The government has published its response to the “Freedom and choice” consultation, which introduced the revolutionary pensions reforms announced in George Osborne’s March 2014 Budget. Read the industry reactions here
9.42am: Stephen Lowe of insurer Just Retirement notes that “guidance is not mandatory, so the one obvious gap that still needs addressing is what happens to those who don’t take up the offer. There is no requirement for a product provider to check if guidance has been taken before selling someone a product”.
Tuesday 22nd, 9am: “The guidance guarantee as proposed is of very limited value”, says Kevin LeGrand, head of pensions policy at Buck Consultants. “There is a danger though, that the proposed guidance, as “approved by the government” will be seen by many as sufficient,” he adds.
6.15pm: Independent trustee Richard Butcher is not completely sold on the central tenet of the reforms: “The principle of allowing people to take full cash at retirement continues to concern us. While we agree that it should drive innovation in payment phase product design, the policy has been designed without the benefit of any evidence on how people will react. There is a risk that some will spend their money too quickly and others too slowly. Neither outcome is good for them or the exchequer”, says the PTL managing director.
4.12pm: Mercer’s Brian Henderson, head of DC and savings, said the changing tax rules “will make longer working lifetimes a more tolerable thing for younger people”. Henderson notes that the raising of the minimum retirement age to 57 “is irrelevant for most people” as few “are likely to have sufficient pension savings to be able to retire from work completely at 55”.
3.30pm: Law firm Hogan Lovells notes that DC schemes “with unusual benefits or underpins will need to look particularly carefully at whether they are covered by this [government plans to transfer between DC schemes within a year of retirement] in the final legislation.
“Schemes will need systems to copy with some complex new anti-avoidance rules to stop people recycling tax free cash as further pension saving”, said Andrew Lewis.
On the point of anti-avoidance rules, the People’s Pension’s Darren Philp cautions that “highly complicated rules just add cost and make it harder for individuals to exercise choice”.
The National Association of Pension Funds is less worried. “We’re pleased that the government has listened to us and chosen a solution that does not create a disproportionate burden of cost and administration”, said Graham Vidley, director of external affairs.
1.45pm: The TUC likens the government’s rhetoric around the reforms to the “pensions mis-selling in the 1980s”. General secretary Frances O’Grady says “half an hour of the best possible advice will not equip people for what could be thirty years of managing their pension pot”. Capita Employee Benefits estimates demand for guidance will quadruple as a result of the reforms.
1.37pm: Towers Watson’s reponse focuses on transfers. Senior consultant Fiona Matthews notes that “in practice, advice was already more or less compulsory because pension providers would not accept transfers without it.” Commenting on the block to transfers from unfunded public sectors, she says “it would be cheaper for taxpayers to pay back this debt than to pay the pensions”.
12.46pm: Not everyone is happy with the government’s announcements. Broadstone’s John Broome Saunders thinks the requirement for members to take advice before transferring to DC schemes “is a step too far.
“If the government really believes in flexibility and choice, they should be brave enough to allow individuals to make their own financial decisions.”
12.07pm: Commenting on the guidance guarantee, Tony Hobman of Lincoln International Pensions Advisory said effective communications “is one of the Regulator’s fundamental DC scheme quality features and it will now be more important than ever that those overseeing schemes, play their part in delivering accessible, clear and engaging messages to scheme members”.
11.30am: Spence & Partners says the lack of a DB to DC ban “should be a catalyst for trustees and scheme sponsors to work more closely together”. Marian Ellott, head of trustee advisory services at Spence, said trustees “should also monitor what impact the announcements may make to the scheme’s risk profile, should a significant number of members opt to transfer out”.
10am: Malcolm McLean, senior consultant at Barnett Waddingham, notes that the guidance guarantee “has now been watered down to include telephone and other electronic means of contact”. Orginally Osborne had said members would get “face-to-face” guidance.
McLean adds that annuities still have a role to play and that “these extra flexibilities may be just the shot in the arm the annuity industry needs at the present time to deliver the better products that individuals need and would buy into”.
9.30am: “The scale of the announcements today from The Treasury and the FCA is tantamount to the creation of a new ‘National Wealth Service’” says JLT Employee Benefits’s chief executive Mark Wood.
8.47am: Standard Life welcomes the lack of a DB to DC transfer ban: “we are pleased the government has ensured that private sector employers retain their right to manage their affairs in the interests of their businesses and employees”.
8.30am: New “older persons’ champion” Ros Altmann is relieved there has been “no backtracking” on the government’s promises. She is particularly excited by the potential for new products - for instance annuities “with a care funding option”.
8am: Hargreaves Lansdown’s Tom McPhail is worried about the capacity constraints of TPAS and MAS. He adds that the FCA has a “huge jo… in policing these new products.
“Without this regulatory scrutiny”, he warns, “these pensions freedoms could be nothing more than a misselling charter”.
7am: John Cridland, director-general of the CBI, kicks us off. He applauds the decision to allow DB to DC transfers. He isn’t concerned of a ‘flight to DC’ - “we don’t believe there will be a significant flight from DB schemes… because many people like the security of a reliable income so we don’t expect a major impact on the bond markets”.
21st July 2014: The chancellor George Osborne has unveiled the government’s response to the “Freedom and choice” consultation. The key points are:
- The infamous ‘guidance guarantee’ will be provided by independent organisations “with no actual or potential conflict of interest”. The Pensions Advisory Service (TPAS) and the Money Advice Service (MAS) are the first of these organisations, and there are hints Citzens Advice and Age UK will also be involved.
- Members of defined benefit schemes will be able to transfer to defined contribution schemes on retirement. This also includes transfers from funded public sector schemes, but not unfunded ones. Pensioners will not be able to transfer.
- A new override will be introduced to allow members to flexibly access their savings and “the tax rules will be amended to allow providers to develop new retirement income products that are tailored to the needs of individual consumers”.