Even though many plan sponsors are moving away from defined benefit plans, many organizations still have a paternalistic culture and want to help guide their employees towards a successful retirement, Nick Nefouse told delegates at the 2018 Defined Contribution Investment Forum in Toronto in September.
Plan sponsors are asking for help with this goal, but the industry isn’t ready, said Nefouse, a managing director at Blackrock. “Most people in the financial services are not educated on how you should decumulate.”
One challenge for plan sponsors is understanding how best to help employees approaching retirement who aren’t likely to do the research necessary to make educated choices on their own, he said. “Once people start to retire, they get scared and they are looking around for help.”
Read: Current view of distinct accumulation, decumulation phases too narrow
A potential solution is a product that factors in or specifically targets the decumulation phase. Certain mechanisms and products have helped during the accumulation phase, such as automatic enrolment and accumulation in the United States, said Nefouse. “Those two things did more to help people save than pretty much any other product that we’ve given them.
“People are really busy, so if you force people to take an action in order not be in the plan, it is very easy for them to not take that action,” he added.
Read: How are different countries tackling decumulation?
Target-date funds can also help maximize the accumulation phase because their members tend to see better returns than those who don’t use them, said Nefouse. Taking the logic of certain accumulation tools, similar products are beginning to emerge for post-retirement scenarios, he noted. “We’ve seen these auto features work, we’ve got to make them work on the other side as well.”
During retirement, people tend to hoard their money for a variety of reasons, whether it be worries about health issues, general uncertainty, a desire to leave money to their children or simply because they don’t have a clear idea of what they can reasonably spend, said Nefouse.
Automating income could help retirees find the balance between preserving their wealth and enjoying it, he said, noting that a tool using two variables — age and the account balance — can demonstrate how much retirees are able to spend.
“Just the same way we automated savings on the way up, we want to automate spending on the way back down,” said Nefouse.
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