A new workplace pension rule is set to be phased in next year, affecting an estimated 20million Brits. The default decumulation duty is included in the Pension Schemes Bill, sponsored by the DWP, and amendments to which, suggested by the House of Lords, are set to be discussed by MPs on April 15.
It would require UK trust-based defined contribution pension schemes to provide automatic, guided retirement income options for their members. The legislation would mark a significant change in the way schemes supported Brits approaching the end of their working lives, requiring them to design, offer and keep under review one or more default retirement options, or help people to transfer to other arrangements that would better meet their decumulation needs, law firm Burges Salmon explained.
Decumulation is the process of spending or drawing down accumulated retirement savings and investments to create a steady income stream, typically starting at retirement. Many scheme members are “passive or disengaged”, experts added, and “may be unlikely to make active choices about their pension at retirement”. This can lead to poor financial decisions at retirement, like choosing “inappropriate income options”, or “failing to plan adequately for longevity”.
Geographical breakdown of potential beneficiaries of Pension Schemes Bill
A DWP impact assessment of the Pension Schemes Bill predicts that 20million people may benefit from the legislation.
| Region |
Total DC Beneficiaries |
| South East | 3,300,000 |
| London | 2,400,000 |
| North West | 2,300,000 |
| East | 2,000,000 |
| South West | 2,000,000 |
| Yorkshire & The Humber | 1,600,000 |
| East Midlands | 1,600,000 |
| West Midlands | 1,600,000 |
| Scotland | 1,600,000 |
| North East | 800,000 |
| Wales | 800,000 |
| Total (All) | 20,000,000 |
The analysis added that evidence showed individuals do not shop around for pension products, and 38% of UK adults rated their knowledge of financial matters as “low”.
“Therefore, it is reasonable to assume a default decumulation product is likely to shift behaviour for many individuals,” it read.
Survey findings suggested that, while around a third of individuals below normal minimum pension age wanted to decide for themselves on how to access their pension, nearly half of respondents between the ages of 40 and 75 said that they wanted their pension scheme to “provide the option of a default pathway”.
Those in the know also said the current pensions landscape is not seeing a “consistent decumulation offering across the market nor a default decumulation option for members saving through inertia”.
This “potentially hampers retirement outcomes for members and may prevent them from making the most optimal and sustainable decumulation decision”, experts said.