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:

• DWP announces that government will require providers to disclose all hidden pension charges
• DWP publishes landscape and charges survey
• FRC publishes new version of SMPI rules
  
• EIOPA publishes preliminary report on EU single market for personal pensions
• PPI Single Tier Series: The impact of the Government’s single-tier state pension reform
• Captain KMR Post (Pensions Ombudsman) February 2014

DWP announces that government will require providers to disclose all hidden pension charges

The government has tabled an amendment to the Pensions Bill to require pension providers to disclose all transaction costs in defined contribution workplace pensions.

This extra information is designed to enable those running DC schemes to see exactly how much they are paying for asset management services to get the best value for scheme members, who will also benefit from greater transparency.

The reform is the latest part of the government’s drive to bring greater fairness and transparency to pension costs.

Minister for Pensions Steve Webb said:

“We’re taking action to ensure consumers have access to good quality pension schemes so they have the confidence to plan for their futures. For the first time, we are shining a light into the murky corners of the pensions industry to make sure savers know what is happening to their money.

A lack of transparency around the true costs of trading can prevent schemes from securing value for money for their members. We will outline further details on our proposals shortly.”

The announcement also confirms that the government will publish its response to the consultation on charges, along with proposals on quality and transparency in workplace pension schemes soon. This will contain further details about the implementation and timing of the measures announced today.

DWP publishes landscape and charges survey

The government is taking action to help support existing pension provision in light of automatic enrolment to workplace pensions and has made a commitment to monitor its possible impacts.

This report provides the findings of a study, commissioned by the DWP, designed to:

• explore charging levels and structures in trust and contract-based pension schemes
• understand the characteristics of schemes that maximise the chance of better outcomes for members.

Key findings included:

• The average annual management charge (AMC) for trust-based schemes was 0.75 per cent of the fund per year; this had not changed significantly since 2011 when the AMC was reported as 0.71 per cent overall.  Among contract-based schemes the average AMC had fallen slightly from 0.95 per cent in 2011 to 0.84 per cent in 2013.
• Providers and advisers agreed that high charges could have a major impact on member outcomes over the lifetime of a pension.  However, most providers insisted that charges on new schemes were now at an historic low and argued against lowering them further, except on older schemes with very high charges.
• It was seen as vital that those responsible for governance should be skilled and engaged with their scheme and should meet regularly to assess its performance and objectives.
• Advisers underlined the importance of good administration in driving positive member outcomes and some felt that increased use of electronic data processing was central to maintaining high standards of accuracy.

FRC publishes new version of SMPI rules

Following consultation, on 20 February 2014 the FRC published a revised version of the standard that sets out how pension providers should treat SMPIs for members of pension schemes.  The changes aim to enable providers to issue personalised statements that more closely reflect an individual pension holder’s circumstances.

Since 6 April 2003 members of DC pension schemes have received annual SMPIs showing the amount of future pension in “real terms” that might become payable to them under the scheme.

The revised Actuarial Standard Technical Memorandum 1 (AS TM1) sets out the methods and assumptions to be used in SMPIs and reflects changes introduced by new disclosure regulations allowing pension providers to present more personalised illustrations to scheme members in their annual statements from 6 April 2014 (when revised disclosure requirements come into force).  For details please see our Alert.

The changes to AS TM1, enable providers to present illustrations which allow:

• cash lump sums to be taken out prior to the calculation of the illustrated pension;
• varying percentages of dependants’ pension to be assumed; and
• different levels of pension increases to be assumed.

EIOPA publishes preliminary report on EU single market for personal pensions

On 19 February 2014, EIOPA published its preliminary report on EU single market for personal pensions.

In summary, EIOPA has identified two main options for creating a single market:

• to introduce by way of a Directive common EU consumer protection rules for all existing and future personal pensions covering transparency and information disclosure, distribution practices, professional requirements and product governance arrangements
• to introduce a second regime in the form of a Regulation.  This second regime should be designed in a way that accommodates the tax and possibly also other differences between Member States.  It should enable transferability of accumulated capital and highly standardised product rules ensuring a high level of protection for personal pension holders.

EIOPA’s analysis has revealed that taxation, social law as well as difficulties in the area of harmonisation of contract law, appear to be the most significant hurdles to developing a single market for personal pensions.

PPI Single Tier Series: The impact of the Government’s single-tier state pension reform

On 19 February 2014 the PPI published two new briefings in its Single Tier Series:

• the impact of the abolition of contracting out (paper 4)
• changes to the State Pension Age (paper 5).

Captain KMR Post (Pensions Ombudsman) February 2014

The PO decided that Captain Post’s complaint that the trustees of the Airways Pension Scheme had improperly changed the index used to determine increases to his future pension from RPI to CPI should not be upheld.  He concluded that the Trustees reached a decision, taking account of relevant advice, which was within the range of reasonable decisions and was not procedurally improper.

Captain Post has announced that he will not be appealing the decision, as the Trustees are now invoved in a High Court case against British Airways over their decision to pay discretionary increases.

For a full summary of the case click here.