How are schemes giving members access to the full range of retirement income strategies?
Schemes are taking very different approaches to helping members turn their DC savings into a retirement income since the introduction of ‘freedom and choice’.
We examined the choices of three schemes – the J.P Morgan and Thomson Reuters schemes, and The People’s Pension.
Matthew Webb, head of international benefits at Thomson Reuters, focused on the pros and cons of doing drawdown in-scheme post-freedom and choice. The cost savings and flexibilities associated with staying in the scheme rather than transferring out were balanced against possible administrative complexity, fiduciary fear and continued paternalism.
Thomson Reuters opted to keep things in-house and put in place the mechanics of drawdown with an education strategy to complement it. Since implementation, figures show that 40% are going into drawdown, 60% are taking cash – and nobody has bought an annuity.
In 2011, many of our members that were retiring moved their assets to SIPPS”
René Poisson, J.P. Morgan scheme chairman said his scheme had begun exploring drawdown well before the pension freedoms were introduced.
“In 2011, many of our members that were retiring moved their assets to SIPPS even where the pot size might have been thought not to justify that move,” he said.
Consequently, the scheme introduced a structure where all members can access a guidance service, buy an annuity, and access drawdown in employer/trustee-negotiated strategies or take an open market option.
Education and advice were a focus for all schemes. Roy Porter, business development director at The People’s Pension said: “We looked at members’ attitude to advice in the run-up to retirement, and only 20% were taking advice – so increased our education, support and advice routes. Some people have actually fallen out of the robo advice pot because of the complexity, and we wanted to mitigate that.”
We are working with a third party to create education sessions for 50 year olds”
On the note of education and advice, Porter pointed out the need to accommodate different media routes to customers, saying that at present there was no “truly independent option covering all products and providers”, and adding that members need, at the very least, guidance that shows their different options and what income they are on course for.
Webb gave the example of his own scheme’s education strategy: “We are working with a third party to create education sessions for 50 year olds with webinars/seminars, followed by an individual face-to-face session. From there, if moving into regulated advice, employees would take on the costs.”
So what would they each give as one piece of advice for scheme design at retirement?
“It is imperative to maximise the outcome for members, and drawdown under a controlled approach is best way to do this,” said Webb.
Porter added: “Members are all different. We need to consider an investment tax wrapper and support as one consolidated approach.”
“It’s about ensuring members understand their pots and their longevity, and how it will impact on how they manage their money,” concluded Poisson. “Education, education, education.”