This is a round-up of the current issues buzzing around pensions; we’ll be producing plenty of these bulletins from www.pensionplaypen.com so do sign up to its email to get them.
Auto-enrolment is underway; but even as staging commences, new pension legislation continues to be announced.
The Queen’s speech
In the Queen’s Speech last week, the Government confirmed what will be included in the forthcoming Pensions Bill.
• The introduction of the single-tier state pension from April 2016 (replacing the basic state pension and earnings-related state pension);
• Speeding up the increase to state pension age to 67;
• Allowing the government to regularly review the state pension age in light of rising life expectancy;
• The automatic transfer of small dormant pension pots;
• Abolishing contribution refunds for defined contribution trust-based schemes for people who leave within two years; and
• Allowing the Secretary of State to ban enhanced transfer value exercises at any time within the next 7 years.
The Bill also sets out the wording of the Regulator’s new objective to encourage growth (this being announced by George Osborne in the budget). The proposed wording, which is perhaps a little bit weaker than George Osborne had led us to expect, is:
“to minimise any adverse impact on the sustainable growth of an employer”
Cynics might remind the Government that the biggest “adverse impact” on pensions over the past five years has been its policy of quantitative easing that has deepened funding deficits and reduced the value of annuities purchased.
Impact on payroll of “pot-follows member”
For most pension operatives, QE is a side issue – it’s the “automatic transfer of small dormant pots” that should be ringing alarm bells.
It doesn’t take Sherlock Holmes to deduce who will have to trigger the transfer once an employee has left pensionable employment.
“Pot-follows member” requires precise execution, excellent data management and a focus on member outcomes. Skills that have been sadly lacking among pension providers over the years.
Pension operatives have a right to be sceptical about the practicalities.
Banning of Consultancy Charging
The DWP have also announced the banning of consultancy charging to pay for auto-enrolment.
Consultancy Charging was only introduced in January as the FSA’s successor to “commission”. It enables advisory costs to be paid not by the company but by the member of the scheme as a deduction from their pension pot
This ban will be imposed across the advisory spectrum and will impact on those large consultancies who provided investment advice on the default funds as well as the small IFA unwilling to directly bill the employer.
Consumer champions have applauded the move while many advisers moan that this will only increase the “advice gap” leaving many of the 1.2m employers with no immediate route to advice.
Consulting on a charges cap
As the DWP announced the ban on consultancy charging, they also announced they would consult on a cap on pension charges later this year. This is thought as a pre-emptive strike prior to the publication of the OFT’s review of pensions in the autumn.
This looks like a further assault on the use of legacy pension schemes, many of which still pay commission to advisers.
Focus turns to SMEs and Micros
The early success of auto-enrolment in terms of the low-opt out rates among large employers and the lack of visible train-crashes has led Webb to openly ask “might the Government have a public policy success on our hands”.
However, he knows that his political legacy will be judged on the capacity of the SME and micro employers to engage with “what makes for a good pension” -do more than simply comply.
This means a wholesale shift in the perception of pensions by a public who have grown wary of them.
For pensions to deliver to people’s expectations, Webb feels he must get snouts out of troughs (by banning consultancy charging), stop the fracturing of pension rights through “operation big fat pot” , and prevent further abuses through a “charges cap”. He also continues to explore pension guarantees as part of his “defined ambition” initiative
A radical agenda
Taken together, this is a radical agenda. No wonder that Gregg McClymont , Labour pension spokesperson is supportive. It could sit easily within a Labour manifesto.
But this will need more than a political consensus; as Britain struggles out of recession, a nation’s appetite to “save not spend” will be sorely tested.
As will the patience of those called upon to implement the ever growing list of changes.
- Workers’ pension pots ‘saved from consultancy charges’ (compareannuities.eu)
- Pension pots ‘saved from charges’ (bbc.co.uk)
- Queen’s Speech: retirement age delayed to 67 to fund flat-rate pension scheme (telegraph.co.uk)
- Pensions bill: what flat-rate changes mean to married couples (guardian.co.uk)
- Ban on pensions middlemen whose rip-off fees wipe out retirement savings (thisismoney.co.uk)
- End of pension fund rip-offs (express.co.uk)
- Could recent pension changes affect your retirement plans? (epicafinance.com)
- “Cynicism’s” trending on #pensions (henrytapper.com)