By David Brooks, Technical Director, Broadstone
Pension Freedoms and Choice
The call for evidence on the review of freedom and choice closed in October 2017. This inquiry focussed on what people do with their DC funds, their use of guidance and advice and the extent to which mis-selling and scams was an issue in the pensions market.
From this we have two main reports and outcomes to date.
The Committee issued a report (December 2017) putting forward proposals to ban pension cold-calling and to improve the use of guidance services (like Pension Wise) when members access their DC pots.
Ban on pension cold calling – The WPSC suggested a clause 4 for the Guidance Bill currently going through Parliament. One of the main things it did was to remove the link between the establishment of the new guidance body and the effective date of the ban. They are pushing for the ban to be in force by June 2018. The ban will cover calls, emails and texts that are unsolicited and cover pensions. They will be enforced by the Information Commissioners Office (ICO).
The Government has warmed to the idea but decided to propose their own amendment, which is expected soon.
Guidance – the Committee made some suggestions to put the emphasis on members turning down guidance when accessing their pension pot. This has proved difficult and the Government has been forced to review their own proposals due to pressure from an industry cautious of the burden of arranging guidance appointments (via multiple providers) only for them to be rejected. The direction of travel is towards a tightening up of the process so that people are asked whether they’ve received guidance or advice and, if not, offered the opportunity to do so. The Government will be erring on the side of caution it would seem but potentially adding more barriers to people accessing their benefits.
Verdict
The committee’s work here has helped the debate especially around the cold calling area. Banning unsolicited contact will not in of itself solve the scamming issue but it is a very strong message that if you’re contacted about your pension out of the blue it almost certainly won’t be in your best interest to transfer.
British Steel Report
Linked to the Pension Freedoms inquiry the WPSC took evidence on the activities around British Steel. These have been well publicised and the WPSC report, published in February, makes the following recommendations.
1. TPR to review the information provided to British Steel Pension Scheme members with their options.
2. Review the data standard in DB schemes, especially in readiness for the pensions dashboard and the requirement to be able to calculate benefits on a “statutory minimum and PPF basis”.
3. A ban on contingent charging for DB to DC transfer advice and a stronger naming and shaming protocol at the FCA when they take action against firms or advisers.
Verdict
Member data is a major issue, although the relevance of an ability to do a calculation of statutory minimum benefit is slightly lost on me. GDPR, pensions dashboard and the Regulator’s own guidance on record keeping and its addition to the scheme return puts member data at the centre of trustees and administrators mind. However, a more nuanced approach is needed to member data and we need to be careful that the work being done is relevant and of value to the member. Shuffling cards and filling in blanks is all well and good but I am unconvinced to what difference this makes. The major story for BSPS was the advice deficiencies around DB to DC transfers. The lack of capacity amongst qualified advisers is a major issue in, what still feels at times, a new paradigm for pensions where DB transfers are seen as a viable option for many. The FCA has been slow off the mark and I agree with the Committee that more needs to be done to protect the public from poor and fraudulent advice.
Collective Defined Contribution
The future of pension provision (at least at a large employer scale) is now being discussed. CDC remains a slightly nebulous and ill-defined term. At its essence it is DC with some target benefits and self-annuitisation. The big news is the agreement reached by CWU and Royal Mail to establish one of these schemes when the legislation exists to do so.
The WPSC met with key advisers and members of the CWU and Royal Mail to discuss the pros and cons to the establishment of CDC. This is very early days but my gut instinct is growing that the political will is there to draft some legislation and allow Royal Mail to be a proof of concept.
Verdict
The politicians are clearly concerned about the demise of DB and the failures of DC and so CDC sounds a bit like DB, but not so much that they have to worry about employer’s being driven to the wall because of their deficits. It’s also just different enough and, potentially, better than DC to tick that box also. There may be large question marks over the viability and economics of CDC but the political argument seems to be being won.
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