More pension schemes than expected to offer DC flexibilities as a result of pension reforms, says Linklaters research
But pensions reforms unlikely to encourage people to engage with their pension savings
Almost 20% of pension schemes will offer flexi-access drawdown facilities as a result of the UK pensions reforms, according to research published today by Linklaters the global law firm. This is a higher number than many in the industry had expected, given the administrative complexities and higher costs this is likely to bring.
The research - based on a survey of pension scheme trustees and their advisers* - also revealed that even more schemes (46%) plan to offer a degree of access to the new flexible lump sums, with a preference for a one-off option for members to take their entire pot as cash at retirement.
Nevertheless, despite a spike of interest from members from 6 April, most people surveyed (53%) remain doubtful that the new flexibilities will lead to greater member engagement with their pension savings.
Tim Cox, Linklaters pensions partner, said:
“It seems likely that most members will continue to rely on the default fund and this will therefore continue to be the focus of attention when trustees review their investment strategy.”
This view is backed up by the fact that 85% of schemes have already undertaken or are undertaking a review of the default investment strategy.
Carol Jones, Linklaters pensions counsel, said:
“We are seeing many schemes adapting their default strategies to target the new options - cash, drawdown and annuities - members have at retirement. We think it right that schemes should be looking to review their default offering, but that does not mean change will always be needed. In our view, an appropriate default is one which offers the most security to members in retirement and that may still be the existing default strategy.”
On the subject of member communications, the majority view (70%) was that schemes should do more than just direct members to Pensions Wise, the Government’s guidance service. Related to this issue, 90% of those surveyed said that their schemes had already updated member communications to provide information on the new flexibilities.
Carol Jones said:
“There is a question as to the form and content of any further guidance as trustees must take care to avoid giving - or being perceived to give – ‘advice’. However, a flag to members that they should consider taking independent financial advice would be an appropriate further step to consider.”
Looking at the spending phase of DC schemes, the majority (85%) felt comfortable that trustees are not being asked to do too much to protect members. A further 73% said they would be reviewing access to the new flexibilities within their schemes as the market develops.
The survey also revealed that most trustees (71%) felt that DB members should be allowed to take transfers out at retirement to access the new DC flexibilities.
Tim Cox said:
“From an employer’s perspective this may be an attractive way of managing pension risk. Most of our trustee clients are happy to make the option available and have focused their attention on how best to communicate this to members, bearing in mind that it will not be appropriate for everyone.”