3rd July 2015
Pensions minister Ros Altmann has thrown her weight behind plans for a ‘default drawdown’ plan set out by the National Employment Savings Trust (Nest).
Nest set out a ‘blueprint’ for retirement income that it believes could be the answer for retirees who don’t know what to do with their money. It wants to automatically default its members into a default drawdown scheme when they get to retirement if they fail to make a decision about their money.
The scheme would see 90% of the money invested in drawdown to provide an income and 10% available to take as cash. Members of the scheme would also automatically pay towards an annuity using the income generated in drawdown which they would then take at age 85 and it would provide a guaranteed income for the rest of their life.
In response to the blueprint, Altmann (pictured) backed the scheme as a way to protect members against the risk of old age and illness.
‘For the first 20 years of retirement, pensioners should have room for investment growth to enhance their later life income, however, from age 80 or 85, buying an annuity of having funds to pay for long-term care will become increasingly attractive,’ she said.
‘Products could be designed which take part of the initial pension fund and use it to purchase an advanced life deferred annuity that would start paying out a specified income if the person lived for 20 years. The annuity income that would be promised for 20 years’ time would be much better value because the probability of living to such as advanced age is smaller, so many people will not be paid at all.’
However, Altmann said more than one default drawdown strategy was needed.
‘Default strategies tend to be ‘one size fits all’ but this approach will not fit all,’ she said.
‘Therefore, more than one default strategy will be important.’
Nest believes it may take up to three years to develop the blueprint.