CA DC Investment Conference: To-and-through functionality ‘essential’

A to-and-through at-retirement investment option is a key priority for four-fifths of corporate advisers when choosing a group pension arrangement, according to a poll of 30 intermediaries at the CA DC Summit yesterday.

The poll found 42 per cent thought a to-and-through option was now essential, with a further 39 per cent said it was very important. A further 19 per cent said such an option was relevant but not a deal-breaker, but none of those polled said it was not important.

Delegates and speakers at the event said the industry faced challenges figuring out how to develop default strategies to deal with the new choices available to retirees, agreeing that communications should be focused at the point when individuals actually had a clear idea of when they were going to retire, rather than 10 or so years out from retirement, as has been industry practice in the past.

Speaking at the event, BlackRock head of DC investments Claire Finn said: “If I look at the default we have in house at BlackRock, and that is a flexible option is to stay invested, and that reflects our colleagues in the US where there is no culture of annuitisation. We have seen from many trustees and plan sponsors here in the UK is that many people aren’t prepared to make that decision to move away from annuitisation. So far we are just at a starting point, and there is a feeling that we could see people moving back to annuities. So as a provider we need to make sure that you have a range to allow trustees and those choosing the DC arrangement for their members to choose the option for their members. And there is going to have to be a lot of work done analysing what members are doing to make sure the default is appropriate.

LCP consultant Andy Cheseldine said: “We say you do need a default all the way through. You probably only need to ask questions about what they are going to do three, four or five years before retirement. By far the biggest differentiator is when they are going to take their benefits rather than what they are going to take. If they take benefits at 55 it has a much bigger impact if they decide to go into drawdown rather than go into an annuity.”

EValue founder and strategy director Bruce Moss said: “One of the problems with defaults is they target a specific age of retirement. And we all know that apart from a handful that do, nobody knows when they really are going to retire. Interestingly, in the US last year they introduced a new default, an annuity within a 401K plan. It used to be that employers in the US would not make an annuity available. But the Department for Work and the IRS have passed regulations to enable employers to offer this.”