Ros Altmann

• The "UK Pensions Savings (Accumulation) Consumer Research Report 2020" report has been added to ResearchAndMarkets.com's offering.
• This is a consumer research report looking at how individuals are saving for their pensions.
• For this report, the publisher commissioned research from MIS Group's UK panel.
• The research was structured so that 2,077 nationally representative consumers aged 18+ were asked about their pension ownership and savings.

• In its latest major report on the functioning of the UK pensions industry, published today, Monday 5 August 2019, the Work and Pensions Committee says it is unconvinced that the industry will rise to the challenge of providing clear, transparent information to pension schemes about the costs and charges of investments.
• It says Government and regulators should not wait for the industry to fail to act voluntarily as they have so many times in the past, and should instead move now to legislate for mandatory disclosure to a set format, for both defined contribution and defined benefit schemes.
• Better scrutiny of value for money in defined benefit schemes will also either justify or avoid the need for the often difficult decisions being taken about the future of those schemes.

Chair's comments

• Rt Hon Frank Field MP, Chair of the Committee, said: Ripping off pension savers could be eliminated.
• Government and regulators should not wait for the industry to fail to act voluntarily as they have so many times in the past.
• It must put the full force of the law behind such changes.
• The FCA should explore the creation of a public register of asset managers record of compliance with reasonable data requests.
• But not all charges are covered by the cap, and the full extent of charges outside the cap is not known.
• The permitted combination of a flat fee plus a percentage of funds under management charge has the potential to completely erode small dormant investment pots.
• DWP should 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.
• The Committee says that contrary to the two responsible ministers complacent assessments in evidence, it is unconvinced that any part of the industry scores above half marks on transparency.

Scams

• The FCA should review whether it dedicates sufficient resource to combat active pension scams, prevent new pension scams and protect individuals: Scams are not a necessary consequence of the pension freedoms.
• 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.
• 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.

Pensions Dashboard

• A non-commercial pensions dashboard will be a welcome, if overdue, additional tool to provide transparency to individuals and help them plan how they use their pension funds.
• For a pensions dashboard to be launched in a timely manner, it will necessarily be limited at the outset.
• 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 launchfor example, longer term plans to enable consumers to make value for money comparisons through the pensions dashboard.
• The pensions dashboard should also feature retirement income targets to ensure the information is meaningful to its users.

Tax relief

• Government should urgently resolve the discrepancy between net pay and relief at source tax relief that, over a lifetime of pension saving, will make a significant difference to many people and a represent 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.

Advice and Guidance

• In 2017, in its major report on Pensions Freedoms, the Committee called for a 0.75% charge cap on investment pathways.
• These must not become a substitute for guidance, which is still required to help individuals determine which product is right for them.
• It is not clear how, under the proposed investment pathways, an individual who states that they plan to use their money to set up a guaranteed income is supported to do so without guidance.
• Many people who have passively built up retirement savings through automatic enrolment would likely need support through advice or guidance if they wanted to make an informed choice on purchasing a product which provides a guaranteed income.

Further information

• In its latest major report on the functioning of the UK pensions industry, published today, Monday 5 August 2019, the Work and Pensions Committee says it is unconvinced that the industry will rise to the challenge of providing clear, transparent information to pension schemes about the costs and charges of investments.
• It says Government and regulators should not wait for the industry to fail to act voluntarily as they have so many times in the past, and should instead move now to legislate for mandatory disclosure to a set format, for both defined contribution and defined benefit schemes.
• Better scrutiny of value for money in defined benefit schemes will also either justify or avoid the need for the often difficult decisions being taken about the future of those schemes.

Chair's comments

• Rt Hon Frank Field MP, Chair of the Committee, said: Ripping off pension savers could be eliminated.
• Government and regulators should not wait for the industry to fail to act voluntarily as they have so many times in the past.
• It must put the full force of the law behind such changes.
• The FCA should explore the creation of a public register of asset managers record of compliance with reasonable data requests.
• But not all charges are covered by the cap, and the full extent of charges outside the cap is not known.
• The permitted combination of a flat fee plus a percentage of funds under management charge has the potential to completely erode small dormant investment pots.
• DWP should 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.
• The Committee says that contrary to the two responsible ministers complacent assessments in evidence, it is unconvinced that any part of the industry scores above half marks on transparency.

Scams

• The FCA should review whether it dedicates sufficient resource to combat active pension scams, prevent new pension scams and protect individuals: Scams are not a necessary consequence of the pension freedoms.
• 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.
• 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.

Pensions Dashboard

• A non-commercial pensions dashboard will be a welcome, if overdue, additional tool to provide transparency to individuals and help them plan how they use their pension funds.
• For a pensions dashboard to be launched in a timely manner, it will necessarily be limited at the outset.
• 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 launchfor example, longer term plans to enable consumers to make value for money comparisons through the pensions dashboard.
• The pensions dashboard should also feature retirement income targets to ensure the information is meaningful to its users.

Tax relief

• Government should urgently resolve the discrepancy between net pay and relief at source tax relief that, over a lifetime of pension saving, will make a significant difference to many people and a represent 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.

Advice and Guidance

• In 2017, in its major report on Pensions Freedoms, the Committee called for a 0.75% charge cap on investment pathways.
• These must not become a substitute for guidance, which is still required to help individuals determine which product is right for them.
• It is not clear how, under the proposed investment pathways, an individual who states that they plan to use their money to set up a guaranteed income is supported to do so without guidance.
• Many people who have passively built up retirement savings through automatic enrolment would likely need support through advice or guidance if they wanted to make an informed choice on purchasing a product which provides a guaranteed income.

Further information

House of Commons Library

Brexit - implications for private pensions

Looks at the emerging discussion about the potential implications of Brexit for EU pensions

What is the legal framework?

• The design of pension systems is largely the responsibility of Member States. The regulatory framework at EU level covers:
  • establishing an internal market for funded occupational pension schemes and the minimum standards to protect scheme members;
  • minimum guarantees concerning accrued rights in occupational pension schemes in case of the insolvency of the sponsoring employer; and
  • anti-discrimination rules. (European Commission Memo 10/302 Green Paper on Pensions and Green Paper. Towards adequate sustainable and safe European pension systems, July 2010, SEC(2010)830)
• The Pension and Lifetime Savings Association (PLSA) explains that UK workplace pension schemes tend to operate on a national basis but want access to investment opportunities and service providers in the EU:
  1. Workplace pension schemes in the UK are not generally looking to provide pensions to workers in other Member States. So, in this respect, there is little interest in taking up the opportunities that might - in theory at least – be provided by an effective EU-wide Single Market.
  2. However, workplace pension schemes do want ready access to investment opportunities and service providers in EU and across the world, and this is where a strong Single Market has a role to play. Having ready access to the widest possible range of service providers helps schemes to invest their assets and administer their schemes with a minimum of cost in order to provide the best value to their members. (PLSA Response to balance of competences review, January 2013).
• EU legislation has an impact on them:
  • directly, through pensions-specific EU legislation such as the Directive on Institutions for Occupational Retirement Provision (‘IORP Directive’) that have been transposed into UK law; through the regulatory activities of EIOPA; and through EU employment law, such as the Equal Treatment Directive; and
  • indirectly, because the costs of complying with the EU’s investment markets legislation (such as EMIR, MIFID, the draft Money Market Funds Regulation and the potential Financial Transaction Tax) are passed to pension fund clients by asset managers, brokers and banks. (Ibid)

What will Brexit mean for this?

• The PLSA said pension schemes need a strong economy, the right regulation and strong financial services.
• They did not want major regulatory upheaval: UK pensions law is extensively intertwined with EU law, regulations and court rulings.
• However, it would be important to protect them from any EU legislation on a solvency-based funding regime for pension schemes that might be introduced in the longer term (Ibid).
• The ABI has set out 'five key asks' for UK insurers: securing an appropriate regulatory environment; retaining the ability to passport out of and into the UK; closely mirroring the EU data protection regime; an improved future migration policy that enables the employment of high-skilled professionals from both within and outside the EU; a strong focus on regulatory dialogue and interantional agreements on financial services markets (ABI press release, 12 December 2016).

What about market changes?

• (Market volatility following the EU referendum: guidance statement from TPR, July 2016).
• The PLSA has produced a Brexit to-do-list for trustees, setting out ten actions to ensure their scheme is well-placed to deal with Brexit, including reviewing the employer covenant funding status and investment strategy.

What does the pensions industry want?

• According to the PLSA, the UK has the larges pensions sector in Europe, providing pensions for 20 million people and with over £1 trillion of assets under management. It argues that a successful outcome from the Brexit negotiations would include the following:
  • For a strong economy: replication of both the current UK-EU framework for free trade in goods and existing EU free trade agreements with third countries. Also, a new immigration policy that continues to allow flows of talent and labour from the EU for the good of the wider economy in general and pension schemes in particular;
  • For the right regulation: the maximum possible access to the Single Market in services – while also exempting pension schemes that operate only in the UK from damaging EU pensions regulation, such as a potential solvency-based regime for pension funds;
  • For strong financial services: continuation of the passporting regime so that pension funds can invest efficiently. (PLSA, Brexit and Pension Schemes: Getting the right deal for Britain’s savers, January 2017).
• The ABI has called on the Government to “make a clear commitment that it will seek an early agreement with our European partners on a high level transitional implementation period which will help avoid economic shocks to both the UK and the EU”. It has also set out ‘five key asks’ for UK insurers:
  • Securing a regulatory environment that is appropriate for the UK market.
  • Retaining the ability to passport out of and into the UK.
  • Closely mirroring the EU data protection regime to avoid a quagmire of complexity around how personal and non-personal data is protected.
  • An improved future migration policy that enables the employment of high-skilled professionals from both within and outside the EU. (ABI calls for ‘clear commitment’ to a transitional implementation period following Brexit, December 2016).

Some potential areas of impact...

• When the UK leaves the EU, those relying on a passport, which at that point falls away, may be in breach of local law.
• There are a range of possible solutions to those ranging from leaving firms to sort it out themselves, to mutually agreed and enacted solutions.