DC Pensions in Wonderland
This paper reviews the default strategy of 29 of the larger Defined Contribution pension propositions currently available in the UK. Our aim is to try to understand whether buyers of these defaults, or those enrolled in them, are given enough information to make an informed choice.
To make this assessment, we have used the four questions previously identified in Deep Contemplations #1:
- What will I get out?
- How much needs to be put in?
- How much will be charged in fees?
- Am I on track?
Our key findings are:
- Communication of objectives and risks is inconsistent across propositions despite regulators providing guidance about the information that should be set out. Ambiguous objectives make it difficult to see what buyers might get out of a particular proposition at retirement in most cases
- There is a worrying disconnect between the stated objective of the proposition and the end benefits aimed for. There is also no link made between what is paid in and what is projected to be paid out at retirement
- Benchmarks for measuring and comparing performance rarely align with objectives and few propositions offer clear risk controls. This makes it difficult for savers to know whether they’re on course for the retirement they’re aiming for
- Overall, we see the opportunity for improved communication and better-structured explanations of the propositions used for savers’ retirement provision. These improvements would help employers to manage their workforce and employees to approach their future after full-time work with greater confidence
- If the current situation continues, savers will need to carry on wandering, and working, much longer than anticipated to get where they want to be financially
The full article is available here.