The realpolitick of pension charges

Apropos nothing at all

Apropos nothing at all

 

 

What’s going on with pension charges is Pensions realpolitik. Former Chancellor “Fatty no more ” Lawson and Lord Freud have forced the issue and the DWP have responded with a wording which amends the primary legislation. The DWP have produced a revised wording.

This blog is in support of the DWP who will doubtless come in for a caning from everyone else for fudging things.

Skip the boring legal bit if you are not a lawyer or a wannabee lawyer.

 

The boring legal bit

Early today the DWP published the following new Clause—

“Disclosure of information about transaction costs to members etc
In section 113 of the Pension Schemes Act 1993 (disclosure of information about schemes to members etc), after subsection (4) insert—

5
“(5) The Secretary of State must make regulations under this section  requiring information about some or all of the transaction costs of  work-based money purchase schemes to be given to some or all of the persons mentioned in subsection (2).
(6) But subsection (5) does not apply in relation to a scheme of a
particular description if—
(a) as a result of another enactment, requirements are imposed
relating to the disclosure of information about transaction
costs of schemes of that description, and
(b) in the opinion of the Secretary of State, those requirements
provide an adequate alternative to what is required by
subsection (5).

 

Which is rather more concise than  Lord Freud and Lord Lawson’s suggestions

Government amendment (26A):

 

After Clause 43

LORD FREUD

 

26A*

 

Insert the following new Clause—

“Disclosure of information about transaction costs to members etc In section 113 of the Pension Schemes Act 1993 (disclosure of information about schemes to members etc), after subsection (4) insert—

 

 

“(5)     The Secretary of State must make regulations under this section requiring information about some or all of the transaction costs of work-based money purchase schemes to be given to some or all of the persons mentioned in subsection (2).

 

(6)     But subsection (5) does not apply in relation to a scheme of a particular description if—

 

(a)   as a result of another enactment, requirements are imposed relating to the disclosure of information about transaction costs of schemes of that description, and

 

(b)   in the opinion of the Secretary of State, those requirements provide an adequate alternative to what is required by subsection (5).

 

(7)     In this section—“work-based money purchase scheme” means a money purchase scheme that is—

 

(a)   an occupational pension scheme,

 

(b)   a personal pension scheme where direct payment arrangements (within the meaning of section 111A) exist in respect of one or more members of the scheme who are workers, or

 

(c)   a personal pension scheme which is or has been registered under section 2 of the Welfare Reform and Pensions Act 1999 (stakeholder pension schemes);

 

“worker” means a person—

 

(a)   who is a worker for the purposes of Part 1 of the Pensions Act 2008, or

 

(b)   to whom a provision of Part 1 of that Act applies as if the person were a worker because of a provision of Chapter 8 of that Part; but for the purposes of paragraph (b), ignore section 92 of that Act.””

 

 

Amendment tabled to the Government’s amendment (26B)

 

LORD LAWSON OF BLABY

 

[As an amendment to Amendment 26A]

 

26B*

 

Leave out lines 5 to 8 and insert—

 

“(5)     The Secretary of State must make regulations under this section requiring information about all of the transaction costs of work-based money purchase schemes to be given both to all of the persons mentioned in subsection (2) and to the Pensions Regulator.

 

(5A)    The Pensions Regulator shall maintain a public register on which all the costs referred to in subsection (5) are separately listed.

 

(5B)    The costs referred to in subsection (5), when aggregated, must be equivalent to the total costs, both explicit and implicit, incurred by or on behalf of the members of the relevant occupational pension scheme or personal pension scheme.”

 

http://www.publications.parliament.uk/pa/bills/lbill/2013-2014/0076/amend/ml076-II.htm

Lord Lawson and Lord Freud may consider the DWP’s version rather abridged. I find it rather better for it.

I understand it is usual for the kind of detail that the noble Lords are after, finds its way into secondary legislation; and in one aspect, the Lords are quite wrong in what they want.

The Lords should not be requiring disclosure to “workers” under the 2008 definition as this means the likes of you and I! We do not want reams of paperwork disclosing the transactional costs within the pension funds into which we invest.

We pay the trustees of the master trusts and the fiduciaries of the personal pensions (the Independent Governance Committees (IGC) demanded by the OFT and promised by the ABI) TO DO THAT FOR US.

The confusion in the Lord’s drafting relates to the difficulty in tying down what a workplace pension is if it isn’t trust based. Since a group personal pension is no more than a group of personal pensions, in law, the ultimate fiduciary is the policyholder the worker.

But in practice – the rules of Caveat Emptor (buyer beware) don’t apply when it comes to personal pensions because (as pension miss-selling showed) the buyers are universally crap.

So we need a new entity which can protect the worker – this is the IGC and it’s not the employer because the employer is as crap at all this as the worker ( a liberal paraphrase of the OFT report).

So if you’ve skipped all the convoluted legal bit and want to cut to the chase; here is the interesting bit.

 

The interesting bit

The DWP have got it right. They have kicked all the technical stuff into secondary legislation (presumably they have the powers already to enact all the Lawson/Freud stuff).

They have bypassed the complicated stuff about workers by fudging everything into a still to be defined definition of “person”.

In my view “person” should only include “worker” when the “worker” wants to know. Trustee boards and IGCs should include “workers” or “member nominated trustees” as they are currently know.

But the really good news is that the wagons are on the move. I know that this is not as inclusive as envisaged in the original charge cap consultation but hold on to your hat Gregg McClymont, your turn will come and right now we have a workable solution that will get the wagon further down the road than I had imagined when Steve Webb stood up at the CBI last month.

Let’s hope that wherever this goes next, the DWP can win through and that we get protection in this important and misunderstood area of pensions finance.

 

For an excellent take on all this listen to Gina Miller who was on MoneyBox on Radio 4, (minute 13.09)  http://www.bbc.co.uk/programmes/b03vtgb0

For typically robust comment try this Labour Press Release from the office of Gregg McClymont  http://press.labour.org.uk/post/77692563037/government-appears-to-have-finally-backed-down-under

This article first appeared in www.pensionplaypen.com/top thinking.

 

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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