Helping savers understand their pension choices

Background

On 11 July 2023, the DWP issued a consultation on policy framework to support individuals use their pension savings in decumulation.

In this response

• General comments
• Responses to specific consultation questions

General comments

The stated aim of the consultation (in paragraph 37) is “to establish a broad alignment in the service offer among different providers where every pension scheme, either directly or through a partnering arrangement, provide decumulation solutions for their members. We are however not looking for precise consistency across schemes as we recognise and believe schemes should adapt the offer based on their membership.”

We believe that this is the right approach.  We have advised many trustee boards, providers and employers who wish to support members through their retirement decisions.  Our clients typically express both a willingness to do more than the bare minimum, and also an understanding that the outcome of a person’s pension savings journey will depend greatly on what happens towards the end of that journey and the decisions they make at retirement.  However, the current legal framework results in inconsistent approaches even between schemes of similar sizes and dispositions. This makes it a matter of luck where a person ends up, and whether or not they receive a good member outcome.

The application of clear rules and guidance should result in greater consistency of outcome for savers.  That is because –

• individuals governing schemes would at least have to consider the issue; and
• it would be less dependent on the type of savings vehicle that the person had been using to build up their retirement pot if the DWP and FCA are able to create similar duties across occupational and contract-based schemes.

Responses to specific consultation questions

Question 1: Should it be up to trustees to determine the other suitable suites of products?

Yes. It should be the trustees (working with the employer in the case of employer sponsored occupational pension schemes) who have a duty to provide / signpost to decumulation solutions and to determine which solution(s) are appropriate for their scheme and their particular membership demographic and benefit structure, rather than the government mandating what these should be. It should be noted that, unless there is an overriding statutory requirement for specific solutions to be provided, a scheme’s offering will depend on what is possible under its governing documentation (for example employer or provider agreement may be required) as well as its resources. In our experience, trustees may want to provide certain decumulation solutions but there are practical hurdles meaning they are unable to do so, eg their platform provider and / or administrator does not have capability to offer these services, or it is too expensive.

We recognise the importance of CDC as a potential solution to a number of pension industry objectives at the moment.  However, the timing of the new CDC scheme regime would affect this aspect of the new trustee duty on decumulation.  It is difficult to see how trustees could be directed to consider how CDC schemes could feature in their offer to members (paragraph 46) if there are no such schemes operating.    This suggests that a staged approach to the new duty would be needed.

Question 2: What can government do to help a CDC-in-decumulation market emerge?

When coupled with the other papers issued as part of the Mansion House proposals, particularly the paper on “Extending opportunities for collective defined contribution pension schemes”, it is clear that government is interested in creating a market for members to choose CDC at retirement options.

The legislation and guidance to enable such provision is clearly the first step. Once providers can offer CDC, the Government will then need to support communications to foster interest among schemes and their members.

The development of the market relies on getting two things right:

• being clear about what is needed to meet the authorisation requirements for a CDC-in-decumulation scheme and how that may be impacted by existing master trust authorisation criteria (where the two potentially overlap)
• being clear about the timetable for when such authorisation can start to happen.

Without this it will be difficult for potential providers of this market to know what they have to do and when, which will make it more challenging to undertake feasibility discussions, plan for and cost out the development involved in setting up such arrangements.

Question 3: We would welcome views to understand what are the minimum requirements that trustees should put in place for members facing decumulation?

The proposed duty should require access to be provided to all of the pension freedoms in some form (e.g. signposting, partnering), so far as this is possible (see our response to Q1). This is the current reality, but at the moment the member has to drive the process and trustees are not currently required to offer or signpost / partner to all options.

There should also be a requirement, in due course, to consider the value aspect of any decumulation solution, just as value is important to the investment options and default used in accumulation.

Better outcomes would occur if people were better educated about their options and not given a huge amount of information at the point at which they need to make a decision. By providing information on a “little and often” basis at appropriate points throughout the period from joining a scheme (in line with the work the DWP and FCA have been undertaking on the consumer journey), we would hope to avoid individuals from sleepwalking into a poor retirement decision.  If the new trustee duty is introduced, any communication requirements would need to dovetail with existing obligations such as the “nudge to guidance” and would need to be straightforward to comply with (rather than simply add another new layer onto the existing complicated disclosure requirements).

Question 4: What factors should a trustee / scheme take into account when developing their decumulation offer?

Factors which trustees should take into account when developing their decumulation offer include:

• the size of the scheme
• the scheme’s resources (particularly administration resource and capability)
• the member demographic – eg what options are likely to interest them, are they likely to have multiple pots making consolidation a potential issue – and any scheme specific experience
• benefit structure
• prevailing evidence on the demands and needs of those in the decumulation phase
• existing relationships with decumulation providers
• for external options, the availability and cost of such options in the market
• for external options, the relative strengths and weaknesses of the various providers
• for external options, the transition process / member journey, and
• value for money.

Trustees will not know what other savings their members have (and it is outside of their remit to know this). While the size of pots in the scheme may be a relevant factor, decisions should not be made based on assumptions about other financial resources members may have outside the scheme.

Question 5: We would welcome views to understand if these are the right questions to capture the majority of ways an individual will want to use their pension wealth?

These questions seem to be aimed at members whose only pension benefits are their DC pot and do not address members who also have legacy DB benefits.  Changes over the last few years mean that many people have both DB and DC benefits (sometimes within the same pension scheme) and this can create complications at retirement – particularly in current times when many schemes may be considering a buy-in/out of DB benefits and/or the transfer of DC benefits to a master trust.  This adds an extra layer of complexity – for example, we have some clients who have employees that have pension benefits spread across DB, DC and master trust arrangements.  It would be unhelpful to avoid addressing those circumstances in decumulation as the different moving parts of a person’s total pension savings can have different rights attached to them (particularly as regards protections on tax free cash amounts and minimum pension ages of 50 and 55 for accessibility purposes).  We foresee that questions around the different “rights” attached to different parts of a person’s pension savings are likely to increase in number, rather than decrease, particularly as we get closer to April 2028 when the minimum pension age is due to increase to age 57.

Question 7: We welcome views on whether you see any issues with this approach and whether there are potentially any implications due to the advice / guidance boundary?

We consider the duty to provide decumulation services as proposed could constitute one or more regulated activities for the purposes of FSMA (advising and arranging) or a financial promotion. As trustees are not permitted to undertake regulated activities or make financial promotions (as they are not generally FCA authorised), for them to satisfy the duty there would need to be a change to the current legislation, FCA rules and guidance on these areas. It is often argued that trustees do not need FCA authorisation as it is only required where a party is in the business of carrying out the regulated activity in question and receives a ‘commercial benefit’ for helping their employees. To date, this may well be the case, but if the proposals go ahead as appears to be envisaged, this could become less clearcut.

We advise our trustee clients of the need for caution when communicating retirement options to avoid getting into advice territory (whether or not this constitutes regulated advice, it is not within a trustee’s fiduciary duty to provide advice to members). Trustees will not know which decumulation solution is optimal for an individual and should not, and should not appear to, advocate a certain course of action. Schemes’ trust deeds and rules may also restrict the decumulation offerings that can be provided. For this reason, we agree that if the proposals are introduced, there should be an overriding statutory duty on trustees to provide decumulation options which addresses the hurdles trustees currently face in doing so.

Careful thought will need to be given to what information trustees will be required to communicate to members. Trustees will still not be in a position to advise members individually (as this would go against their general fiduciary duties) but, should the government wish them to be able to say more than they are currently permitted to, this will require changes to the advice / guidance framework which we note the FCA is currently reviewing.

If the intention is for trustees to put individuals into certain decumulation options without their consent (ie by default) then the above points regarding trustees straying into FCA-regulated activities are amplified. Some schemes are already looking to introduce pathways to different decumulation options, including a default option. It is tricky to include a default decumulation offering under the current regulatory framework as there is no requirement to do so and as such it could be considered to be inducing members to take a particular route.

Question 8: Do you have any suggestions for key metrics or areas that would need to be included if the proposed value for money framework was extended to decumulation or suggestions for where proposed metrics may no longer be required?

If the framework were extended to decumulation, it would need to be clear which aspect(s) of decumulation are being assessed and by whom. A holistic assessment would assess the whole journey, ie the value being provided by the original scheme in supporting the member to make their decision and implementing their choice, and the value provided once the member is in decumulation, within or outside the original scheme and possibly in one or more arrangements.

The proposed metrics for the framework would be appropriate but, inevitably, not all of them would apply to all of the decumulation journey / options. In addition, as we noted in our response to the consultation on the value for money framework, “services” is the key area which would make a difference to member outcomes, particularly in decumulation where good ongoing support is crucial.

The proposed focus on value and delivering good saver outcomes will also be important when developing metrics so that the disclosure regime itself does not overly add to the cost and burden of offering decumulation services.

Question 9: Do you have safeguards in place for members in the decumulation stage? If so, what are these safeguards and what information do you provide to members?

We are aware of a variety of safeguards in our clients’ schemes, for example:

• a requirement for members to take financial advice before entering the scheme’s post-retirement solution
• provision of advice and guidance services (but no requirement to take them before entering decumulation)
• minimum pot size to enter drawdown.

We also note that the disclosure requirements which were introduced alongside the pensions freedoms were intended to provide members with a minimum level of support with making their decumulation decisions.

Question 11: We would welcome views to understand what are the practical considerations of partnering arrangements?

• Partnering arrangements are likely to necessitate schemes being on the same investment platform, in order to enable replication of investment funds / re-registration of units and to permit a smooth transition for members.
• It is more likely that trustees will stray into financial advice/ arranging activity and / or financial promotion if they are, even just potentially, directing members to certain decumulation solutions. As explained above, this will require changes to the current advice / guidance boundary and detailed guidance for trustees.
• Certain schemes will not be commercially attractive to decumulation providers eg:
  • Schemes with predominantly small pots and / or few members
  • Schemes with underpin benefits (as the provider will not know until the point of retirement whether a member is DB or DC making the arrangement uncertain)
  • Hybrid schemes where members generally use the DC pot to access cash

Depending on the overall circumstances, providers may not be willing to agree to partner with certain schemes. If take-up of the services from members is low, providers may be unwilling to continue with such a relationship, unless there is a requirement on the (or an) external decumulation provider to provide these services to all schemes. Otherwise, this could leave some schemes without the ability to provide decumulation services if they are unable to do so in-house and are not commercially attractive to external providers.

• Will the provider require a minimum pot size to take on a member to make it commercially attractive?
• How easy will it be for members to transfer to the decumulation arrangement? What will be involved?
• To what extent will trustees have to investigate / carry out due diligence on a provider’s decumulation services, and / or will providers be required to meet certain requirements? Will trustees receive a statutory discharge following the member’s transfer?
• The extent to which trustees will need to monitor the service provision on an ongoing basis and potentially change provider. The extension of the value assessment would enable comparison of decumulation services in time.

Question 12: Should government set out a minimum standard partnering arrangement?

We struggle to see how this would be possible as there are different partnering models, and the commercial aspects of the partnering to the provider tend to determine what services are made available to members and at what cost.

Question 13: (a) Should all schemes be allowed to establish partnership arrangements or only schemes of a certain size? (b) If only a certain size what should that be?

We presume this is directed at limiting the ability to comply with the duty via a partnership to smaller schemes. It is not the size, but the nature of the scheme which is important in terms of its benefit design and resources. Not all larger schemes will be in a position to, or wish to, provide their own decumulation services, let alone a full range of such services for any number of the reasons flagged above.

We agree that it could be appropriate to require commercial master trusts to provide their own decumulation options, but this would not necessarily be appropriate for industry-wide schemes who are not set up on commercial terms to sell a product/service for profit, or for those schemes which accidentally fall within the master trust definition or single employer trust schemes (many of which may be on a journey to consolidation already bearing in mind the current DC market place and other Government policies which are encouraging DC scheme consolidation).

Question 1: Should it be up to trustees to determine the other suitable suites of products?

Yes. It should be the trustees (working with the employer in the case of employer sponsored occupational pension schemes) who have a duty to provide / signpost to decumulation solutions and to determine which solution(s) are appropriate for their scheme and their particular membership demographic and benefit structure, rather than the government mandating what these should be. It should be noted that, unless there is an overriding statutory requirement for specific solutions to be provided, a scheme’s offering will depend on what is possible under its governing documentation (for example employer or provider agreement may be required) as well as its resources. In our experience, trustees may want to provide certain decumulation solutions but there are practical hurdles meaning they are unable to do so, eg their platform provider and / or administrator does not have capability to offer these services, or it is too expensive.

We recognise the importance of CDC as a potential solution to a number of pension industry objectives at the moment.  However, the timing of the new CDC scheme regime would affect this aspect of the new trustee duty on decumulation.  It is difficult to see how trustees could be directed to consider how CDC schemes could feature in their offer to members (paragraph 46) if there are no such schemes operating.    This suggests that a staged approach to the new duty would be needed.

Question 2: What can government do to help a CDC-in-decumulation market emerge?

When coupled with the other papers issued as part of the Mansion House proposals, particularly the paper on “Extending opportunities for collective defined contribution pension schemes”, it is clear that government is interested in creating a market for members to choose CDC at retirement options.

The legislation and guidance to enable such provision is clearly the first step. Once providers can offer CDC, the Government will then need to support communications to foster interest among schemes and their members.

The development of the market relies on getting two things right:

 

• being clear about what is needed to meet the authorisation requirements for a CDC-in-decumulation scheme and how that may be impacted by existing master trust authorisation criteria (where the two potentially overlap)
• being clear about the timetable for when such authorisation can start to happen.

Without this it will be difficult for potential providers of this market to know what they have to do and when, which will make it more challenging to undertake feasibility discussions, plan for and cost out the development involved in setting up such arrangements.

 

Question 3: We would welcome views to understand what are the minimum requirements that trustees should put in place for members facing decumulation?

The proposed duty should require access to be provided to all of the pension freedoms in some form (e.g. signposting, partnering), so far as this is possible (see our response to Q1). This is the current reality, but at the moment the member has to drive the process and trustees are not currently required to offer or signpost / partner to all options.

There should also be a requirement, in due course, to consider the value aspect of any decumulation solution, just as value is important to the investment options and default used in accumulation.

Better outcomes would occur if people were better educated about their options and not given a huge amount of information at the point at which they need to make a decision. By providing information on a “little and often” basis at appropriate points throughout the period from joining a scheme (in line with the work the DWP and FCA have been undertaking on the consumer journey), we would hope to avoid individuals from sleepwalking into a poor retirement decision.  If the new trustee duty is introduced, any communication requirements would need to dovetail with existing obligations such as the “nudge to guidance” and would need to be straightforward to comply with (rather than simply add another new layer onto the existing complicated disclosure requirements).

Question 4: What factors should a trustee / scheme take into account when developing their decumulation offer?

Factors which trustees should take into account when developing their decumulation offer include:

• the size of the scheme
• the scheme’s resources (particularly administration resource and capability)
• the member demographic – eg what options are likely to interest them, are they likely to have multiple pots making consolidation a potential issue – and any scheme specific experience
• benefit structure
• prevailing evidence on the demands and needs of those in the decumulation phase
• existing relationships with decumulation providers
• for external options, the availability and cost of such options in the market
• for external options, the relative strengths and weaknesses of the various providers
• for external options, the transition process / member journey, and
• value for money.

Trustees will not know what other savings their members have (and it is outside of their remit to know this). While the size of pots in the scheme may be a relevant factor, decisions should not be made based on assumptions about other financial resources members may have outside the scheme.

Question 5: We would welcome views to understand if these are the right questions to capture the majority of ways an individual will want to use their pension wealth?

These questions seem to be aimed at members whose only pension benefits are their DC pot and do not address members who also have legacy DB benefits.  Changes over the last few years mean that many people have both DB and DC benefits (sometimes within the same pension scheme) and this can create complications at retirement – particularly in current times when many schemes may be considering a buy-in/out of DB benefits and/or the transfer of DC benefits to a master trust.  This adds an extra layer of complexity – for example, we have some clients who have employees that have pension benefits spread across DB, DC and master trust arrangements.  It would be unhelpful to avoid addressing those circumstances in decumulation as the different moving parts of a person’s total pension savings can have different rights attached to them (particularly as regards protections on tax free cash amounts and minimum pension ages of 50 and 55 for accessibility purposes).  We foresee that questions around the different “rights” attached to different parts of a person’s pension savings are likely to increase in number, rather than decrease, particularly as we get closer to April 2028 when the minimum pension age is due to increase to age 57.

Question 7: We welcome views on whether you see any issues with this approach and whether there are potentially any implications due to the advice / guidance boundary?

We consider the duty to provide decumulation services as proposed could constitute one or more regulated activities for the purposes of FSMA (advising and arranging) or a financial promotion. As trustees are not permitted to undertake regulated activities or make financial promotions (as they are not generally FCA authorised), for them to satisfy the duty there would need to be a change to the current legislation, FCA rules and guidance on these areas. It is often argued that trustees do not need FCA authorisation as it is only required where a party is in the business of carrying out the regulated activity in question and receives a ‘commercial benefit’ for helping their employees. To date, this may well be the case, but if the proposals go ahead as appears to be envisaged, this could become less clearcut.

We advise our trustee clients of the need for caution when communicating retirement options to avoid getting into advice territory (whether or not this constitutes regulated advice, it is not within a trustee’s fiduciary duty to provide advice to members). Trustees will not know which decumulation solution is optimal for an individual and should not, and should not appear to, advocate a certain course of action. Schemes’ trust deeds and rules may also restrict the decumulation offerings that can be provided. For this reason, we agree that if the proposals are introduced, there should be an overriding statutory duty on trustees to provide decumulation options which addresses the hurdles trustees currently face in doing so.

Careful thought will need to be given to what information trustees will be required to communicate to members. Trustees will still not be in a position to advise members individually (as this would go against their general fiduciary duties) but, should the government wish them to be able to say more than they are currently permitted to, this will require changes to the advice / guidance framework which we note the FCA is currently reviewing.

If the intention is for trustees to put individuals into certain decumulation options without their consent (ie by default) then the above points regarding trustees straying into FCA-regulated activities are amplified. Some schemes are already looking to introduce pathways to different decumulation options, including a default option. It is tricky to include a default decumulation offering under the current regulatory framework as there is no requirement to do so and as such it could be considered to be inducing members to take a particular route.

Question 8: Do you have any suggestions for key metrics or areas that would need to be included if the proposed value for money framework was extended to decumulation or suggestions for where proposed metrics may no longer be required?

If the framework were extended to decumulation, it would need to be clear which aspect(s) of decumulation are being assessed and by whom. A holistic assessment would assess the whole journey, ie the value being provided by the original scheme in supporting the member to make their decision and implementing their choice, and the value provided once the member is in decumulation, within or outside the original scheme and possibly in one or more arrangements.

The proposed metrics for the framework would be appropriate but, inevitably, not all of them would apply to all of the decumulation journey / options. In addition, as we noted in our response to the consultation on the value for money framework, “services” is the key area which would make a difference to member outcomes, particularly in decumulation where good ongoing support is crucial.

The proposed focus on value and delivering good saver outcomes will also be important when developing metrics so that the disclosure regime itself does not overly add to the cost and burden of offering decumulation services.

Question 9: Do you have safeguards in place for members in the decumulation stage? If so, what are these safeguards and what information do you provide to members?

We are aware of a variety of safeguards in our clients’ schemes, for example:

• a requirement for members to take financial advice before entering the scheme’s post-retirement solution
• provision of advice and guidance services (but no requirement to take them before entering decumulation)
• minimum pot size to enter drawdown.

We also note that the disclosure requirements which were introduced alongside the pensions freedoms were intended to provide members with a minimum level of support with making their decumulation decisions.

Question 11: We would welcome views to understand what are the practical considerations of partnering arrangements?

• Partnering arrangements are likely to necessitate schemes being on the same investment platform, in order to enable replication of investment funds / re-registration of units and to permit a smooth transition for members.
• It is more likely that trustees will stray into financial advice/ arranging activity and / or financial promotion if they are, even just potentially, directing members to certain decumulation solutions. As explained above, this will require changes to the current advice / guidance boundary and detailed guidance for trustees.
• Certain schemes will not be commercially attractive to decumulation providers eg:

• • Schemes with predominantly small pots and / or few members
  • Schemes with underpin benefits (as the provider will not know until the point of retirement whether a member is DB or DC making the arrangement uncertain)
  • Hybrid schemes where members generally use the DC pot to access cash

Depending on the overall circumstances, providers may not be willing to agree to partner with certain schemes. If take-up of the services from members is low, providers may be unwilling to continue with such a relationship, unless there is a requirement on the (or an) external decumulation provider to provide these services to all schemes. Otherwise, this could leave some schemes without the ability to provide decumulation services if they are unable to do so in-house and are not commercially attractive to external providers.

• Will the provider require a minimum pot size to take on a member to make it commercially attractive?
• How easy will it be for members to transfer to the decumulation arrangement? What will be involved?
• To what extent will trustees have to investigate / carry out due diligence on a provider’s decumulation services, and / or will providers be required to meet certain requirements? Will trustees receive a statutory discharge following the member’s transfer?
• The extent to which trustees will need to monitor the service provision on an ongoing basis and potentially change provider. The extension of the value assessment would enable comparison of decumulation services in time.

Question 12: Should government set out a minimum standard partnering arrangement?

We struggle to see how this would be possible as there are different partnering models, and the commercial aspects of the partnering to the provider tend to determine what services are made available to members and at what cost.

Question 13: (a) Should all schemes be allowed to establish partnership arrangements or only schemes of a certain size? (b) If only a certain size what should that be?

We presume this is directed at limiting the ability to comply with the duty via a partnership to smaller schemes. It is not the size, but the nature of the scheme which is important in terms of its benefit design and resources. Not all larger schemes will be in a position to, or wish to, provide their own decumulation services, let alone a full range of such services for any number of the reasons flagged above.

We agree that it could be appropriate to require commercial master trusts to provide their own decumulation options, but this would not necessarily be appropriate for industry-wide schemes who are not set up on commercial terms to sell a product/service for profit, or for those schemes which accidentally fall within the master trust definition or single employer trust schemes (many of which may be on a journey to consolidation already bearing in mind the current DC market place and other Government policies which are encouraging DC scheme consolidation).

Question 15: We would welcome views on if there is an alternative to our approach for legislation that would achieve the same results?

In our view, legislation is required to place a statutory duty on trustees.  The scope and timing of that duty would need to be carefully considered in light of other changes that the Government is trying to implement as part of the Mansion House reforms.  However, we are supportive of guidance in the meantime if that would be helpful to improve member outcomes.

Question 1: Should it be up to trustees to determine the other suitable suites of products?

Yes. It should be the trustees (working with the employer in the case of employer sponsored occupational pension schemes) who have a duty to provide / signpost to decumulation solutions and to determine which solution(s) are appropriate for their scheme and their particular membership demographic and benefit structure, rather than the government mandating what these should be. It should be noted that, unless there is an overriding statutory requirement for specific solutions to be provided, a scheme’s offering will depend on what is possible under its governing documentation (for example employer or provider agreement may be required) as well as its resources. In our experience, trustees may want to provide certain decumulation solutions but there are practical hurdles meaning they are unable to do so, eg their platform provider and / or administrator does not have capability to offer these services, or it is too expensive.

We recognise the importance of CDC as a potential solution to a number of pension industry objectives at the moment.  However, the timing of the new CDC scheme regime would affect this aspect of the new trustee duty on decumulation.  It is difficult to see how trustees could be directed to consider how CDC schemes could feature in their offer to members (paragraph 46) if there are no such schemes operating.    This suggests that a staged approach to the new duty would be needed.

Question 2: What can government do to help a CDC-in-decumulation market emerge?

When coupled with the other papers issued as part of the Mansion House proposals, particularly the paper on “Extending opportunities for collective defined contribution pension schemes”, it is clear that government is interested in creating a market for members to choose CDC at retirement options.

The legislation and guidance to enable such provision is clearly the first step. Once providers can offer CDC, the Government will then need to support communications to foster interest among schemes and their members.

The development of the market relies on getting two things right:

• being clear about what is needed to meet the authorisation requirements for a CDC-in-decumulation scheme and how that may be impacted by existing master trust authorisation criteria (where the two potentially overlap)
• being clear about the timetable for when such authorisation can start to happen.

Without this it will be difficult for potential providers of this market to know what they have to do and when, which will make it more challenging to undertake feasibility discussions, plan for and cost out the development involved in setting up such arrangements.

 

Question 3: We would welcome views to understand what are the minimum requirements that trustees should put in place for members facing decumulation?

The proposed duty should require access to be provided to all of the pension freedoms in some form (e.g. signposting, partnering), so far as this is possible (see our response to Q1). This is the current reality, but at the moment the member has to drive the process and trustees are not currently required to offer or signpost / partner to all options.

There should also be a requirement, in due course, to consider the value aspect of any decumulation solution, just as value is important to the investment options and default used in accumulation.

Better outcomes would occur if people were better educated about their options and not given a huge amount of information at the point at which they need to make a decision. By providing information on a “little and often” basis at appropriate points throughout the period from joining a scheme (in line with the work the DWP and FCA have been undertaking on the consumer journey), we would hope to avoid individuals from sleepwalking into a poor retirement decision.  If the new trustee duty is introduced, any communication requirements would need to dovetail with existing obligations such as the “nudge to guidance” and would need to be straightforward to comply with (rather than simply add another new layer onto the existing complicated disclosure requirements).

Question 4: What factors should a trustee / scheme take into account when developing their decumulation offer?

Factors which trustees should take into account when developing their decumulation offer include:

• the size of the scheme
• the scheme’s resources (particularly administration resource and capability)
• the member demographic – eg what options are likely to interest them, are they likely to have multiple pots making consolidation a potential issue – and any scheme specific experience
• benefit structure
• prevailing evidence on the demands and needs of those in the decumulation phase
• existing relationships with decumulation providers
• for external options, the availability and cost of such options in the market
• for external options, the relative strengths and weaknesses of the various providers
• for external options, the transition process / member journey, and
• value for money.

Trustees will not know what other savings their members have (and it is outside of their remit to know this). While the size of pots in the scheme may be a relevant factor, decisions should not be made based on assumptions about other financial resources members may have outside the scheme.

Question 5: We would welcome views to understand if these are the right questions to capture the majority of ways an individual will want to use their pension wealth?

These questions seem to be aimed at members whose only pension benefits are their DC pot and do not address members who also have legacy DB benefits.  Changes over the last few years mean that many people have both DB and DC benefits (sometimes within the same pension scheme) and this can create complications at retirement – particularly in current times when many schemes may be considering a buy-in/out of DB benefits and/or the transfer of DC benefits to a master trust.  This adds an extra layer of complexity – for example, we have some clients who have employees that have pension benefits spread across DB, DC and master trust arrangements.  It would be unhelpful to avoid addressing those circumstances in decumulation as the different moving parts of a person’s total pension savings can have different rights attached to them (particularly as regards protections on tax free cash amounts and minimum pension ages of 50 and 55 for accessibility purposes).  We foresee that questions around the different “rights” attached to different parts of a person’s pension savings are likely to increase in number, rather than decrease, particularly as we get closer to April 2028 when the minimum pension age is due to increase to age 57.

Question 7: We welcome views on whether you see any issues with this approach and whether there are potentially any implications due to the advice / guidance boundary?

We consider the duty to provide decumulation services as proposed could constitute one or more regulated activities for the purposes of FSMA (advising and arranging) or a financial promotion. As trustees are not permitted to undertake regulated activities or make financial promotions (as they are not generally FCA authorised), for them to satisfy the duty there would need to be a change to the current legislation, FCA rules and guidance on these areas. It is often argued that trustees do not need FCA authorisation as it is only required where a party is in the business of carrying out the regulated activity in question and receives a ‘commercial benefit’ for helping their employees. To date, this may well be the case, but if the proposals go ahead as appears to be envisaged, this could become less clearcut.

We advise our trustee clients of the need for caution when communicating retirement options to avoid getting into advice territory (whether or not this constitutes regulated advice, it is not within a trustee’s fiduciary duty to provide advice to members). Trustees will not know which decumulation solution is optimal for an individual and should not, and should not appear to, advocate a certain course of action. Schemes’ trust deeds and rules may also restrict the decumulation offerings that can be provided. For this reason, we agree that if the proposals are introduced, there should be an overriding statutory duty on trustees to provide decumulation options which addresses the hurdles trustees currently face in doing so.

Careful thought will need to be given to what information trustees will be required to communicate to members. Trustees will still not be in a position to advise members individually (as this would go against their general fiduciary duties) but, should the government wish them to be able to say more than they are currently permitted to, this will require changes to the advice / guidance framework which we note the FCA is currently reviewing.

If the intention is for trustees to put individuals into certain decumulation options without their consent (ie by default) then the above points regarding trustees straying into FCA-regulated activities are amplified. Some schemes are already looking to introduce pathways to different decumulation options, including a default option. It is tricky to include a default decumulation offering under the current regulatory framework as there is no requirement to do so and as such it could be considered to be inducing members to take a particular route.

Question 8: Do you have any suggestions for key metrics or areas that would need to be included if the proposed value for money framework was extended to decumulation or suggestions for where proposed metrics may no longer be required?

If the framework were extended to decumulation, it would need to be clear which aspect(s) of decumulation are being assessed and by whom. A holistic assessment would assess the whole journey, ie the value being provided by the original scheme in supporting the member to make their decision and implementing their choice, and the value provided once the member is in decumulation, within or outside the original scheme and possibly in one or more arrangements.

The proposed metrics for the framework would be appropriate but, inevitably, not all of them would apply to all of the decumulation journey / options. In addition, as we noted in our response to the consultation on the value for money framework, “services” is the key area which would make a difference to member outcomes, particularly in decumulation where good ongoing support is crucial.

The proposed focus on value and delivering good saver outcomes will also be important when developing metrics so that the disclosure regime itself does not overly add to the cost and burden of offering decumulation services.

Question 9: Do you have safeguards in place for members in the decumulation stage? If so, what are these safeguards and what information do you provide to members?

We are aware of a variety of safeguards in our clients’ schemes, for example:

• a requirement for members to take financial advice before entering the scheme’s post-retirement solution
• provision of advice and guidance services (but no requirement to take them before entering decumulation)
• minimum pot size to enter drawdown.

We also note that the disclosure requirements which were introduced alongside the pensions freedoms were intended to provide members with a minimum level of support with making their decumulation decisions.

Question 11: We would welcome views to understand what are the practical considerations of partnering arrangements?

• Partnering arrangements are likely to necessitate schemes being on the same investment platform, in order to enable replication of investment funds / re-registration of units and to permit a smooth transition for members.
• It is more likely that trustees will stray into financial advice/ arranging activity and / or financial promotion if they are, even just potentially, directing members to certain decumulation solutions. As explained above, this will require changes to the current advice / guidance boundary and detailed guidance for trustees.
• Certain schemes will not be commercially attractive to decumulation providers eg:
  • Schemes with predominantly small pots and / or few members
  • Schemes with underpin benefits (as the provider will not know until the point of retirement whether a member is DB or DC making the arrangement uncertain)
  • Hybrid schemes where members generally use the DC pot to access cash

Depending on the overall circumstances, providers may not be willing to agree to partner with certain schemes. If take-up of the services from members is low, providers may be unwilling to continue with such a relationship, unless there is a requirement on the (or an) external decumulation provider to provide these services to all schemes. Otherwise, this could leave some schemes without the ability to provide decumulation services if they are unable to do so in-house and are not commercially attractive to external providers.

• Will the provider require a minimum pot size to take on a member to make it commercially attractive?
• How easy will it be for members to transfer to the decumulation arrangement? What will be involved?
• To what extent will trustees have to investigate / carry out due diligence on a provider’s decumulation services, and / or will providers be required to meet certain requirements? Will trustees receive a statutory discharge following the member’s transfer?
• The extent to which trustees will need to monitor the service provision on an ongoing basis and potentially change provider. The extension of the value assessment would enable comparison of decumulation services in time.

Question 12: Should government set out a minimum standard partnering arrangement?

We struggle to see how this would be possible as there are different partnering models, and the commercial aspects of the partnering to the provider tend to determine what services are made available to members and at what cost.

Question 13: (a) Should all schemes be allowed to establish partnership arrangements or only schemes of a certain size? (b) If only a certain size what should that be?

We presume this is directed at limiting the ability to comply with the duty via a partnership to smaller schemes. It is not the size, but the nature of the scheme which is important in terms of its benefit design and resources. Not all larger schemes will be in a position to, or wish to, provide their own decumulation services, let alone a full range of such services for any number of the reasons flagged above.

We agree that it could be appropriate to require commercial master trusts to provide their own decumulation options, but this would not necessarily be appropriate for industry-wide schemes who are not set up on commercial terms to sell a product/service for profit, or for those schemes which accidentally fall within the master trust definition or single employer trust schemes (many of which may be on a journey to consolidation already bearing in mind the current DC market place and other Government policies which are encouraging DC scheme consolidation).

Question 15: We would welcome views on if there is an alternative to our approach for legislation that would achieve the same results?

In our view, legislation is required to place a statutory duty on trustees.  The scope and timing of that duty would need to be carefully considered in light of other changes that the Government is trying to implement as part of the Mansion House reforms.  However, we are supportive of guidance in the meantime if that would be helpful to improve member outcomes.

Question 17: When we introduce legislation should this only apply to Master Trusts in the first instance?

Our understanding is that most master trusts already provide decumulation services to some extent, so the application of the legislation to master trusts before other schemes may not have the impact that the Government wishes to achieve, ie to target support to those who most need it. Whether a phased approach is required will depend on the proposed timeline. If schemes are given plenty of time to prepare, with both the legislation and supporting guidance available well in advance of the implementation date, phasing should not be necessary.

Our understanding is that most master trusts already provide decumulation services to some extent, so the application of the legislation to master trusts before other schemes may not have the impact that the Government wishes to achieve, ie to target support to those who most need it. Whether a phased approach is required will depend on the proposed timeline. If schemes are given plenty of time to prepare, with both the legislation and supporting guidance available well in advance of the implementation date, phasing should not be necessary.

In our view, legislation is required to place a statutory duty on trustees.  The scope and timing of that duty would need to be carefully considered in light of other changes that the Government is trying to implement as part of the Mansion House reforms.  However, we are supportive of guidance in the meantime if that would be helpful to improve member outcomes.

Question 17: When we introduce legislation should this only apply to Master Trusts in the first instance?

Our understanding is that most master trusts already provide decumulation services to some extent, so the application of the legislation to master trusts before other schemes may not have the impact that the Government wishes to achieve, ie to target support to those who most need it. Whether a phased approach is required will depend on the proposed timeline. If schemes are given plenty of time to prepare, with both the legislation and supporting guidance available well in advance of the implementation date, phasing should not be necessary.