Nothing on decumulation/drawdown

[Duke of Marmalade]

Pension drawdown by members will be via the existing range of regulated pension products and members will have the right to engage with commercial providers.
In time the Central Processing Authority may tender for a set of pension drawdown products.

This is a huge cop out. In the consultation roll out in 2018 they promised to address drawdown before final launch. Now it has been put on the very very long finger. And yet this is the phase where ordinary folk are most vulnerable. The advice sector should be cheering this from the rooftops.

 

[Brendan Burgess]

Hi Duke

They have said that it will be treated like any other pension on drawdown. The member can go to a commercial provider with their fund.

What more should they be saying?


Benefit draw-down will be linked to the State Pension age. Members will be able to draw-down their funds as a lump sum, annuity, or approved retirement product in line with pension and taxation law prevailing at the time of retirement.


Pension drawdown by members will be via the existing range of regulated pension products and members will have the right to engage with commercial providers.

In time, the CPA may tender for a set of pension drawdown products.

Brendan

 

[Duke of Marmalade]

One of the main features of AE is that it reduces the costs dramatically for this cohort down to 0.5% p.a.
But then they are thrown to the wolves at retirement just when their fund is at its highest.
Maybe 2% p.a. fees on an ARF and as for annuities, ‘nuff said.
The CPA should immediately do what they suggest and tender for a post retirement fund or funds at 0.5% p.a.

 

[Steven Barrett]

They did say that they will look at adding post retirement products in the future but it will probably be 10-15 years before there are pension pots big enough to make it viable.

 

[Duke of Marmalade]

Good point and I guess this was exactly their thinking. Decumulation is a very thorny issue but it can be put on the long finger.

 

[Steven Barrett]

Good point and I guess this was exactly their thinking. Decumulation is a very thorny issue but it can be put on the long finger.

Plenty of time for lobbying by the industry.

 

[Sarenco]

I think the default position should be that the member's fund would be retained in the same target date fund post-retirement.

From 66, the default position would be to distribute, say, 0.35% of the balance of the fund every month, rising to, say, 0.40% of the monthly balance from 70. Distributions will obviously vary from month to month but I think folks will understand why that is the case.

However, if a member wants to buy an annuity with their fund, then that should be facilitated.

Equally, if a member wants to draw down the full fund in one go (which would obviously be taxable), perhaps to buy an apartment, then that should also be facilitated.

In my opinion, the guiding principle should be that the State would be paternalistic in establishing the default position but otherwise members would be given the same freedoms as other members of occupational pension schemes.

 

[Duke of Marmalade]

I agree with you mostly and also that the 0.5% cap should be maintained, if necessary by state subsidy. However, I disagree that the default should be that at retirement the fund should be mostly in bonds.

 

[Sarenco]

Well, reasonable people can disagree on the exact shape of the glide path, but TDF providers would typically have an investor at a balanced position (50% equities; 50% bonds) at 65.

I think the important thing is for the State to set the glidepath at the outset, from a range of reasonable alternatives, and that any subsequent changes to this glidepath would have to be pre-agreed with the State.

That would allow a TDF manager to be replaced without any particular drama, which I think would be important in terms of maintaining a competitive fee structure into the future.

While my preference would be for a series TDFs as the default option, I wouldn't have a particular problem with a fixed 60/40 lifetime allocation being the default position.

The key thing is for the State to take an informed view as to what constitutes a reasonable default option, as it is unreasonable to expect the overwhelming majority of scheme participants to be in a position to form an opinion in this regard.