The government’s response to its consultation on early exit fees and transfers has left trustees with a lot more work to do. Fortunately, Engaged Investor has drawn up a checklist of what trustees need to know.
1) Exit fees
In January this year George Osborne confirmed that the law would change to enable the FCA to cap excessive early exit charges.
Now, in the government’s formal response to the consultation on early exit charges, it has confirmed that it will be mirroring these requirements for trust-based schemes.
The government will introduce legislation in the Bank of England and Financial Services Bill to amend the Financial Services and Markets Act 2000 (FSMA) with a view to introducing a cap by March 2017.
The rate will be set by the FCA, following cost benefit analysis to determine the appropriate level.
For trust-based schemes the rate will be set at a “comparable level” and the Pensions Regulator will be working alongside the FCA on both the design and rate of the cap to “ensure that any relevant concerns with respect of trust based schemes are appropriately addressed for all consumers”.
Trustees should review their schemes to understand what exit penalities they currently have (if any) and keep an eye on what the new cap might be. When the new cap is announced they will need to review fees accordingly.
2) New Guidance
The Regulator has confirmed that it will be releasing new guidance for trustees around transfers. The guidance will be designed to help ensure transfers are processed promptly and accurately.
Evidence gathered alongside the consultation revealed that for the majority of individuals transferring between FCA-regulated contract-based pensions schemes, transfer times were relatively quick (16 days on average). However, TPR data showed that the average transfer time for trust-based pensions was much longer (39 days), and many consumer survey respondents said that they had to wait significantly longer for individual transfers.
As such, the government has concluded that there are considerable improvements to be made, especially for trust-based schemes.
The response said: “This is an area that both the government and the Pensions Regulator continue to focus on, but it is important to recognise that, in general, these improvements need to be made as part of the overall process of increasing the administrative efficiency of trust-based pension schemes.”
TPR will be consulting on the guidance - which will help trustees meet the standards set out around transfers in the DC code and address the issues raised in the consultation.
The consultation will also consider ‘digital by default’ approaches, scheme documentation and improved administration processes.
Trustees should make sure that they respond to the consultation when it is published, as this will help ensure that any guidance is helpful in meeting any new regulatory requirements.
3) New reporting regime
In addition to providing guidance the government will also create a new regulatory requirement for TPR regulated pension schemes to report on an ongoing basis how they are performing in processing transfers, including against possible benchmarks and new transfer targets.
To ensure that the new process improves transparency and drives up standards for individuals, whilst being practicable for schemes to implement, TPR will work with the pensions industry over the coming months to identify the best way of delivering these objectives.
Trustees can expect new regulations to come into force in Summer 2016.
Trustees should examine their existing pension transfer times to try and establish what might be causing delays and how this could be rectified. Trustees should also work with the Regulator to make sure that any new changes are practical.
4) More responsibility for Pension Wise
The scope of Pension Wise will expand to provide guidance on pension transfers (a pensions transfers ‘roadmap’) in order to support individuals through the transfer process.
This will include providing free and impartial information on schemes’ statutory requirements, and their responsibilities in terms of managing a safe and efficient transfer process for Pension Wise users.
Trustees should make sure that they point any members who would like to transfer to the new Pension Wise service when it is made available