Pensions trade body to 'rate' drawdown schemes
A new retirement quality mark (RQM) for income drawdown schemes has been launched by a subsidiary of the Pensions and Lifetime Savings Association (PLSA).
People with defined contribution (DC) pension scheme savings now have the flexibility to take their benefits as they choose; 85% of people think retirement products from which they are choosing should be accredited by a third party, according to PLSA (at the time NAPF) research from spring 2015.
Adrian Boulding, chair of the Pensions Quality Mark Board, explains that while high net worth individuals typically have an ongoing financial adviser, people who are less wealthy may only consult a financial adviser on a one-off basis, or they might choose not to consult one at all.
The quality mark is designed to help them make a judgement on whether a pension scheme is likely to be a good choice.
Helping savers make complex decisions
“The RQM gives savers a clear line of sight to the quality of in-retirement products.
“This will help them in making complex decisions about which retirement income products to choose, knowing that the products they're purchasing have been independently verified to ensure they meet certain standards on governance and communications,' says Boulding.
“It also supports trustees, as they'll be able to signpost scheme members to products that meet the quality standards.”
Joanne Segars, chief executive of the PLSA, says that as well as assessing schemes, the quality mark helps individuals navigate a pension path by asking them factual questions about their situation.
These questions are not structured around risk, she says, “because what medium risk means to you might not mean the same to me”. Instead, individuals are asked about other sources of income, for example.
“When it comes to making a decision about how to exercise the new pension freedoms, savers are often confused and have said they want some clear guidance. We hope the RQM can offer savers the support they're looking for,” she says.
An alternative to an annuity, income drawdown (also known as an unsecured pension) allows you to take income from your pension fund while the fund remains invested and so continues to benefit from any fund growth. The drawdown of income has to be calculated carefully as taking too much income could exhaust the pension fund so experts say the annual drawdown must not exceed what the assets would normally yield in an average year. The invested pension fund could also be hit by market turbulence and the value of the assets could fall.