to boost pensions and increase investment in British businesses, including small pots solutions, proposals for a decumulation framework, and plans to extend collective DC (CDC).

Commenting on these consultations, the Society of Pension Professionals (SPP) commended the government for looking to explore solutions to the challenges in delivering good outcomes for members at and during retirement, including dealing with small pots.

Indeed, the group said that it “appreciates” the government’s proactivity in resolving small pension pots, agreeing that a consolidator model, whether one or multiple, would be an effective step forward and, if the latter, a central registry could serve as a viable option.

Despite this, the SPP suggested that, in the longer term, the DWP should also consider the role of pensions dashboards as an effective way of bringing this together with a resource for those who wish to consolidate pots of any size proactively.

In addition to this, the SPP noted that whilst the government has proposed using multiple consolidators, there is no guarantee schemes will wish to participate in this arrangement given scheme’s breakeven points are £1,000 per pot.

As a result, the SPP argued that an efficient process for authorisation, identifying and transferring pots will be needed.

In addition to this, it argued that it is worth considering the the concept of removing very small pots from the system (where these would not detract significantly from income in retirement or messaging around the importance of saving for later life) via refunds.

In addition to the small pots issue, the SPP backed the government's plans for a decumulation framework, arguing that a focus on decumulation is long overdue and builds on the progress that has been made on accumulation in recent years.

SPP DC Committee chair, Martin Willis, commented: "This consultation is a first step towards providing solutions for those that cannot reasonably take complex financial decisions at retirement, highlighting the importance of providing support to members at this point, whether that be well-functioning defaults or guidance around well-constructed and accessible options.’’

Given this, Willis supported the call for all schemes to signpost at least a pathway to all the options available without bias, even if these are not all provided in the scheme.

Although Willis also argued that clear legislation will be key to ensuring that proposals are successfully implemented, he suggested that it should be up to trustees and employers to decide how they satisfy any such proposals within a framework.

Further details are also still needed, as the SPP acknowledged that value can be challenging to assess in decumulation, as options are complex and vary considerably.

In light of this, it suggested that a charge cap requires separate consideration and should not simply mirror the existing accumulation framework.

The plans for a decumulation framework have also received broader industry support, as TPT Retirement Solutions said that it was “fully supportive” of the new decumulation options for DC savers.

Commenting on the proposals, the group argued that while the current system provides members with plenty of freedom and flexibility to make retirement decisions, there is a high risk of a poor outcome in retirement, with members having to make complex financial decisions about where to invest and how much income to draw.

“The result is often inefficient investment allocations and income levels that may not be sustainable. Members often end up investing in products that have high ongoing charges or transaction costs,” TPT Retirement Solutions DC director, Philip Smith, stated.

“We believe most people would benefit from a new approach that is straightforward to understand and where trustees can exercise their fiduciary responsibility effectively to provide people with a sustainable stream of income in retirement. New decumulation pathways could be designed to be broadly suitable for most scheme members.

“This would allow members to make a decision without huge advice expenses or inefficiencies. Ideally, new pathways would also provide some kind of defence against inflation and potentially mortality. Critically, these solutions need to be low cost to be suitable for most scheme members.”

This follows on from the news that TPT is set to launch its own decumulation solution in 2024, which will aim to deliver on many of these requirements.

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