DWP embarks on helping savers understand their choices

The Department for Work and Pensions (DWP) yesterday (14 June 2022) launched a call for evidence on helping savers understand their pension choices. Learning from the Financial Conduct Authority’s Retirement Outcomes Review for contract-based plans, it wants to ensure that those saving into occupational pensions also have the support they need to help them make informed decisions that allow them to achieve what they want from their pensions. Having gathered this evidence, the DWP will consider whether regulatory changes are necessary.

The main request under the call is split in two:

• First it asks members what information and support they expect in the lead up to using their pension savings, at the point they access them and after they have started to draw them. As well as taking into account members’ and consumer groups’ responses to the call, the call for evidence states that the DWP is also seeking “direct engagement with trust-based pension savers” although it provides no indication of how this will be done.
• The DWP’s second tack is seeking evidence from trustees regarding the support they are currently offering when members are facing retirement decisions and what else they are considering making available. The Government is aware that there are varied levels of support available to trust-based scheme members and that outcomes differ depending on what scheme individuals have been enrolled in by their employer. They also want to understand what barriers, such as fear of straying into giving regulated financial advice, limit trustees’ actions and how these can be addressed.

Following the FCA’s changes in 2018, savers in contract-based schemes receive wake-up packs earlier than their counterparts in occupational schemes (usually from age 50) more frequently and with key information set out more simply and prominently. DWP now wishes to assess if this template should be extended to trust-based schemes and it contrasts the requirements for them to send wake-up packs to members four months before their scheduled retirement date or on request. While recognising that many members are reluctant to take advice, largely on cost grounds, the DWP asks trustees of occupational schemes what support members are currently receiving, and what it is that they need, both in their forties and from age 50.

In addition, the DWP wants to understand what decumulation options are currently provided and it will be considering whether to require trust-based schemes to apply investment pathways, where individuals who enter ‘non-advised’ drawdown are presented with four options. The four options that providers are required to offer members focus on the member’s plans in the next five years; ranging from leaving the pot alone, buying an annuity, beginning to draw it down through to taking the lot. In defining “informed decisions”, the DWP states that members should understand the variety of options available on how to use pension savings in retirement and their associated risks.

This Call for Evidence appears to be focused on defined contribution (DC) arrangements, but it may also encompass hybrid arrangements – although it is far from clear that any consideration has been given to the complexities that arise when a member has both defined benefit and DC entitlements.

Separately, the DWP also asks for views about whether decumulation only collective defined contribution schemes might help the Government achieve its goals and, if so, what are the key challenges. Similarly, DWP seeks views on the current offer available to NEST members and whether NEST should further develop what it offers to its members.

The deadline for responses is 25 July 2022.