The U.K. government declined Friday to move forward on a proposal for compulsory default decumulation arrangements on grounds that plan participants' situations are too diverse, it said in a response to the Work and Pensions Committee's recommendation made in April.
The U.K. Work and Pensions Committee proposed that all plan sponsors start to default participants into drawdown strategies beginning in April 2019. However, the government found insufficient evidence that plan participants were actively looking for drawdown products and had adequate understanding of income in retirement investment options.
A common default decumulation strategy would not be suitable for the majority of savers as "their needs and circumstances differ significantly in decumulation, so (one) default pathway may not be appropriate for all of them," according to the government.
"The government is, at this stage, not convinced of the merits of default decumulation pathways and is concerned that measures to require individuals to be placed into particular products would be inconsistent with the freedom and choice reforms. The pension freedoms have deliberately moved away from the idea of defaulting individuals into a single product, namely annuities," it said in the response.
But the government agreed that participants in the £2.7 billion ($3.6 billion) National Employment Savings Trust, London, should have access to a post-retirement solution, which the current auto-enrollment legislation that established NEST does not provide for.
Also, earlier this year the committee proposed that the government-backed multiemployer plan start providing a default drawdown option for participants going into retirement.
"If the market does not provide suitable low-cost solutions aimed at small savers that NEST participants are able to access easily, then there could be a case for NEST to provide such solutions directly."
The government concluded it would wait before the Financial Conduct Authority's final retirement outcomes review is published, expected to come out in the summer, before considering fully the future of decumulation pathways and a charge cap on decumulation products.