It’s been over 18 months since the government announced new freedoms for the way defined contribution members can take their benefits at retirement, so what’s changed? Not enough, says Gill Wadsworth.
“There has been a bit of disappointment at how slow the market has been in updating default strategies and it is not a good reflection of the industry.”
David Hutchins
The pensions industry was hopping up and down following chancellor George Osborne’s 2014 Spring Budget, which overhauled the way defined contribution scheme members could take their benefits at retirement.
‘Radical’ and ‘revolutionary’ were just two of the words used to describe the government’s freedom and choice regime, which allowed those aged 55 or over to draw their pensions with relative impunity.
Since 6 April this year, members have been able to take their entire pots as cash, move into income drawdown, buy an annuity or take a combination of all three.
The initial response to this regime change was shock followed by expectations that employers and trustees would overhaul their schemes to meet members’ demands for drawdown and cash lump sums.
On reflection, however, in the 18+ months since Osborne’s announcement DC pension trustees and contract-based schemes have taken their time in responding to the new flexibilities.
Numerous surveys have been released demonstrating a propensity by employers and trustees to ‘wait and see’ how freedom and choice will play out before making changes to their own DC arrangements.
A survey of 250 schemes undertaken by JLT Employee Benefits found less than half (44%) had made changes to their default investment strategies in the past year.
Similarly, a survey of 400 employers, trustees and pension managers conducted by consultant Aon Hewitt found that while two-thirds had reviewed their default investment strategies, one-third were still targeting annuity purchase.
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