How can we create a decumulation journey that works for the savers of the future? The PLSA’s Tim Gosling explores.

The Financial Conduct Authority’s (FCA) final report of the Retirement Outcomes Review has given us a clear view of how the regulator intends to tackle customer detriment in the ‘at-retirement’ market.

The general picture of the market in the aftermath of the pensions freedoms is well known. Far fewer savers are buying annuities and many more are buying drawdown products. However, while most drawdown sales are advised, around a third do not seek advice and these people are overwhelmingly likely to stick with their current provider.

Retirement plans

The FCA’s main recommendation was new ‘investment pathways’ intended to steer customers buying drawdown without an adviser towards a suitable outcome. This seems a sensible move to prevent unadvised savers from ending up with an unsuitable product.

We were also pleased to see practical measures to encourage engagement suggested, like earlier ‘wake-up’ packs.

But we do not think the FCA’s remedy package marks the end point of the development of the ‘at-retirement’ market. The report’s proposals are intended to fix the issues the regulator has identified in the market in a proportionate manner, rather than anticipate the issues savers will face in the next 10 to 15 years.

Our recent Hitting the Target report was the result of a three month consultation aimed at building on the success of auto-enrolment and realising the opportunities that the pension freedoms offer.

We do not think the FCA’s remedy package marks the end point

In it, we laid out the recommendations we believe will both get people saving more into a pension, and ensure those approaching retirement are supported to make suitable choices.

Our report looks into the next decade towards the point where more people will be decumulating with much larger defined contribution (DC) pots. In the future, retirees will need easy access to retirement income products, and the industry and regulators need to think more creatively about what those products should be. 

Our report proposes the government brings forward a new regulatory framework for decumulation. This would allow pension trustees and providers, together with Independent Governance Committees (IGCs), to signpost savers to a range of suitable products which meet approved government standards.

The government must bring forward a new regulatory framework for decumulation

This would give people easy access to appropriate retirement income products, while preserving the choice which sits at the core of the pension freedoms.

However, it’s not just about helping people at the point of retirement – they need to be supported throughout their saving journey. That’s why Hitting the Target also recommends the introduction of retirement income targets to help people know what to save to achieve the lifestyle they want.

So far, our report has been well received. Now, the next step for the PLSA is to build support for our main proposals: retirement income targets that answer the question of how much people should save, and proposals to make the “at retirement” market truly fit for the future.

The full Hitting the Target report can be found online here: https://www.plsa.co.uk/Policy-and-Research/Document-library/Hitting-The-Target-A-Vision-for-Retirement-Income

Tim Gosling is policy lead: DC at the Pensions and Lifetime Savings Association