(updated with correction)
Executives say they would like to provide in-plan drawdown strategies as investment defaults in defined contribution plans, as the U.K. government looks to induce a more coherent post-retirement market.
These so-called drawdown strategies are tools to providing income in retirement. They are used in the decumulation phase of participants' lives, allowing a participant to gradually withdraw savings while leaving the remainder of assets invested throughout retirement.
Sources said drawdown strategies need to become more flexible to adapt to changing circumstances of plan participants, as more people are expected to delay full retirement by working part-time for brief stints. But plan executives said they aren't seeing enough innovation, even after U.K. regulators in 2015 removed the requirement that participants buy an annuity upon retirement.
A recent proposal from the U.K. government could help spur innovation, sources said.
Earlier this month, the U.K. Work and Pensions Committee proposed that National Employment Savings Trust, London — the government-backed £2.7 billion ($3.8 billion) multiemployer defined contribution plan — start providing a default drawdown option for participants going into retirement. NEST, by law, is barred from offering a drawdown strategy.
The committee also asked the U.K. government to mandate that all plan sponsors default participants into drawdown products starting in April 2019, in efforts to protect their savings and prod sponsors to get involved with helping participants choose a strategy for their decumulation phase. Such default strategies would be subject to a 0.75% charge cap, similar to the charge cap on accumulation products, according to the proposed changes.
"A default pathway will enable (participants) to move smoothly from savings to income with the same level of (sponsor) governance. And the pathway could also have an annuity component," said Mark Rowlands, director of customer engagement at NEST.
Many U.S. plan sponsors are grappling with similar concerns over participants' decumulation phase. Proposed legislation in the U.S., the Retirement Enhancement and Savings Act, aims to broaden the safe-harbor provision that would protect sponsors from fiduciary risk when they select a provider for in-plan retirement income solutions.