Government rejects default decumulation

2 July 2018

Government rejects default decumulation As part of the response to the Work and Pensions Committee report on pension freedoms, the government has noted that there is a need to empower pension savers to make more sensible decisions at retirement and will work closely with the Financial Conduct Authority (FCA) to develop stronger nudges to encourage people to seek out professional, personalised guidance.

However, despite the report recommending that every pension provider offering a drawdown product must, by April 2019, offer a default decumulation option, the government have rejected this proposal, saying that it was "inconsistent" with pension freedoms. In a statement, it explained:

"The government is, at this stage, not convinced of the merits of default decumulation pathways and is concerned that measures to require individuals to be placed into particular products would be inconsistent with the freedom and choice reforms."

"There is insufficient evidence to suggest a common default pathway would be suitable for the majority of people at this time, particularly given that most people reaching retirement with defined contribution savings now and in the coming years will also have other retirement provision to take into account in their planning."

In response, Sir Steve Webb, the former pensions minister who was instrumental in bringing in the pension freedom reforms said that the government had made the right decision, although he said that more could be done to guide people at retirement.

"The whole point of pension freedoms is that everyone is different and has a different pension history and different goals for the future when they reach pension age," he said. Much more can and should be done to help people make the choice that is right for them, but defaulting them down the route the provider thinks is best is not the answer."

However, Pensions and Lifetime Savings Association policy lead Tom Gosling urged the government to reconsider.

"While people should always be encouraged to make active decisions, it is important that support is there for those who need it," he argued. "A default or signposted pathway leading to an income product would make accessing an income easier while preserving the right to a free choice."

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      Josh was a Business Development Manager at Smart Pension. Josh served as Smart Pension's Business Development Manager from November …