Advisers call for safe harbour to beat lifestyle bubble

Contract-based pension providers should be given a safe harbour to change the default investment strategy for their members, according to an overwhelming percentage of advisers at the Corporate Adviser summit.

In a poll at the event on Thursday 94 per cent of advisers said contract-based providers should be given a statutory override to update default strategies if it is in members’ best interests to do so.

In a wide-ranging debate on the influence of the freedom and choice reforms on workplace pensions Simon Chinnery, head of UK defined contribution and managing director at JPMorgan Asset Management said DC members faced a multitude of investment risks following the introduction of freedom and choice which presents a problem for the contract workplace pension providers.

Chinnery said: “We need something to contain [investment risks]. I don’t think there is any point banging on about education; people want someone to do the management for them. How do you get a wet signature from those members that aren’t engaged?”

Provider representatives outlined different experiences of offering the freedoms since April. Scottish Widows corporate pensions relationship specialist Robert Cochran highlighted the extent to which customers have been happy to self-serve for income drawdown. He said: “The level of self-serve income drawdown has surprised us – we have had 4,300 requests and we dropped our minimum to £10000. The average pot size is £58,000 – we would see that as an advised piece of business but they want to do that themselves.”

Royal London business development manager Jamie Clark said: There is a real revolution going on in product types and the delivery of those products. I don’t believe the default should be drawdown or the default should be annuities. The default should be the product and we are introducing the technology that allows us to deliver that cost-effectively to the member of the scheme.”

Speakers agreed that data sharing must be improved if the pensions industry is to meet both auto-enrolment and freedom and choice obligations in the coming year.

B2E Technologies founder and managing director James Markham said the industry’s failure to tackle interoperability – the exchange of data and information – will present insurmountable objects in the way of pension reform.

Markham said: “The industry has a significant problem with interoperability and that is not being addressed. There are coalitions to address interoperability in other industries, but in this industry there is no intention to do that. That lack of initiative will challenge our ability – irrespective of product design – to meet consumer demand.”

But Pension Regulator chief executive Lesley Titcomb said that in spite of awareness of issues with interoperability, there were no plans to embark on any industry wide initiative to tackle the problem. FCA director of policy David Geale said he felt it was not the regulator’s role to get involved in technology projects of this sort, arguing that was better left to the private sector.