A major mis-selling scandal is likely to hit millions of retirees unless default decumulation options are set up, the National Employment Savings Trust (NEST) has warned.
The government-backed auto-enrolment pension scheme said strong default options should be set up to complement a thriving and competitive advice market.
It made the comments in its response to the Work and Pensions Select Committee’s inquiry on pension freedoms.
NEST said providing advice and guidance alone would not meet the needs of millions of savers approaching and entering retirement.
It wants pre-set retirement options which meet high minimum governance levels to be set up by pension schemes. Adding, these would extend oversight for members who don’t opt out and help them get the most out of their savings for life.
It said members faced multiple risks including overpayment of tax, being scammed, facing higher overall costs and spending too much (or too little) in retirement.
NEST chief customer officer Gavin Perera-Betts said: “We believe there’s a risk that, without action now, we’re setting up a generation of savers for failure.
“We don’t need to look too far for the answer. Auto-enrolment has worked extremely well and can be a model for where to go from here. No one is tied in, savers are free to make their own choices, but most of the hard work is done for them.”
He explained: “We think that’s what’s needed in retirement too.
“Qualifying workplace pension schemes, which have a fiduciary duty to their members, should be expected to offer a straight-through solution from saving through to taking an income, so anyone who doesn’t want to shop around doesn’t end up worse off.
“We want strong default options in place to complement a thriving and competitive advice market. We believe that’s the way to avoid the next pensions mis-selling scandal and give millions of savers peace of mind in old age.”
NEST said in its response the qualifying workplace schemes should be compelled to offer a guided pathway for those who remain disengaged or just want a trusted source to do it for them.
NEST also said people who want to make their own arrangements should be forced to take advice or guidance before taking their money, either from a regulated financial adviser or from the new Single Financial Guidance Body.
“This allows members to opt out with suitable protections and allow for effective market competition,” the paper said.
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