Chancellor George Osborne’s announcement has effectively turned DC arrangements into later life savings vehicles rather than a retirement vehicle.
Employees are no longer required to use all or part of their pension pot to secure an annuity income until death.
Instead, the government has, in my opinion, wrongly put full trust in the British public by giving them the unlimited drawdown option to raid their pot from age 55.
The reality could be that many members will use their savings to fund aspirational purchases that they previously wouldn’t have been able to buy, while many more could use the money to pay off debt.
My fear is that this is giving too much responsibility to the employee. Annuities in the traditional sense have been broken for a long time now, but we needed innovation in this space not a total rewrite of the rules. With savings depleted, individuals could remain a burden on an employer’s payroll, as they find themselves unable to retire unless they are happy with what the state provides.
I can see two things developing quite quickly: a retrenching of employer DC contributions to a minimum, and collective defined contribution and defined ambition options being real alternative considerations.
Damian Stancombe is head of employee benefits at Barnett Waddingham
