Chapter 2: ‘How to Ensure That Savers Can Get the Best Products in Retirement’

Abstract

In the past, most members of defined contribution (DC) pension schemes were required to buy a lifetime annuity at some point during their retirement. The Budget on 19 March 2014 has changed that requirement, as well as opened up the possibility that new types of retirement products will become available. Not all of these will be appropriate, especially if they can lead to people spending all their pension savings before they die. We will examine the new products to see which are most suitable, given the new pension flexibilities. We then consider the most effective way in which scheme members can access the best of these products. In particular, we will look at how ‘longevity insurance’ (e.g., in the form of an immediate or a deferred lifetime annuity) can be combined with ‘scheme drawdown’ to provide a cost-effective institutionally delivered retirement income solution that allows for flexibility in spending during retirement, while ensuring that savers do not run out of money before they die. We end by looking at the best way of helping people deal with stranded pots.

JEL Classification: G22