The wide range of changes to the UK (defined contribution) pensions environment announced in 2014 start to kick-in during the course of 2015. Much work lies ahead in finalising the detail of these amendments and subsequent implementation. There is a significant amount of ground to be covered, both by regulators and those being regulated. It is going to be a big ask for the full potential benefits of the changes to be available to savers in the short-term given their sheer scale. For example, one day (Monday 6 April – less than 100 days away) sees the coming into force of: the requirement for Independent Governance Committees (“IGCs”), the charges cap as well as ‘freedom and choice at retirement’, including the ‘Guidance Guarantee’.
IGCs are mandatory bodies intended to intended to protect the interests of savers in contract-based arrangements, usually offered by insurers. This protection role is analogous to the protection aspect of a trustee’s role in a trust-based arrangement. IGCs do not, however, have the same decision-making powers as trustees. Many of the providers that will be required to put IGCs in place are the same companies whose conduct has been under scrutiny in 2014, in the form of the Retirement Income Market Study and the work of the Independent Project Board (“IPB”).
The Study found that “that competition in the retirement income market is not working well for consumers”. The IPB came across 38 different types of charges, and 291 combinations thereof, in the pension contracts it reviewed. Steve Webb, the Pensions Minister, commented to The Telegraph that the charging structures are “…so complicated, nobody understands it, nobody could possibly know what was going on, it’s just ways of getting people’s money”. Given this backdrop, it would not be a complete surprise if some IGCs find themselves quite busy, once established and aware of their duties and responsibilities. The final rules for the operation of IGCs are expected to be published during the course of January 2015 by the Financial Conduct Authority (“FCA”).
The final IGC rules of operation might lead to corresponding changes to the operation of trustee boards in trust-based arrangements.
The charges cap will limit the charges and deductions from a member’s assets to a maximum 0.75% of these assets per annum in the default option of Auto Enrolment Qualifying Workplace Pensions. This limit excludes transaction costs, ‘non-standard’ services and costs of complying with court orders. The details behind the charges cap, and related matters, have been subject to consultation that closed at the end of 2014. The FCA intends to publish the resulting rules in February 2015.
Savers aged 55 and over will enjoy complete freedom and choice in the management and application of their defined contribution pension savings from the first Monday in April, following from announcements first set out in the 2014 Budget. These freedoms and related tax changes are clear. New products and services to capitalise on the opportunities created have been slower to emerge to this point. Perhaps providers have limited capacity to address this facet of the changes given all the others matters they need to resolve by spring?
The exercise of freedom and choice is to be backed-up with the Guidance Guarantee – free (at the point of delivery), impartial guidance that savers will be able (but not compelled) to access. The guidance will be provided telephonically by The Pensions Advisory Service and face-to-face by the Citizens Advice Bureaux. Details of the guidance are still to be completed although the FCA has set out ‘near final’ rules and standards in its Guidance Guarantee Policy Statement.
The changes taking effect in April do not signal the end to the year’s activity. Further changes, in addition to those already in store, might also be triggered by the outcome of the General Election in May. It’s going to be a fast and furious ’15 folks – happy New Year.