Trustees have had very little time to prepare for the new freedoms which came into effect on April 6th, nevertheless they are required by law to update members on their rights.
April 6th has passed and we are officially in a new world of ‘freedom and choice’. Sort of.
Despite the new regulations coming into force, the vast majority of schemes are not yet offering the full range of options to members. Meaning that retirees who want to take advantage of the new freedoms will likely have to transfer out of their current scheme.
Trustees are playing for infinitely higher stakes - the wellbeing of their members”
Whether they have implemented shiny new drawdown products or not, trustees should now be updating members approaching retirement on the new choices available and the guidance guarantee. However, many were blighted in their attempts to get freedom ready in time by a lack of clarification from the government on what precisely needed to be done.
Even the Pensions Regulator’s ‘draft essential guide to communicating with members about pension flexibilities’, probably the most comprehensive overview of trustees’ new responsibilities, will not be finalised until the accompanying regulation is, later this year.
Unsurprisingly, trustees and administrators are feeling the pinch. It’s not unlike the Palate Test in Masterchef when contestants are expected to recreate an unheard of dish, without a recipe and using taste alone. Except trustees are playing for infinitely higher stakes - the wellbeing of their members.
Helen Ball, a specialist pensions lawyer at Sackers, said that the pace of change has left the industry reeling. “Almost every day we are seeing a new piece of legislation or comment or guidance… We’re still working through it because it’s only just come off the press.”
Richard Butcher, managing director of PTL and an independent trustee agreed: “I don’t know how we’re going to comply. We’ll point people towards Pension Wise, but the infrastructure isn’t there quite yet… If we point people towards the guidance guarantee, by and large all they’ll get is a ringing phone and what are members going to do then?”
The value of administrators
Ball argues that administrators could prove invaluable for trustees who are trying to cope with all the change. “The thing is not to panic. Talk to administrators… because quite a lot have their own communications that they’ve been developing, and ask ‘how can we fit our messaging in with that, and can you help us make sure that we are compliant with the minimum requirements that are coming in?’”
The thing is not to panic. Talk to administrators”
Of course, administrators have not had long to prepare either.
Daniel Taylor, head of administration services at Premier argued that normally operational overhaul such as this takes significantly longer to prepare for. “We usually plan for these operational procedure changes three to six months in advance. There’s usually a long lead-time, not just a few weeks.”
Confusion for members
Trustees do not just have to advise members about the guidance guarantee. They also need to provide information about transfers, value estimates, charges and crucially the tax implications of transferring out.
One concern is that this could make already long wake-up packs completely inaccessible to members.
The reason is not only because the number of options have increased, but so have the required number of disclosures and risk warnings”
Taylor, said: “it’s pretty straightforward, it’s well-written, it’s clear, but it does add volume.” He pointed to premier research that shows that people tend to disengage when asked to process huge amounts of information.
In Premier’s case the standard defined contribution wake-up packs have doubled in size from five pages to 10. Taylor explained: “The reason is not only because the number of options have increased, but so have the required number of disclosures and risk warnings.
“Over the coming months we’ll be looking at ways of staging the various communications so that the information can be broken up into bite size portions, but for the time being we really haven’t been given enough time to do that, so the information communicated in this pack has increased substantially.”
Butcher suggested that the sheer amount of new information that needs to now be communicated, could mean that the guidance guarantee gets lost in the mix.
“There’s so many times when we plead, down on our knees to the regulator, ‘stop asking us to tell people more stuff because volume of communication does not equal quality of communication.’ No one reads it, they just give up, they just don’t bother, it’s just too horrendous to even contemplate.”
It’s gonna take more than a clever cook to get that right. It’s gonna take a magician”
He continued, “Amongst all of the stuff that we have to tell people… Pension Wise could easily get lost.”
However it’s not all bad, Butcher argued that future may be brighter than the present. “I think in the long run that all of these things will improve and they will lead to better outcomes. It’s just in the short term; the government’s got to stop messing about. We can’t deliver all of this stuff in the way that they seem to envisage that it’s going to be delivered and as a consequence it’s going to do significant damage to the reputation of pensions.”
Or as Masterchef’s Gregg Wallace famously said: “It’s gonna take more than a clever cook to get that right. It’s gonna take a magician.”