The end of furlough and what it means for pensions.

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A question was asked of the DWP on April 24th filed under  “Pensions: Advisory Services” 
To ask the Secretary of State for Work and Pensions, what discussions she has had with the Financial Conduct Authority (FCA) on when the FCA plans to (a) publish and (b) implement regulations directing pension savers to Pension Wise when they choose to access their pension savings.
The question was answered on May 4th, on Tersea Coffey’s behalf byGuy Opperman

The Secretary of State has not personally had discussions with the FCA in relation to this matter, however senior officials at the FCA, DWP and MaPS are working closely together on this and will continue to do so.

Existing Financial Conduct Authority (FCA) rules require firms to signpost to their customers the availability of pensions guidance via Pensions Wise. These include, for example, rules requiring firms to issue wake-up packs, designed to be one of the main sources of information for consumers about their options for accessing their pension savings.

Furthermore, the Money and Pension Service (MaPS) has undertaken trials to gather evidence on the possible ways to help encourage more people to take Pension Wise guidance before accessing their pension, fulfilling the requirement upon Government and the FCA set out in the Financial Guidance and Claims Act 2018.

MaPS, with Behavioural Insights Team (BIT) will publish an evaluation report of the trials in Summer 2020. We will use the evidence provided from the trials to help inform and assess the impact of the trials and conduct a consultation prior to implementing any regulations. For the FCA this also includes a duty to consult on the proposed rules. The due processes that DWP must take to lay regulations and the FCA must take to make rules will be followed.

The terminology

The DWP has done its best to expunge the word “advice” from its pension lexicon. The Money and Pensions Service (MaPS) has replaced the Money Advice Service and the The Pension Advisory Service. Pensions Wise most definitely doesn’t provide advice and “guidance” is the watchword for all Governmental interventions when people are in the pre-retirement zone.

But parliament still files these parliamentary questions under “pensions advisory‘ because that is what the layperson expects to get when navigating the pensions equivalent of the “strait of Hormuz”.

The Financial Conduct Authority regulates financial advice and is arms length to the Treasury, MaPS delivers guidance and is arms length to the DWP.

Anyone coming to this afresh – say from abroad – would recoil from this outbreak of acronyms, especially when learning that trials on nudging people towards Pension Wise have been conducted by BIT – itself an acronym for the newly independent Behavioural Insights Team.

Assistance is furloughed

One theme of my recent blogs is the need for the Government to toughen up on matters of advice and guidance. I am saying to the Pension Regulator not to consult but be decisive on the rules surrounding pension scheme funding. There is no time of space for deliberation and consultations make cowards of us all

And MaPS is clear on what people should be doing before accessing money from their pension.

  1. They should be clear about the investment implications (especially if cashing out from funds invested in the market)
  2. They should be clear about the tax implications, especially if large amounts are being withdrawn
  3. They should have options to take advice laid out for them

Although all the information needed to take good decisions at retirement is available online, (and on the MaPS website), there is no obvious route to follow – no clear pathway.

Sadly, rather than accelerate the investment pathways to be offered by providers , the FCA has given providers the opportunity to delay their implementation (due in August) because of the epidemic.

I am vey worried that we are entering a period of financial hardship for many people with the assistance people need – in a bit of a mess.

A digital pathway to pension freedom?

And even in the best of time, decisions are tough for those with pension freedoms

The FCA’s business plan, published in April, cites pension freedoms as diving consumer harm.

The pensions dashboard is awaiting legislation that may or may not receive Royal Assent before the summer recess in July. In any event, it too will be “consulting” in the autumn and it looks increasingly unlikely that this key consumer tool will emerge from MaPS either this or next year

We now hear that the FCA have further plans

Prior to the pandemic the FCA had been exploring the concept of a digital sandbox, which would allow innovative firms to test and develop proofs of concept in a digital testing environment, and enable greater collaboration to solve industry-wide problems.

We hear in Professional Advisor that

The regulator has decided to move forward with plans sooner than anticipated so it can provide support to firms looking to tackle coronavirus-related challenges facing firms and consumers.

It said it will particularly support firms developing specific coronavirus-related work, and will evaluate the effectiveness of the feature or tool through the pilot.

The FCA believed developing a permanent digital testing environment would provide significant value to financial services on the whole.

The foundations of the sandbox would include giving users access to data, regulatory calls-to-action and access to regulatory support, as well as the ability for fintech and regtech firms to list their application programming interfaces and solutions to encourage exchanges of information.

The FCA said it would keep the industry updated with information on specific proposals for launching a coronavirus pilot of the digital sandbox.

It sounds as if the horse may have boulted before we even get to the stable door.

Need for a clear statement on how this fits together

With so many initiatives going on, it is hard to work out what the overall strategy is. MaPS , the FCA, HMT and DWP all have a need to work together but it seems hard to see how this is gong to happen without someone taking charge.

I am pleased that there is such clarity from the Treasury

There is a need for one voice from Government that is authoritative and provides clear advice to people about what they can and cannot do with their pension pots once they reach 55 and we need one of the elected or non elected “leaders” to stand up and be heard.

Perhaps we should find a COVID-19 savings Tsar – a Martin Lewis for pensions?

When the furlough is over

So far, people have been broadly shielded from the economic consequences of the pandemic. The furlough is providing many people with a broadly equivalent standard of living and many who are outside its scope have been drawing on savings rather than pensions. Nonetheless there are already signs of emergency withdrawals from pension pots.

The use of Pension Tax Free Lump Sum to meet emergency needs is sensible and an advisable decision for the over 55s, but for those not there yet, the opportunity to raid money early is a chimera presented by scammers.

Unfortunately, the opportunity to speak out on pensions is being missed because the spokespeople are falling over themselves not to give advice. initiatives such as that described by Guy Opperman at the top of the blog and outlined by the FCA in its recent statement on the Digital Sandbox are pointing in the right direction. But we need more than a “nudge unit” and “guidance” to stop people financially self-harming once the furlough is over.

With savings levels for the majority of the population at around £100, the immediate consequence of the removal of the furlough will be unemployment leading to personal debt and the kind of desperation that leads people to pension liberation.

When the furlough is over , we may find the withdrawals from pension pots from the over 55s spiking and insurers and trustees should be preparing themselves and their members for that occurring.

This really is a time for financial leadership from Government as the furlough looks like ending very soon.

About henry tapper

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