Just when you think you had a handle on the investment default George Osborne blew it out of the water with a ballsy budget which took everything you knew about pensions and turned it upside down.
Don't get me wrong, being able to access a pension pot free from government interference is clearly a good thing, but no one saw this coming, not least the millions who've already been auto enrolled into a default which may no longer be appropriate.
If the default is de-risking with the intention of annuity purchase, and at the point of retirement a member decides to take the whole pot in cash, there is a clear mismatch in their investment approach in the final years.
if individuals have more responsibility in how they access their retirement savings they are likely to feel more engaged in pensions – which is a huge step forward from where we currently are.
The proposals will allow DC members to take the tax free cash with the balance as a lump sum taxed at the individual's marginal rate. In effect, the pension becomes a deferred pay pot which can be accessed as and when required.
This fits very well with the emerging theme of flexible and extended working in later life, but it also means the end game will have more versions than Star Wars and avoiding Darth Vadar will require an extended lesson in the Jedi arts.
For some, a guaranteed income will remain the overarching priority, for others staying invested becomes a more attractive option and for others still, cashing in the whole pot and travelling the world on a "grey gap year" moves from the wish list to a tempting objective. If these proposals do become set in stone we will see more flexible member outcomes.
Also, if individuals have more responsibility in how they access their retirement savings they are likely to feel more engaged in pensions - which is a huge step forward from where we currently are.
The default dilemma
The proposed changes will mean a wider variation in outcomes and require defaults to be reviewed.
The default dilemma is that the majority are set up to target annuity purchase which may no longer be appropriate for a significant proportion of members, yet, by its nature, the default needs to be appropriate for the majority of members.
So, how do we square this circle? Well we could see the default change to a middle of the road rebalancing portfolio which at some defined point tips members into an investment option aligned to their outcome.
We could even see defaults that continue to target annuity purchase alongside increased education of choices at retirement and touch points to ensure members are in an appropriate investment that is aligned to the outcome they want to achieve.
This will require a massive overhaul of what constitutes the right guidance and, crucially, at what point regulated investment advice is given.
It will be interesting to see if DWP revisit their guidelines on what constitutes a good default, but whatever it ends up looking like, it will be up to the industry to take these proposals and turn them into a streamlined process which continues to deliver good member outcomes for all.