Government response to Work and Pensions Committee report published

Government response to Work and Pensions Committee report

The government notes that there is a need to empower pension savers to make sensible decisions at retirement, and will look to work with the Financial Conduct Authority (FCA) to develop stronger nudges to encourage people to seek out personalised guidance.

This comes as part of a response, outlined today (22 June 2018), to the Work and Pensions Committee’s report on pension freedoms, published on 5 April 2018.

Among various recommendations, the committee’s report suggested that default pensions decumulation routes should be introduced in order to mirror the accumulation successes achieved by auto-enrolment, and that any providers that offer drawdown products should be required to also offer a default option that is targeted at the provider’s core customer group by April 2019.

The government’s response states that it is not convinced by the committee’s suggestion of offering default drawdown.

The committee stated that the National Employment Savings Trust (Nest) should be allowed to provide decumulation products from April 2019, on the condition that Nest can repay its start-up loan. The response was that this was unlikely to be allowed, but that this position might change if there is evidence that low cost access to drawdown for those with smaller pots is not available.

The response also stated that the future of the Pension Dashboard will be set out in a forthcoming Department for Work and Pensions (DWP) feasibility study.

The government outlined an intention to look into the findings of the FCA’s Retirement Outcomes Review, due in the coming weeks, to further consider factors such as the introduction of a pension passport, charge caps in drawdown, and whether the role of Independent Governance Committees should be expanded to include retirement.

Tom McPhail, head of policy at Hargreaves Lansdown, said: “In spite of the fact Pension Freedom was introduced recklessly fast a few years ago, it is becoming increasingly clear that not only is it extremely popular with investors, it is also working better than many dared to hope. There is no evidence of widespread losses or poor decision-making on the part of investors.

“There is still more to be done though. We expect to see further guidance very soon from the FCA, on how pension providers can help their customers in managing their retirement income. In the long term we see no reason why Nest members should be discriminated against and forced to transfer out if they want to use a drawdown arrangement.”

Steven Cameron, pensions director at Aegon, commented: “The Work and Pensions Select Committee’s Inquiry into pension freedoms came at a time when the FCA was concluding its deep and thorough review of the ‘at retirement’ market. We support the government’s decision to defer any further interventions until the FCA reports back on its final decisions, due later this month. We support the FCA’s focus on additional protections for those using income drawdown who have not benefited from seeking advice.

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“As the government says, pension freedoms are there to allow each individual to use their pension fund in a way that suits their retirement needs. The Select Committee’s recommendation for providers to offer default decumulation pathways went several steps too far, potentially defaulting individuals into a product type, level of income and investment fund choice which might have been wholly inappropriate for an individual’s circumstances. For those entering retirement, the focus should be on improving engagement. Three years into pension freedoms and with the market continuing to evolve, it’s far too early to focus on defaults which would effectively be admitting failure to better engage.

“We also support the government deferring making any decisions on pension dashboards until the DWP completes its feasibility study. While the Select Committee favours a single dashboard, we believe this would directly conflict with the need to allow the industry to engage creatively with customers.”