The pensions industry has voiced its support for proposals to require trust-based schemes to offer retirement income solutions, including default investment options, to members, and urged governmental departments and regulators to work together to ensure they are effective.

Industry experts called the announcement in the Pension Schemes Bill a “positive step forward”, but emphasised the need for more details to inform savers of what this will entail.
 
The bill stated that the requirement “will improve outcomes for savers and is likely to lead to more funds being invested for longer, giving the potential for investments in productive assets, boosting economic growth”.

Hargreaves Lansdown head of retirement analysis, Helen Morrissey, stressed it was “crucial” that solutions were built around members’ pension savings, emphasising that people were likely to have pots with multiple schemes. 

She highlighted that ensuring savers have a “full sight” of their savings and the opportunity to consolidate pots before making retirement choices would be “crucial” for better outcomes. 

“Cooperation across government departments and regulators will also be essential with options such as annuities being in the Financial Conduct Authority (FCA) regulated space,” Morrisey added.

“Developing a common approach to what is already a complex retirement decision-making process will be critical.”

These concerns were echoed by AJ Bell director of public policy, Tom Selby, who said: “The development of new guidance options is going to be essential, to provide the superglue binding these together to be able to effectively communicate changes to pension savers.

“It’s important therefore that the FCA and Treasury continue apace with their development of targeted support and reform of the advice/guidance boundary.”

Selby noted that although currently there is no detail on what these measures will mean, many occupational schemes do not offer drawdown to their members, meaning lots of people will need to transfer to take a flexible income.

However, Broadstone head of market engagement, Simon Kew, said that requiring trustees to offer retirement income solutions could help “drive up” engagement, arguing that the challenge of retirement income from defined contribution (DC) funds is “massive” and “adding some paternalism back into the system seems to be the only way forward”.

PensionBee director of public affairs, Becky O’Connor, acknowledged that entering retirement is often financially “stressful and demanding”, stating that PensionBee hopes the requirement for pension providers to offer retirement products will help “people feel more confident managing their money at retirement age”.

Quilter retirement specialist, Kirsty Anderson, pointed out that it could “lead to more funds being invested for longer”, potentially boosting economic growth through investments in productive assets.

However, Anderson also highlighted that “with the growing dominance of DC pension schemes and the freedoms they offer, people’s strategies for taking income from their pensions are now of paramount importance”.

She warned that while decumulating from a pension can be “treacherous”, particularly without expert help, savers could easily see their retirement pots “run dry” before they pass away.

“While the work under the previous government has not proposed exactly what products and services should be offered by providers, it intonated a framework to improve the market,” she said.

Anderson said that one area it “heavily” encourages is the inclusion of collective defined contribution (CDC) plans.

She added: “CDCs aim to provide a halfway house between defined benefit and defined contribution pensions by offering a regular income and addressing issues related to market volatility and sustainable withdrawal rates.

“However, CDCs are largely unproven, and no market currently exists."

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