Progress report on pension flexibility
In July (see Pensions Bulletin 2015/29) the Financial Conduct Authority and the Pensions Regulator announced that, in response to concerns about barriers to flexibly access DC pension pots, they would conduct a data collection exercise to inform the Government’s policy making.
The results of this work have now been published and make for interesting reading.
The FCA surveyed personal pension scheme providers while the Regulator surveyed occupational DC schemes, including nine master trusts. Their respective reports can be found here and here. Some highlights are as follows.
The FCA found that over 200,000 pension policies had been accessed in the three months following the introduction of the pension freedoms in April compared to 95,000 in the corresponding period in 2013. Of these over 71,000 accessed some form of income drawdown and over 120,000 had taken some form of cash withdrawal. Corresponding figures for occupational schemes are not available but of those surveyed 5% of members had taken income drawdown and 89% had taken some form of cash.
Meanwhile annuity sales have collapsed. The FCA data showed over 12,000 annuity sales compared to nearly 90,000 in the corresponding period in 2013. The Regulator data showed that only 15% of members took a lifetime annuity.
In relation to exit charges the findings are that 84% of consumers in FCA-regulated schemes and 89% of occupational schemes do not apply an exit charge. Small proportions of both types of scheme apply an exit charge of more than 5% of the pot.
FCA-regulated schemes process transfer requests in an average of 16 days compared to 25 days for occupational schemes. One delaying factor is that many providers require independent advice to be sought before accepting transfers where not required by legislation.
Comment
It is clear that the exercise of cash and drawdown options has quickly become the norm since April.
If the Government was looking for evidence of obstructiveness from pension providers then they will be disappointed by this. True, there are a small proportion of legacy arrangements which apply exit charges which might be described as excessive (say more than 5% of the pot value) and these may be a target of legislative or regulatory action. It is also true to say that the imposition of advice requirements by providers may be acting as a barrier, but providers may have good reasons for this and it is hard to see how this could be legislated against. The Government’s response will be interesting.
30 day vesting for money purchase benefits starts next month
As previously indicated (see Pensions Bulletin 2014/45) members who join occupational pension schemes from 1 October 2015 and who earn money purchase benefits only will be entitled to “vested” benefits after just 30 days service compared to two years previously.
Comment
This change greatly limits (although does not abolish) the venerable “short service refund” for early leavers. This may also reduce the attractiveness of occupational money purchase schemes compared to personal pension schemes for some employers.
Revised incentive exercises Code by year’s end
The Industry Working Group on Incentive Exercises says it expects to publish an updated version of its Code of Good Practice by the end of the year.
The voluntary Code of Good Practice on Incentive Exercises appeared three years ago with the stated purpose to “help ensure that all Incentive Exercises enable members to make informed decisions and better choices, whilst permitting exercises and options to be offered in a responsible manner” (see Pensions Bulletin 2012/25).
Much has changed in the past three years, in particular the pension freedoms started in Budget 2014. The updated Code is expected to take these into account.
Auto-enrolment – DWP updates the Hybrid Schemes Quality Requirements Rules
The Department for Work and Pensions has published a set of Rules that contain the necessary detail in order that a hybrid scheme can be tested to see whether it is of sufficient quality to be used as an auto-enrolment scheme.
The Rules, which appear to replace those issued in 2012, cover the same six types of hybrid scheme as before, but importantly enable those defined benefit schemes that are classed as hybrids to be able to use the alternative requirements for defined benefit schemes (see Pensions Bulletin 2015/11).
New shadow work and pensions secretary appointed
Following the completion of the Labour Party’s leadership election Owen Smith has been given the work and pensions brief in the Corbyn shadow cabinet.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
