66% of trustees to change DC pension default strategy


Two-thirds (66%) of trustee respondents are looking to change their pension scheme’s default strategy within the next 18 months as a result of the Budget changes to at-retirement options, according to research by asset management firm SEI.

Its Defined contribution pensions survey, which surveyed trustees and employers about their current approach to defined contribution (DC) pension scheme governance, also found that 52% of respondents operating a trust-based scheme are planning to implement new retirement solutions following the removal of compulsory annuitisation from April 2015.

The research also found that nearly two-thirds (62%) of respondents expect pension scheme members to use flexible drawdown when the pension flexibilities come into force.

In addition, a quarter expect pension scheme members to still purchase an annuity.

More than half (55%) of respondents consider it feasible that members may withdraw a tax-free cash sum, while keeping the remainder invested until future needs arise.

However, two-fifths expect pension scheme members to receive their entire pot as a cash lump sum.

The research also found:

  • 93% of respondents had met their auto-enrolment responsibilities.
  • 74% of respondents maintain a form of governance committee to monitor their pension scheme.
  • 80% of all respondents that operate trust-based schemes intend to make changes to their default strategy.

Ashish Kapur (pictured), head of solutions at SEI’s Institutional Group for Europe, the Middle East and Africa, said: “People are living longer and working more flexibly.

“A default investment strategy that targets an annuity purchase at retirement ignores the fact that the majority of DC scheme members may not suddenly stop working or require access to their pension money immediately.

“Therefore, it is important to review a member’s DC scheme default to make sure there is an appropriate strategy leading up to and after retirement.

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“Additionally, there will be a growing demand for alternatives to annuities, as many individuals regard pension accounts as another savings vehicle from which to withdraw monies as and when needed.

“The DC landscape is transforming inexorably and, following the successful launch of auto-enrolment, employers, trustees, and master trusts now need to evaluate how their schemes can accommodate greater flexibility. Effectively communicating these changes to scheme members will be key.”