Pensions freedoms have created a world of retirement choices for members since they were introduced in 2015. Providers are developing more innovative options to enable members to drawdown their pension instead of purchasing an annuity or taking cash. Recent solutions recognise that a simple drawdown product may not be enough: retirement plans will need to have flexibility to alter course if investment performance dips, members’ capacity to make investment choices reduces or their income demands increase. This explains why default decumulation pathways and options for blending drawdown with guaranteed or annuitised income are becoming increasingly common.

But where does this leave trustees of occupational DC schemes whose remit has traditionally only encompassed the “accumulation” period of a member’s pension journey? Trustees are increasingly aware that members tend to take the path of least resistance when it comes to retirement savings, typically taking their entire DC pot as cash or using the arrangement offered by the DC platform provider as part of the wake-up process. In doing so, the member may or not have received advice or guidance. This creates risk for trustees as they may be tacitly endorsing a particular product or decumulation route for members which might not be in their best interests.

We are working with trustees who wish to support their members during the retirement process; focussing primarily on the advice and guidance solutions that are available at the point members take their scheme benefits but also by signposting one or more retirement savings options outside of the scheme.

Different providers offer a range of advice and guidance services to choose from starting with basic telephone guidance to enhance the information offered by Pensions Wise through to looking at members’ pension savings across multiple arrangements or fully independent IFA advice across the full spectrum of the member’s savings.

Trustees we work with are asking providers to:

·           articulate the services – different providers offer a variety of options ranging from limited support to a fully bespoke menu of guidance and advice options

·           discount the cost of advice or guidance where the trustees/employer signpost on a bulk basis – significant savings can be made compared with the retail cost to members. This is a key concern for trustees as members (not employers) typically pay for the services

·           provide greater certainty regarding the extent to which appropriate services will continue to be available as members progress through the relevant decumulation pathway

Current retirement savings products are designed using a blend of one of two legal structures, a SIPP (self-invested personal pension), or a master trust.

Key features: SIPPs

·           usually offered on a retail basis. However, some providers are willing to offer competitive rates to members where trustees signpost them

·           structured as an individual policy between the member and the SIPP provider. Trustees have no control over policy terms but can agree the initial funds to be offered and negotiate competitive fee rates

·           typically offer a long list of funds, often with complex charging structures.

·           typically a drawdown arrangement, offered as a bundled product with a simple fund range

·           trustees can agree a “protocol” or “tri-partite agreement” setting out the terms on which their members will be signposted to the master trust and any special arrangements as to fees or advice options

·           may offer “shared governance”. Under this approach, the occupational scheme’s

investment advisers share advice with the master trust at commencement and at periodic intervals thereafter to align the drawdown strategy of the master trust with the occupational scheme’s default investment strategy

·           asset transition can be easier than with a SIPP as master trusts have some scope to re-register funds. However, this is usually at an ongoing cost to members meaning that, unless it is negotiated by the trustees in advance of the transfer, it could prove an expensive solution.

If trustees signpost members to a SIPP or master trust they should ensure that:

·           any investment policy does not impose any obligations on them either before or after the members transfer. If a master trust does offer “shared governance”, the practicalities of this must be addressed to ensure reduced risk for the trustees. 

·           the terms of transition are clearly documented

·           the features of each fund are clearly communicated to members and the default option can be easily identified

·          The costs and who will pay them are fully understood and explained

While there are interesting options developing, there is still some way to go before the dust clears on what the typical scheme “standard” will be.