Measures to counter “barriers” to pension freedoms announced
The Treasury is looking to cap exit charges and improve transfer processes in its response to last year’s consultation on the perceived barriers to people accessing their pensions flexibly (see Pensions Bulletin 2015/34).
The Chancellor had already announced last month (see Pensions Bulletin 2016/02) that the Financial Conduct Authority (FCA) would be empowered to limit early exit charges for contract-based pension savers seeking to access the new pension freedoms. This is being achieved by an amendment to the Bank of England and Financial Services Bill currently before Parliament, with the intention that the cap is implemented by the end of March 2017. The Pensions Regulator will work in partnership with the FCA to ensure that any concerns in respect of members of trust-based schemes are addressed.
Of course, early exit terms are contractual terms and there is normally a presumption that the Government will not interfere with contracts unless there is a compelling public policy reason to do so. The Government states that in its view the cap on exit penalties is warranted in order to ensure that individuals are able to access their pension savings under the new freedoms.
Whilst the early exit charge cap is likely to primarily impact a relatively few legacy contracts, proposed changes to the transfer regime will be more far-reaching.
There will be a new regulatory requirement for trust-based schemes to report on an ongoing basis how they are performing in processing transfers, including against possible benchmarks and new transfer targets. The Pensions Regulator will work with pensions industry bodies with a view to this new requirement coming into force this summer.
The Pensions Regulator is currently consulting on its revised DC code (see Pensions Bulletin 2015/50) and will also consult on best practice guidance to help trustees meet the standards in the code. This will cover actions needed to ensure that transactions are processed promptly and accurately including “digital by default”, documentation and improved administration processes.
Pension Wise will develop a new “roadmap” to assist individuals through the transfer process. But the Government has not decided whether to have an official “whitelist” of approved pension schemes to make due diligence easier for providers.
The Government is awaiting the outcome of the Treasury/FCA review into the financial advice market generally (FAMR), expected around Budget 2016, before deciding whether any action is required to change the independent advice requirement.
Comment
So we are to have a new regulatory requirement about reporting transfer performance, which is likely to affect the entire trust-based world. Despite its likely imposition this summer, we currently have no details of what the requirement will be.
Pensions and Brexit - research paper
The upcoming referendum on whether to remain in or leave the European Union continues to dominate the political headlines. A detailed paper published by the House of Commons Library explores current public policy in a range of areas and how it would be changed by a Brexit.
Section 15 (“Pensions”) notes that while UK workplace pension schemes tend to operate on a national basis there is EU legislation that impacts them both directly and indirectly. Directly by, for example, the “IORP Directive” (see Pensions Bulletin 2016/04) and EU employment law, and indirectly by the costs of complying with the EU’s investment markets legislation. Workplace pension schemes do however benefit from ready access to the investment opportunities available in the Single Market.
The paper notes that, in relation to state pensions, longstanding rules about the co-ordination of social security entitlements for people moving within the EU (and the European Economic Area and Switzerland) apply. One consequence of a Brexit could be the many British pensioners living in these countries losing the annual increases their state pensions currently receive.
This – studiously neutral – paper concludes its pensions section with this remark: “The impact on pension schemes of being outside the EU would depend on the model of interaction the UK had with the EU and the extent to which it had a say in the development of legislation affecting schemes. Also important could be the way in which EU legislation provided for firms from outside the EU providing services or conducting transactions within it”.
Comment
At the time of going to press we do not know when the referendum will be or the terms of the Prime Minister’s re-negotiation. The lack of anything especially striking to be said about the specific implications for UK pensions underlines the uncertainties and risks surrounding this, some of which we recently blogged about. But this document will be a useful aide-memoire for those who need to get to grips with the issue.
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.
