It is really interesting that now we are more than a year on from the introduction of the freedom and choice in accessing defined contribution (DC) pensions, we are seeing some things are pretty much the same and some things are changing.
82% of DC pension members still hold their pension investments in the default fund. Some might see this as a failure to respond to the changes. But as this report shows, it may well be the 'least worst' place for members who are not financially literate, not confident enough to make their own decisions or who will not continue to make regular and active investment decisions on an ongoing basis.
This points to an even stronger need for companies to ensure their default strategy remains relevant to their members and to their choices when approaching retirement. It also highlights a greater need for improved member communication, wider financial education and access to advice.
With the majority of companies choosing to offer 3 lifestyling strategies in the glide path to retirement rather than one 'middle of the road' strategy, members still have to make a choice whether to aim for annuity, drawdown or cash in those years running up to retirement.
But how can members possibly make that choice without help? The reality is they can't. Just as very few people choose to buy a house without professional advice, even though it is legally possible, the same should apply to members when accessing their pension.
For the vast majority of people, they will not get the chance to accumulate that sort of capital again in their lifetime. Their pension is precious and so making the absolute most out of what they have is crucial and professional advice at retirement will help them to do that.
Is accessing a pension really easier than buying a house? 24 October 2016 |By Jenna Gadhavi It is a little known fact that it is possible and perfectly legal to buy a house without using a conveyancing solicitor. But who could say they know someone who has done just that? Because of the specialist legal knowledge required to carry out the transaction, the vast majority would rather play it safe and ask an expert. So why is it that following the implementation of the freedom and choice reforms, defined contribution scheme members have been expected to choose the funds they would like to invest in, simply because they can? In reality, the average employee does not have the financial knowledge or confidence to make such an important decision without expert help.