Aegon is calling on the Department for Work and Pensions to take a three-stage approach to trust-based pension schemes to ensure trustees remain focused on improving member engagement.
In its response to the DWP consultation ‘Helping savers understand their pension choices’, which closes September 5, Aegon said its highly challenging for trustees to design default retirement income strategy for members in general.
It said the focus should remain on encouraging engagement with defaults a "last resort".
Steven Cameron, pensions director at Aegon, said: “Aegon supports granting members of trust-based schemes access to the same range of freedoms as members in the contract-based world typically enjoy.
“But with a huge number of interlinking pension developments, including the value for money framework, pension dashboards and solutions to small deferred pots, we urge the DWP to implement their ambitious proposals in three stages.”
As a first stage, trustees should be encouraged through guidance to grant their members access to the core decumulation options including income drawdown, with regulation following once the legislative timetable permits, Aegon explained.
Where trustees are unable or do not wish to offer this in-house, they should seek to partner with a scheme or provider with the necessary expertise.
Stage two should look at how trustees might support those members who do not want to - or feel unable to - make their own retirement choices through some form of default retirement income strategy.
“But this will be far from straightforward and raises many questions,” Cameron said.
“Default investment funds can work in the accumulation phase, where members can often have similar aims and objectives. But at retirement and in the decumulation phase individual member circumstances, needs and desires are far more personalised.”
He added: “Where members fail to engage, how can trustees make decisions without knowledge of the individual’s health, financial dependents, or other pensions and wealth?
“With this in mind, trustees should double down on improving member engagement with their retirement options. Any default retirement income strategy should truly be a ‘last resort’.”
Meanwhile, Aegon also said that the consultation is also interested in how decumulation-only collective defined contributions could be added into the mix of retirement income choices.
“While this could play a future role, they don’t currently exist, with much needing to be done to turn these into a reality,” Cameron said.
“Rather than detract from or slow down other improvements, we recommend this be considered very much as a third stage.”
The DWP has been approached for comment.
The DWP intends to introduce a duty on trustees to consider the needs of their members when they want to access their pension pot.
The DWP identified a need for pension savers to be supported and stated that trustees should deliver ways of developing savers' needs.
The department said that, while there are a number of ways that schemes currently support their members to make the most of their pension pots, the range is not universal.
