The headlines are about “rip-off” pension charges, but the WPS Select Committee’s report is a wide-ranging  investigation into the transparency of the pensions industry and not a sensationalist attack on charges. It sets out its stall in the pre-amble.

There should be no cause for the complacency about the pensions industry’s performance on transparency …We are not convinced that any part of the industry scores above half marks on transparency.  Frank Field – Chair of Work and Pensions Select Committee- August 5th 2009

This blog is my understanding of what is being said, including a few comments of mine on the sense of  the paper. I am broadly supportive of WPS in this , though the weight of bureaucracy that would be created by some of the proposals on dashboards and guidance seems unworkable to me.

Workplace Pensions

The first section of the  WPS report focusses on Workplace Pensions and  hones in  on 5 areas where transparency is weak

1, It comes down hard on charging workplace pensions which do not have simple charging structures. Pension Bee’s comments are noted and  NOW is singled out for its flat fee and  its impact on “dormant pots”.

We recommend that DWP review the level and scope of the charge cap, as well as permitted charging structures, in 2020. The review should consider preventing flat fee charging structures being applied to dormant pension pots and revisit measures to proactively consolidate smaller pots.

2. It has no truck with Charlotte Clark’s  argument that getting  value for money from DB schemes is not a consideration for regulators.

Better scrutiny of value for money in defined benefit schemes will either justify or avoid the need for the often difficult decisions being taken about the future of pension schemes.

The FT have publicised figures today showing that despite “cut-throat competition” between asset managers, the amount of money DB schemes are paying for their asset management is not reducing. Whether they are getting more value for the “value add” services like LDI , CDI etc. is not clear. That question according to WPS- needs to be asked.

3. IGC’s are criticised for providing insufficient information for members to understand the value for money they’re getting

In the light of the concerns which are being expressed about the work of some Independent Governance Committees, the FCA must not postpone this (IGC review) any further.

4. To help institutional purchasers of funds,  theW&P Select demand the mandatory adoption of the  CTI templates bequeathed them by the IDWG.

48.We recommend that the Government bring forward legislation to make the disclosure templates mandatory for both defined contribution and defined benefit schemes.

49.We recommend that, to avoid poor quality and untimely data, the disclosure templates are supported by an independent verification process. Compliance should be overseen by the relevant regulators, who should be given any additional powers they might need to tackle non-compliance.

50.We recommend that schemes should be supported to collect additional information if the template does not fully cover their individual scheme needs. This information should be available for scheme members as part of the wider information provided on value for money including information on exit charges and any other costs associated with transfer of their pot. The FCA should explore the creation of a public register of asset managers’ compliance records with reasonable data requests.

5. On value for money, WPS notes

There is no agreed definition of what is meant by value for money in the pensions industry. Although individual schemes will need to vary their value for money goals, without agreed definitions it is not possible to make effective comparisons.

This is critical to the whole transparence debate

We recommend that the Government reviews the initial impact of requiring occupational defined contribution schemes to publish their assessment of value for members in 2020. The review should assess whether or not this requirement leads to better scheme focus on achieving value for money and better communication to scheme members about value for money.

Investments

The second part of the report is on investment strategies on which it has relatively little to say. There is the mandatory hat-tip to the Pensions Minister for fine words on impact and infrastructure investing but the only substantive recommendation is to bring IGCs in line with Trustees on mandatory ESG reporting.

We recommend that the FCA should introduce requirements for contract-based schemes, corresponding to those introduced for trust-based schemes, to report on environmental, social and governance factors as proposed in the FCA’s consultation on Independent Governance Committees: extension of remit.

Transparency for individuals

The third and longest section of the report deals with protecting ordinary savers (mainly from themselves- but also from IFAs and scammers (who are often treated as the same).

It rightly focusses on the decisions those with pension pots have to take at retirement.

It starts with what the State can do to help us take decisions

Pensions Dashboard

The report is pretty timid in its ambitions for the Pensions Dashboard

We recommend that by the end of 2019 the Government publish a timetable for the rollout of a non-commercial pensions dashboard. This should include key milestones, such as the date for pension providers to include their data on the pensions dashboard, as well as target timescales for phases beyond the initial launch—for example, longer term plans to enable consumers to make value for money comparisons through the pensions dashboard.

With consent, authorised providers of financial services should be able to include an individual’s pensions dashboard data within their own applications.

90.We recommend that the pensions dashboard should feature retirement income targets to ensure the information is meaningful to its users.

Bearing in mind we have been at this for four years, a rather more authoritative tone would have been welcomed. All the dashboard targets laid out at the start of this year look like being missed and this cannot be blamed on BREXIT.

The W&P Select seemed to have a blindspot here, it is precisely because everything is being driven by the need for a single non-commercial dashboard , that nothing is happening. 

Advice and Guidance

The report is worried that advice and guidance could be a barrier to people taking timely decisions on their own, citing a theoretical example of someone trying to get some money from their pension pot (crystallisation) only to be told they’ll have to wait 5 weeks for a pensions wise appointment before the request could be granted.

But the report has a touching confidence in the ability of Pensions Wise and MAPS to act as a front-line in the war against self-harm and concludes

We recommend that individuals should only be able to opt-out of guidance through an active decision communicated to an impartial body, such as the Money and Pensions Service. This should not be a process which needs to be repeated for every pension pot an individual has.

99.We recommend that for any transaction to be deemed valid, the relevant upfront costs and any further charges should be detailed on the front page of the product and the investor should be required to specifically sign that they are aware of those charges and have agreed to them. This should be the case for exiting a scheme as well as for investment into a new or additional scheme. Investors should also be given a 14-day cooling-off period where transactions can be reversed without detriment to the investor.

Frankly – I cannot see these measures doing much to protect consumers, they look a bureaucratic nightmare. There is a lot more that can be done in this area digitally.

Non-advised, non-guided.

The FCA have provided WPS with a table of the percentages of people taking advice and guidance when trying to get their money back. It makes for interesting reading.

Only when someone wants to buy an annuity , does Pensions Wise show more influence than advisers, but apart from “drawdown” – which is the adviser’s stock in trade”, no spending strategy is well advised or guided. There is a missing box which contains the people who are doing nothing, these people are either very savvy (waiting for something better to come along) or totally bemused.

WPS calls on MAPS to come up with some new ideas for the non-advised, non guided

We recommend that the new Money and Pensions Service should outline in its forthcoming strategy how it will increase usage of Pension Wise.

If they want a hint- they could read again the previous section of the report (the bureaucratic nightmare).

Investment Pathways

Early in the report , WPS extol the good sense of introducing a charge cap on Workplace Pensions. It now makes firm recommendations that the cap should be extended to decumulation of all pension savings

We recommended in our Pensions Freedoms report a 0.75% charge cap on default decumulation pathways. The FCA told us that it would prefer to see if market-consistent tools work and, if those fail, introduce a charge cap. This conversation is a near repeat of those our predecessor Committee had with the FCA about schemes used for automatic enrolment savings, which are now the subject of a charge cap. The FCA would send a simpler message to the industry by setting a charge cap now for investment pathways—rather than issuing vague threats to the industry.

It is good on the need for value for money comparisons between the options in the FCA table above.

113.We recommend that the FCA implement a robust monitoring programme for the effectiveness of the investment pathways, including value for money comparisons with other available products, in partnership with any other DWP monitoring work of the pension freedoms.

It recommends triage – though whether this is the FCA’s job or a DWP legislative requirement (as talked of for opt-out guidance) it isn’t clear.

114.We recommend that the FCA clearly set out how people who have passively built up saving through automatic enrolment will be supported to make and carry out an informed choice from the available decumulation products and not solely directed to drawdown products.

It sees the charge capping of investment pathways offered to those in non-advised drawdown as a trojan horse to all decumulation strategies (echoing the comply and explain language of the recent FCA PS19/21/

115.We recommend that a 0.75% charge cap should be set on decumulation products available through FCA decumulation pathways from the outset.

Independent financial advisers – mis-selling and scams

The conflation of IFAs and mis-selling and scams will annoy IFAs (rightly so). the report barely touches on the mis-selling of pension transfers  but it mentions its concerns about the SIPP solutions employed for BSPS members and grumbles that the availability of the good quality financial advice it notes comes from IFAs is scarce.

Anyone listening to the Wake up to Money article on this report this morning will have heard Chris Ralfe of SJP referring  to his company “like many other  independent financial advisers”. So long as senior representatives of insurance companies continue to regard their sales forces as IFAs, the confusion between types of advice will continue. IFAs , restricted advisers and scammers are not “as one combined”.

Many Independent Financial Advisers provide good value for money for pension customers. However, the number of people paying for good value advice is low. People who are not able to access good advice need guidance and effective protection from pension scams, which can have life changing impacts. Scams not only harm the individual but cause wider damage to the industry by discouraging potential savers. Scams are not a necessary consequence of the pension freedoms.

122.We were concerned to learn that the FCA’s dedicated scams team only consisted of approximately 10 people out of 3,700 FCA staff. We recommend that the FCA review whether it dedicates sufficient resource to combat active pension scams, prevent new pension scams and protect individuals.

123.We recommend that the Financial Conduct Authority’s list of unauthorised firms be expanded into a widely publicised database. This database should be regularly updated by the range of governmental organisations involved in pension scams and act as a co-ordinated early warning system

As this appears to be the section of the report that the press is picking up on, I think we should remember it is but a fraction of a much wider investigation.

LAST BUT NOT LEAST – A word about the net-pay scandal

It looks like an add-on and doesn’t sit comfortably in the report, but I’m pleased that the fate of the 1m+ pension savers not getting their promised Government incentives to save – are recognised.

In 2019/20, those with earnings below the personal allowance and contributing at statutory automatic enrolment rates will see a difference of around £65 per year between net pay and relief at source tax relief arrangements. Over a lifetime of pension saving this will be a significant amount to many people and a significant proportion of their pension savings built up through automatic enrolment.

The Government says that it would cost too much to put this right. In doing so, it risks damaging faith in the system, by perpetuating arrangements which cause individuals to lose significant sums through decisions they did not make. 

41.We recommend that the Government resolve the discrepancy between net pay and relief at source tax relief arrangements as a matter of urgency. 

Note to HMT – kick arse at HMRC!

Verdict

How influential WPS is – is hard to gauge.  It has certainly been influential with tPR over DB deficitis and its support of CDC and work on pension transfers have clearly shaped policy.

This report is wide-ranging and contains many good insights. It makes strong recommendations – especially when dealing with quantitative data.

When it comes to supporting members and staff on their difficult decisions at retirement it is less good, stuck in a rut of 20th century thinking which ignores the digital revolution we are going through.

I am really pleased we have this report and will draw from it in future blogs. What is important is that it doesn’t get swept under the table by a Government pre-occupied with everything else!