Default pathways at-retirement could lead to many pension scheme members losing out

Some in the pensions industry believe that default retirement pathways protect individuals from making poor decumulation choices and the FCA has recently announced a consultation on how to implement default investment pathways for non-advised individuals entering drawdown.

Jonathan Watts-Lay, Director, WEALTH at work, comments:

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“I don’t believe that anyone should be defaulted at-retirement without receiving financial guidance and making a proactive decision first. This view is supported by a recent poll by WEALTH at work[1] which found that 86% of respondents believe that employees should not be defaulted into a decumulation pathway at-retirement without financial guidance.”

He adds; “Defaulting individuals into something without a positive choice being made raises questions over if it’s within the pension providers or the member’s best interest and the effects could be costly. After all, it discourages shopping around and risks destroying freedom and choice in pensions.  Additionally, if those with more than one pension default based on individual pots rather than the collective value, the likely outcome will be sub-optimal with many losing out.”

[1] Poll carried out on the WEALTH at work website from July 2018 until November 2018. The poll asked ‘Do you believe that employees with a defined contribution scheme should be defaulted into a decumulation pathway at-retirement without financial guidance?’ and received 50 responses.