Schemes split on merits of in-house drawdown provision

The introduction of freedom and choice in 2015 gave savers much greater flexibility in how they accessed their pensions – allowing many to take advantage of drawdown for the first time.

Yet, while an increasing number of occupational defined contribution scheme members want to take advantage of drawdown, not all schemes give them access to it – meaning they have to transfer their pension to another provider should they wish to use these flexibilities.

However, the pensions landscape continues to evolve – and increasing numbers of occupational schemes are deciding that providing no access to drawdown, the so-called ‘do nothing approach’, is no longer appropriate.

Professional Pensions’ latest Pensions Buzz research – which polled 107 scheme trustees, managers and consultants on the question of should more DC schemes provide in-house drawdown options for members? – echoes this trend.

Commenting on the research findings, Professional Pensions editor-in-chief Jonathan Stapleton said: “Our research suggests there has been a significant shift over the past 12 months and an increasing number of schemes are starting to move away from the ‘do nothing’ approach and are considering either facilitating drawdown for members or even providing it in-house.”

The Buzz research found opinion is now more evenly split on the issue with around a quarter of respondents believing more DC schemes should provide in-house drawdown options for members.

Among respondents, the admin burden and associated cost of providing some sort of drawdown option to members ranked highly as concerns. But the possible effects of longer life expectancies and the availability of technology to make drawdown options cheaper ranked as reasons to put in-house facilities in place.

 

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The no vote is still strong, however. One pension manager, commenting on the understanding of anonymity, said: “The employer provides a solution based on what it believes is appropriate for their staff. You can’t have legislators coming along saying you have to do this and that. All of this puts an increased cost on an employer to change their in-house pension operation. To make even the slightest change comes at a significant cost. There are plenty of solutions out there from other providers who can provide that drawdown facility.”

Another respondent said: “I’m still not fully formed on the thinking behind [in-house drawdown options]. Administratively it’s difficult to do and there’s a good chance someone will land a cap on charges which will be a problem.”

The market is clearly more divided on this issue than it was 12 months ago. But does current sentiment represent a new normal, or will the provision of in-house drawdown soon be favoured by the majority?

We’ll continue to monitor the situation with interest.