In-Scheme Drawdown: A New Option for Retirement Savings

Strategic Insights -

The Pensions Authority is proposing the creation of a new type of retirement savings scheme that would allow holders to draw benefits without having to buy an annuity or transfer assets to an ARF. This "in-scheme drawdown" (ISD) mechanism would give members of defined contribution pension plans the option to stay in their scheme after retirement, effectively shifting from the accumulation phase to the decumulation phase. This could significantly impact the pension industry, particularly for big providers of group pensions and bespoke wealth managers.

Key Takeaways:

  • The Pensions Authority is proposing the creation of a new type of retirement savings scheme called "in-scheme drawdown" (ISD), which would allow holders to draw benefits without buying an annuity or transferring assets to an ARF.
  • ISD would give members of defined contribution pension plans the option to stay in their scheme after retirement, shifting from the accumulation phase to the decumulation phase.
  • The proposal would effectively eliminate the ARF, as ISD provides essentially the same benefits without the need for a separate product.
  • The introduction of ISD could favor big providers of group pensions, such as Irish Life and Zurich, by helping them retain more pension assets.
  • However, bespoke wealth managers and financial brokers who provide advisory services to ARF holders may suffer from the introduction of ISD.
  • Brokers have warned that letting pension savers simply switch modes into decumulation could lead to worse outcomes in retirement, highlighting the need for independent advice at the point of retirement.

Statistics:

  • The Interdepartmental Pensions Reform and Taxation Group first proposed the concept of in-scheme drawdown in 2020.
  • The Pensions Authority proposal notes the importance of advice, but stops short of recommending that it become mandatory for savers coming to the end of their accumulation phase in a defined contribution scheme is not specified in the original text.

Sources:

  • "Private pension holders face new option in retirement" by Jon Ihle, The Irish Times, no publication date provided.
  • Report of the Interdepartmental Pensions Reform and Taxation Group (2020).