The trade body has called on the government to provide clarification on how DC schemes can support at-retirement decisions, including the extent of trustee responsibilities and liabilities.
The trade body has partnered with law firm Eversheds Sutherland and consultancy LCP to produce guidance for trustees to support defined contribution (DC) scheme members with decision-making at retirement.
It is widely expected that the government will introduce a requirement for DC schemes to provide default decumulation options in the Pension Schemes Bill.
Any statutory framework in this area should “confirm when the trustees’ legal responsibility ends and provide a statutory discharge”, the PLSA said, as long as they have confirmed the suitability of the selected options and providers for their membership.
The association also called for clarification on how schemes can provide “nudges” to their members to encourage them to engage with at-retirement choices. The government should also clarify how any support given to savers would interact with the Financial Conduct Authority’s (FCA) ongoing review of the boundary between regulated advice and guidance.
The Department for Work and Pensions and the Pensions Regulator should also publish additional guidance on communications and risk warnings related to decumulation solutions “to establish how tailored schemes’ messages can and should be”, the PLSA said.
“Trustees want to help savers make better choices about how they access their pension in retirement, but several barriers remain,” said Ruari Grant, senior policy lead at the PLSA. “It is vital that the government and regulators continue to engage with the pensions industry to ensure that the incoming legislation – and ongoing FCA rules – meet the needs of schemes and savers.”
A complex at-retirement landscape
Some schemes already provide members with access to financial advice, but since the introduction of pension freedoms – removing the requirement to buy an annuity at retirement – the number of options open to savers has grown.
According to the FCA, more than 420,000 pension pots were accessed in full as cash during the 2022-23 financial year, totalling £5.3bn. This marked an increase of 6.4% year on year, and was equivalent to approximately 56% of all pension pots accessed during this period.
Most full-cash withdrawals were completed without the member receiving financial advice or accessing Pension Wise guidance.
The data also showed that 218,000 new drawdown policies were opened in 2022-23, totalling £29.9bn.
Just over 59,000 annuities were purchased during the period, down slightly from the previous year.
Commenting on the data earlier this year, Paul Leandro, partner at Barnett Waddingham, said the FCA “should be worried” by the data that made the current pensions landscape seem “dire”.
Further reading
PLSA paper: DC Scheme Guidance on Retirement Arrangements and Partnerships
What we learned from the FCA’s retirement data (19 April 2024)
The importance of DC default strategies (14 May 2024)
