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Defined Contribution

PLSA agrees with FCA decumulation strategies for retirees

The U.K. Pensions and Lifetime Savings Association endorsed decumulation investment strategies that will allow defined contribution plan participants to draw down assets without financial advice, PLSA said in response to Financial Conduct Authority's retirement outcomes consultation.

The U.K. Financial Conduct Authority has picked up the Department for Work and Pensions' work, which in April called for an auto-enrollment program that would move plan participants to a drawdown through a default decumulation pathway when they retire. While the U.K. government halted its work on the proposal in June, it agreed that the FCA should take on the study of decumulation avenues as part of its inquiry into the retirement market. Also in June, the FCA concluded that products in the retirement market needed to improve and that investment pathways would better protect plan participants.

But despite supporting the FCA's package, the PLSA thinks that plan participants should continue to have other options available to them, including cash and a form of annuity as part of the investment pathway, the PLSA said.

"We support the FCA's proposed remedies for the decumulation market at this time," Nigel Peaple, director of policy and research at PLSA, said in a news release. "It's right the regulator has consulted on investment pathways where providers would offer a small number of options to suit the majority of savers. However, we believe the proposal for pathways does need to change to more easily allow savers to take a blend of cash and income. The current proposal is not structured in this way and therefore wouldn't meet all savers' needs."

The PLSA also said in its response that the post-retirement investment choices should be overseen by a fiduciary manager such as a pension trustee or an independent governance committee.

The PLSA emphasized that post-retirement income options should remain under a review. "We anticipate consumer needs will change as pot sizes increase. Furthermore, before long, savers who have built up pension entitlements through automatic enrollment will begin to decumulate. These individuals are likely not to have engaged with their pension saving, as automatic enrollment does not encourage this," PLSA said.