Regulator finalises updated money purchase code
The Pensions Regulator has published the new version of its code of practice for occupational trust-based schemes providing money purchase benefits. This follows last winter’s consultation (see Pensions Bulletin 2015/50). The code has now been laid before Parliament and is expected to come into force in early July unless Parliament resolves that the code is not made. Until then trustees should continue to follow the current code.
Respondents to the consultation generally welcomed the revised code which remains split into six broad areas – the trustee board, scheme management skills, administration, investment governance, value for members and communicating and reporting. The code will be supported by guides on each of these specific areas, and consultation on those guides closed this week (see Pensions Bulletin 2016/15). This separate guidance has helped to keep the revised code at less than 40 pages long which is considerably shorter than the existing code which is nearly 60 pages. This helps to make the new code more accessible for users of it.
A consultation response has also been published which points out the following:
- The title of the code now refers to “schemes providing money purchase benefits” rather than “defined contribution schemes”. This change is intended to make clearer the range of schemes that the code applies to
- The draft code required that contributions were invested within three days. This requirement remains for schemes operating on a daily dealing cycle but the final code softens this slightly where the dealing cycle is less frequent than daily so that the requirement is that the investment takes place at the next available dealing date, and within a maximum of five working days after reconciliation of contributions
- The draft code contained detailed material on the requirements for independent trustees in relevant multi-employer schemes. This is now deemed too detailed for the code and will be in the relevant guide instead
- The code now refers to the ban on new member borne commission (see Pensions Bulletin 2016/09) which was not in force when the consultation started
Similarly, the code now refers to the legal requirement for trustees to provide “risk warnings” to members (again see Pensions Bulletin 2016/09).
Comment
We said the revised code was a significant improvement on the current code when it was published for consultation in November. We still have the same view and encourage all those working with trust-based pension schemes providing any money purchase benefits to read the code ahead of it taking effect next month.
PPI examines value for money in DC workplace schemes
“Value for members” is one of the six areas covered by the now settled DC code (see article above) and this topic is given a thorough examination in an interesting report published by the Pensions Policy Institute.
The report highlights that, while there is no single definition of value for money, it is more than simply cost. It posits that there are three outcomes that are likely to be seen as positive indicators of value for money by members – pension pot value, the security of the pot and the level of trust in the scheme. Using these factors it suggests, amongst other things, that:
- Good governance can be the lynchpin for driving better value for money and, where this is absent, this could lead to significantly poorer outcomes for members
- Effective communication strategies can influence outcomes by leading to higher employee contributions
- Final retirement outcomes in terms of pension pot value are largely driven by contributions; and
- Charge level alone cannot be taken as an indicator of outcomes, and should be considered together with levels of return to provide an insight into value for money
But perhaps the most interesting aspect of the report is that on decumulation which remains largely unregulated from a value for money point of view (for example there is no charge cap). The authors point out a number of concerns with decumulation – such as the current high level of variation in drawdown charges, members not being equipped to make decisions on how to access retirement income, challenges around effective communication with members and the clear risks of members making inappropriate choices.
Comment
This is a useful round-up of the vexed topic of value for money in DC schemes. As the report points out, the FCA may in future bring decumulation within the ambit of assessing value for money insofar as Independent Governance Committees are concerned. Where it goes for workplace personal pension schemes, the Pensions Regulator is sure to follow for occupational DC schemes.
FCA publishes results of survey of firms providing financial advice
On 28 April 2016, the Financial Conduct Authority published the results of a survey (carried out in November 2015) of a sample of firms that provide financial advice in relation to retail investment products, including pensions.
The results of the survey were used to inform the proposals set out in the FCA’s Financial Advice Market Review (see Pensions Bulletin 2016/10) and are also being used to inform the FCA’s ongoing supervisory work. In that context, the data makes interesting reading.
In relation to pensions the report shows that:
- Financial advisers are being asked to provide retirement income advice on lots of small DC pots (46% of customers having a pot of less than £50,000)
- Retirement income advice attracts a median initial percentage fee of 3% for pension pots up to £100,000 and a median ongoing percentage charge of around 0.5%
- In relation to insistent new customers (ie customers who wish to transact against an adviser’s advice), of the 39% of firms willing to give advice on DB to DC transfers, nearly 75% were willing to transact against their own advice
- Since the introduction of the retirement freedoms in April 2015, the total number of requests from existing customers for DB to DC transfers had more than doubled, whilst the figure for new customers had more than tripled
Comment
Improving the affordability of financial advice is one of the key objectives of the Financial Advice Market Review. The above statistics give an indication of the nature of the problem that needs to be tackled as for many prospective clients, the level of fees currently charged will appear to be very high.
DB transfer quotations and payments increase
LCP is monitoring the pattern of transfer quotations and payments for the DB schemes we administer, and the practices adopted by trustees, to see how things are changing following the introduction of Freedom and Choice in April 2015.
Our findings include:
- A spike in the number of transfer quotation requests immediately after the 2014 Budget, followed by a more sustained increase since the start of 2015
- A noticeable up-tick in take-up rates in the six months prior to April 2015 seems to have reversed – perhaps as a consequence of the new requirements to take financial advice for most transfers
- Transfer quotations that proceeded to payment were, on average, much larger than those that did not
- A significant increase in the average age of members both requesting quotations and taking transfers
- Currently, nearly 30% of schemes we administer are including estimated transfer value figures in retirement packs and around 15% are offering partial DB transfers
More details, including charts, are available on our website.
HMRC to ask for suspension of reporting of non-taxable death benefits
Last September, in section 9.2 of Pension Schemes Newsletter 72, HMRC set out guidance for the reporting of lump sum death benefits from April 2016 through RTI, with administrators being asked to quantify the taxable and non-taxable elements. It now appears from media reports that such reporting to HMRC has resulted in it incorrectly sending notices to some beneficiaries demanding tax that was not due.
HMRC is investigating this issue and is expected to shortly announce, in a further Newsletter, that lump sums that are entirely non-taxable should not be reported to HMRC for the 2016/17 tax year.
New Pension Tracing Service launched
The Department for Work and Pensions has launched a new pension tracing website which it hopes will help people more easily and quickly locate their lost pension savings. The website, which is free to use, provides contact details for workplace or personal pension schemes associated with an employer or pension provider, but it does not tell users whether they have a pension, or what its value is.
Comment
The DWP’s free Pension Tracing Service has operated for many years, but until now could only be accessed by phone or post. The website should be a great step forward.
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.
