7 days

7 Days is a weekly round up of developments in pensions, normally published on Monday afternoons. We collate this information from key industry sources, such as the DWP, HMRC and TPR.

In this 7 Days

• Capping early exit charges: Government and FCA respond
• ABI pensions language guide to launch
• FCA publishes rules for the sale of LISAs
• FCA publishes interim findings of asset management market study
• State Pension age review: GAD commissioned to look into projected life expectancy
• HMT publishes final report into Equitable Life Payment Scheme
• HMT: “7 ways financial advice is being made more accessible”
• TPR publishes scheme return guidance for DB and hybrid schemes
• TPR publishes new DB report

Capping early exit charges: Government and FCA respond

On 15 November 2016, the Government issued its response to the DWP’s May 2016 consultation on capping early exit charges for members of occupational pension schemes that contain “flexible benefits” (broadly speaking, DC benefits).

With effect from October 2017, the Government will introduce a cap on early exit charges imposed by trustees, managers and / or providers of occupational and personal pension schemes when a member leaves the scheme early in order to access their benefits flexibly. The cap will be 1% for existing members of occupational pension schemes, and 0% for new members, to align with the FCA’s approach in relation to contract-based pensions.

Minister for Pensions, Richard Harrington, said “We are restoring fairness and creating a level playing field in a system that has favoured the interests of providers over consumers for too long.”

The legislation will be introduced in the Pension Schemes Bill, amending and adding to the existing powers in the Pensions Act 2014. The Government intends to consult publicly on draft regulations which will set out the detail of the cap in early 2017.

The consultation was run in parallel with proposals published by the FCA in respect of contract-based pension schemes, with the aim of ensuring that all consumers benefit from the cap, regardless of the type of pension scheme they have saved into. The FCA announced on 15 November 2016 that it intends to bring its capping rules into force with effect from 31 March 2017.

For further details, please see our Alert.

ABI pensions language guide to launch

The ABI has published an updated version of its new guidance on simplifying language on retirement options, ‘Making Retirement Choices Clear’. The guide aims to standardise the language used to describe options, so customers can understand and compare products more easily without having to decipher technical terms.

The new guide is due to be officially launched at the ABI Annual Conference on 22 November 2016.

FCA publishes rules for the sale of LISAs

On 16 November 2016, the FCA outlined its proposed approach to regulating the promotion and distribution of the Lifetime ISA (“LISA”).

The FCA is proposing to regulate the LISA in the same way as other ISA products, with some additional protections designed to reflect the dual purpose of a LISA, in helping individuals save for either a deposit for their first home or for their retirement, and the restrictions on accessing funds.

The FCA proposes that firms will be required, amongst other things, to:

• give specific risk warnings at the point of sale which include reminding consumers of the importance of ensuring an appropriate mix of assets is held in the LISA
• remind consumers of the early withdrawal charge and any other charges
• note the risk of potentially losing employer contributions to a workplace pension for which consumers may be eligible, where they choose to open a LISA instead
• offer a 30 day cancellation period after selling the LISA.

Responses to the consultation should be made by 25 January 2017. The FCA aims to publish the updated rules in a Policy Statement in March 2017, with LISAs becoming available to investors in April 2017.

FCA publishes interim findings of asset management market study

On 18 November 2016, the FCA published the interim findings of its asset management market study, which suggests that there is weak price competition in a number of areas of the asset management industry.

The FCA launched the market study in November 2015, to assess whether institutional and retail investors get good value for money when purchasing asset management services. Andrew Bailey, Chief Executive at the FCA, said: “In today’s world of persistently low interest rates, it is vital that we do everything possible to enable people to accumulate and earn a return on their savings which can meet their lifetime needs. To achieve this, we need to ensure that competition in asset management works effectively to minimise the cost of investment.”

Amongst the FCA’s findings are that:

• there is limited price competition for actively managed funds, meaning that investors often pay high charges. On average, these costs are not justified by higher returns
• fund objectives are not always clear, and performance is not always reported against an appropriate benchmark
• investment consultants undertake valuable due diligence for pension funds but are not effective at identifying outperforming fund managers.

The FCA has proposed a “significant package of remedies” that seek to “make competition work better”, and protect those least able to engage actively with their asset manager, including requiring increased transparency and standardisation of costs and charges information for institutional investors, and exploring the potential benefits of greater pooling of pension scheme assets.

Any comments should be submitted to the FCA by 20 February 2017.

State Pension age review: GAD commissioned to look into projected life expectancy

On 16 November 2016, the DWP announced that GAD has been commissioned to look at projected life expectancy in future years, as part of the Government’s review of state pension age.

The Government has committed to reviewing the State Pension age every six years. The first review is due to report back by May 2017. The GAD review is intended to complement John Cridland’s independent review, whose interim report was published in October 2016.

HMT publishes final report into Equitable Life Payment Scheme

On 18 November 2016, HMT published the final figures on payments made under the Equitable Life Payment Scheme. The report gives a brief history of the scheme, a final summary of payments made, the outcome of tracing efforts, a breakdown of policyholders remaining unpaid and a breakdown of policyholders by size of initial payments made.

HMT: “7 ways financial advice is being made more accessible”

HMT published an update on 16 November 2016, into how the Government and FCA “remain committed to implementing the [Financial Advice Market Review’s (“FAMR”)] recommendations”. These include the introduction of the “pensions advice allowance” from April 2017, the online pensions dashboard by 2019, and the work on amending the definition of regulated advice.

TPR publishes scheme return guidance for DB and hybrid schemes

TPR has published additional guidance to assist those completing a 2017 scheme return in respect of DB and hybrid occupational pension schemes. Two checklists supplement the existing guidance on the scheme questions on Exchange, and a set of questions and answers specifically for DB and hybrid schemes is provided.

Additional questions have also been added to the 2017 scheme return form for DB and hybrid schemes, including:

• asking for more recent details regarding memberships, assets, contributions and scheme leavers
• requiring confirmation that the chair’s statement has been prepared and signed, where applicable
• requiring confirmation of whether the scheme is an “Executive Pension Scheme”.

TPR publishes new DB report

TPR has published “The pensions landscape: Defined benefits pensions 2016”. The report promises to be the first edition of what will be an annual report on all private DB occupational pension schemes registered with TPR, building on information found in the PPF’s “Purple Book”.

It includes information as at the end of March 2016, and covers all 6,200 private DB schemes, including hybrid schemes, and, for the first time, schemes not eligible for the PPF.

The first report finds that:

• 15% of DB schemes are open to new members
• 61% of occupational scheme members have DB benefits
• 12% of DB memberships are active
• 19% of memberships are in open schemes, a drop from 21% the previous year
• active DB memberships have fallen from 2,421,255 in 2010 to 1,650,491 in 2016.