There are multiple ways in which Employers and Trustees can help members within a Pension Scheme make the best choices with their retirement savings. Defined Contribution (DC) scheme members can effectively choose to ‘default’ through their entire retirement savings journey until they reach retirement.
The complications arise when the members want to turn their pension pots into a retirement income stream. Members must make complex, often irreversible decisions about their pension and their potential life-long consequences that arise from these decisions.
According to the 2022 DC Pension Scheme and Financial Wellbeing Survey, 90% of members want to invest their pension pots into a drawdown arrangement which means that they will need to choose when to withdraw income, and how much, as well as considering their own longevity risk. This is the stage where DC members lack support and can make poor choices which is shown from the 2021 DC member survey whereby one in three are not confident in their ability to make decisions about their financial future.
There is some good news and that is that employers, trustees, regulators, and industry bodies are starting to recognise that DC members are struggling and are now calling for a new statutory obligation on pension schemes to provide helpful guidance and signposting.
It is not easy for individual members to find a reputable Independent Financial Adviser (IFA) at an affordable price, but companies and trustees are well placed to help them by selecting a ‘preferred IFA’ which they have vetted for quality. Almost 60 per cent of schemes currently signpost members to an IFA firm in retirement, or plan to do so in the next three years but only 10 per cent of schemes cover the cost of member advice, but by partnering with a preferred IFA, all schemes can significantly lower fees on members’ behalf.
What can trustees do now?
There are a few straightforward steps that all schemes can take to help improve retirement decisions. Trustees can carry out a ‘health check’ of all current DC members to understand what your scheme currently offers and where there are any gaps. Benchmark your scheme against the market and wider best practice to prioritise your area of focus which could be:
Education – Do members need better financial education? Do they have the tools they need to make informed decisions?
Support – Have you considered the support your members may need at retirement? What you might be able to offer them at lower cost?
Retirement products – Do members have support to access their pension savings via drawdown, both through a high-quality service and at a good value for money?
If you have any questions, please contact us on 020 7112 8300 alternatively you can email firstname.lastname@example.org.