Defensive lines for pension savings

The last few weeks has seen several new lines of defence added to the tactical map of UK pension savings.

New pension freedoms safeguards
In late January, the Financial Conduct Authority (FCA) proposed some new safeguards to help savers avoid making poor (or potentially disastrous) decisions under the new pension freedoms that come fully into force on 6 April 2015. The new freedoms will effectively allow savers aged over 55 to access their defined-contribution pension savings in any format they see fit subject to scheme rules and tax liabilities. Such latitude of choice makes the need for additional safeguards to protect the consumer ever-more important, and therefore any new protections are welcome. That said, the proposed new safeguards do seem rather thin. The following is an extract from the FCA Press Release 26/01/15 on this subject:

“Under the new additional protection rules, firms will be required to ask consumers about key aspects of the circumstances that relate to the decision they are making about their pension pot. These include issues such as health and lifestyle choices or marital status. This will come into force from April.

Providers will be required to give relevant risk warnings, such as warning of the tax implications of their decisions, in response to answers from consumers.¬†Firms must also further highlight the availability of the government‚Äôs new Pension Wise scheme or regulated advice.‚ÄĚ

The release goes on to say that, once the additional questions have been asked, individuals will still be able to proceed with their intended plan of action. The rules will be introduced on a temporary basis from 6 April (without consultation) to provide some additional protection for consumers.  Somewhat alarmingly, at the time of writing the providers are still not aware of what these questions will actually be, or how they will be implemented.

However, these new safeguards are still a positive move that should help at least a few savers avoid making poor decisions.

Pension Wise progress
On a similar line, the government also promised a new guidance service to help consumers make the right (and informed) decisions under the new pension freedoms. This service will be known as Pension Wise.

The service, which is free to use, will provide signposting towards decision paths for savers. Recently, the chief executive of TPAS (one of the providers of Pension Wise) spoke on this topic. She said:¬†‚ÄėGuidance is only about getting people started ‚ÄĒ not about giving them a course of action or advice.‚Äô

So while Pension Wise will not be a full solution to the issues and choices that consumers will face, it should at least provide an important, useful and impartial service to assist savers on their journey. That said, there is not yet any firm indication of what outputs this service will generate. 

Pension Wise will have two masters: HM Treasury (which pioneered the new pension freedoms) will be responsible for the marketing and take-up of the service, while the FCA will ensure that the service delivers what it is meant to, but importantly without crossing into the area of specific advice.

It remains to be seen how effective Pension Wise will be. What seems certain though is that the service launched on 6 April is likely to evolve significantly over time as experience and resource shapes the final offering.

Independent governance committees (IGCs)
Finally, and not least, the final rules for new governance committees were recently published. The FCA Press Release 04/02/15 on this topic states:

‚ÄúIGCs are a key part of the improvements in the governance of workplace pensions. The role of IGCs will be to represent the interests of scheme members in assessing the value for money of pension schemes, challenging providers to make changes where necessary.‚ÄĚ

Although paid for by the providers themselves, these committees are intended to act independently from their employer, and will act as an important check and balance on provider services. Each committee will publish their findings on (at least) an annual basis. As with the other new safeguards, the IGCs are a work in progress. Accordingly, the FCA has announced that¬†‚Äėa¬†review of the overall effectiveness of the new governance bodies will be conducted in 2017‚Äô.

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This should help to iron out any inconsistencies or areas of concern based on actual experience.

When taken together, the three new services¬†will do much to protect consumers. Yet some worrying gaps in the above defensive lines are clearly visible ‚ÄĒ particularly in the short term¬†while these services are starting up, and with the new¬†pension freedoms available from 6 April. Employers with concern or question on this important topic should speak to their usual¬†Jelf pensions consultant.