Nest highlights role of inertia in decumulation options

Nest has argued that protecting unengaged savers in retirement should be a statutory obligation, urging the pensions industry to use the lessons learned from auto-enrolment about the power of inertia to support pension savers through the decumulation phase.

In its response to the Work and Pensions Select Committee’s ongoing inquiry into Pension Freedoms, and subsequent call for evidence on options and advice, Nest emphasised that many savers are still not receiving the advice and guidance needed to make informed retirement decisions.

Furthermore, it warned that whilst the Department for Work and Pension’s 'Stronger Nudge' policy may bring more people into retirement guidance, even the most informed consumers may not be able to make good product decisions.

Alongside this, the scheme cited prior Nest research showing that members want a decumulation product that provides flexibility in the early years of retirement, whilst also providing a secure, consistent retirement income that keeps pace with inflation in the long run.

However, it emphasised that due to behavioural and informational barriers, members want this support without necessarily having to engage themselves.

Considering this, Nest highlighted its own Nest Guided Retirement Fund (NGRF), introduced in March 2020, as an example of balancing short- and long-term needs, allowing members to access their retirement savings whilst keeping most of their money invested.

Nest director of customer engagement, Mark Rowlands, said: “While the pension freedoms have given people more say in how they spend their retirement savings, they have also introduced a new set of risks for savers.

“These include both the risk of running out of money and depriving themselves of the retirement they want due to fear of running out of money.

“Research shows that simply giving people more information isn’t the answer – even engaged savers can make detrimental decisions when faced with complex risks they have to navigate in retirement."

He added: “A well-functioning industry is one where all schemes have to offer or sign-post to an appropriate decumulation solution for their members which will serve them throughout their retirement and does not require engagement.

“For many members this will need to balance flexibility in the short-term while, in the long-term, providing a secure later life income as the NGRF does.”

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