Retirees with small pots should be allowed to draw down savings as fixed-term pension to enable them to defer taking a state pension, says the Association of Consulting Actuaries (ACA).
In its response to the Association of British Insurers' (ABI) consultation A New Retirement, the organisation said this could integrate state and private pensions more effectively for many people.
Under current rules, deferring the state pension by five years would result in a 26% enhancement to the benefit.
The ACA called for a new product range for DC savers and for defined benefit (DB) or hybrid schemes to be able to offer fixed-term drawdown of all or some a member's pot.
It argued this would give savers more flexibility and increase confidence in the pension system.
It would also reduce the exposure of DB schemes to longevity risk without increasing the exposure of the government if the deferral terms were properly structured, it said.
The ACA pointed out that the average DC pot was worth £30,000 on retirement and said the introduction of auto-enrolment would lead to a proliferation of these smallish pots.
It said: "For those rising numbers in DC, fixed-term pensions could provide individuals with ‘smaller' pension savings with greater certainty over receiving back the money they have opted to save for their own retirement in the early, active part of retirement - improving confidence in the system."
The ACA said this could fill the "gap" in flexibility allowed to retirees with pots between £18,000, above which trivial commutation is not an option, and around £225,000, at which point members can opt for drawdown.
It suggested stipulating that income from a fixed-term pension should be at least equivalent to the state pension, but acknowledged this could discourage part-time working in retirement.
To make this option possible, the ACA said the government should draw up new retirement income rules and funding requirements, consider which institutions could offer fixed-term products, and work on consumer protection.
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