Nest, the UK’s largest defined contribution (DC) master trust, has been granted the ability to offer flexible drawdown to its members as it continues to develop its post-retirement offering.
The government has amended the order that oversees Nest’s governance to allow it to provide “flexi-access drawdown and related retirement and death benefit options”, the master trust said in a statement today (6 May).
Pensions Expert reported last year that Nest was developing a post-retirement structure for members, and in January it confirmed that it was working with Rothesay to incorporate bulk deferred annuities as part of this work.
In the statement, Nest said the latest development was “an important legislative change which also ensures Nest is well placed to meet the government’s emerging expectations on default pension benefit solutions”.
“Offering flexi-access drawdown is an important step in building a wider set of retirement solutions that work for our diverse membership and support sustainable income in later life.”
Gavin Perera-Betts, Nest
The Pension Schemes Act, which received Royal Assent last week, requires DC providers to offer a default decumulation option to members in an effort to support them at retirement.
Nest said its flexi-access drawdown capability would allow members “greater control over how and when they access their savings”.
The master trust has previously explained that it will set members’ income levels and the investment strategy to ensure that pension pots are sustainable. The bulk annuity element will underpin this to ensure members do not run out of money. Nest members will also retain some flexibility to change their minds about how to draw their pension.
Gavin Perera-Betts, chief customer officer at Nest, said: “Our research shows many members want the flexibility to take their tax-free cash up front and then draw a sustainable income, rather than being restricted to lump-sum options.
“Offering flexi-access drawdown is an important step in building a wider set of retirement solutions that work for our diverse membership and support sustainable income in later life.
“This milestone also helps ensure Nest is well placed to meet the government’s emerging expectations on guided retirement, as set out in the Pension Schemes Act.”
Drawdown at Nest: A long time coming
Pensions minister Torsten Bell said: “For too long, too many people have reached retirement without the support they need to make the most of their hard-earned savings. The Pension Schemes Act will give a default pension to savers that actually works for them, while keeping the freedom to choose something different if they want to.
“We want retirement to feel like a reward, not a puzzle, which is why we’re making sure people get consistent, meaningful support as they turn their pension savings into a real income for later life.”
Nest has been trying to expand its offering to the decumulation phase for more than a decade.
In 2016, the government consulted on allowing Nest to enter the drawdown market, but after extensive discussions with the pensions industry, it opted not to allow the move.
Those against it at the time said Nest could have an unfair advantage as an effectively state-backed entity competing with private sector providers, while others argued that auto-enrolment pension pots were mostly too small to support drawdown.
In 2017, the Department for Work and Pensions opted not to permit Nest to offer drawdown services, instead choosing to rely on innovation from other providers. However, by and large, this has not materialised.
