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Ian Neale debates the ideas proposed by the WPC when it comes to deciding what to do with your pension pot.
The House of Commons Work and Pensions Committee (WPC) thinks pension savers need more help to make a good choice. Flexible drawdown can be difficult and expensive to access, and advice is similarly costly. The key question remains, who's pulling it all together? In a potentially influential new report, the Committee has come up with three big core ideas to address these industry issues.
The WPC believes that when it comes to deciding what to do with your pension pot, there should be a viable alternative between cashing it out entirely and spending it all on an annuity. Flexible drawdown ticks the box, but not every DC provider offers it. Among those that do, a competitive market has yet to develop, so there is no incentive for pension savers seeking a drawdown solution to shop around. Many are also reluctant to pay for advice, and so they tend to stick with the name they know.
The solution proposed by the WPC is twofold: first, that NEST should be allowed to enter the drawdown market, and second, that every drawdown provider should be required to offer a default decumulation pathway suitable for their "core customer group" by April next year, with charges capped at 0.75% as for auto-enrolment.
Neither the WPC nor indeed the FCA has put forward any idea of what this default drawdown route might look like. As such, many commentators have been sceptical because individuals' circumstances in later life are so variable, so defining a "core customer group" can become challenging. That might be less difficult when workers are being auto-enrolled, many for the first time, . . .
04 May 2018 Read the full article