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:

• Pension tips for teenagers
• Research shows view of retirement changing
• DWP and HMRC issue guidance for employers and trustees on the ending of contracting-out
• FRC reports on better compliance with UK Corporate Governance Code and need for improved adherence to the UK Stewardship Code
• Pensions Policy Institute research into DC choices
• TPR sets out approach to publishing information about cases
• Public service pension schemes code laid in Parliament

Pension tips for teenagers

The DWP is to team up with a financial education charity, the Personal Finance Education Group, to produce new teaching materials to help get information about financial planning into the classroom and boost saving for later life.

The aim is to have high quality teaching resources available for schools across the UK later in the year.

With automatic enrolment due to see millions of workers put in to a workplace pension scheme from the age of 22, the government believes it is essential young people enter employment understanding the importance of saving and the consequences of opting out.

The new initiative comes on the back of other efforts to help the UK public better understand pensions and saving.  For example, the DWP recently launched PensionTube, a new online hub within the video sharing website YouTube, bringing together content from the government and trusted independent sources that will in time cover the whole spectrum of pension-related issues.

The DWP has also launched major advertising campaigns.  The Your State Pension, Your Future adverts seek to raise awareness of reforms to the State Pension which will create a clearer and fairer foundation for people to build their own retirement saving upon.

Research shows view of retirement changing

New research commissioned by the DWP demonstrates the changing attitudes to retirement and working in later life.  The survey of over 2,000 retired and non-retired people aged over 50 reveals people are now looking towards a more flexible retirement and that traditional views of retirement are becoming a thing of the past.

DWP and HMRC issue guidance for employers and trustees on the ending of contracting-out

On 13 January 2015, the DWP and HMRC issued updated guidance for employers and trustees on the ending of contracting-out from 6 April 2016.

For further details on the abolition of contracting-out on a DB basis please see our Alert.

FRC reports on better compliance with UK Corporate Governance Code and need for improved adherence to the UK Stewardship Code

The FRC’s annual review of developments in Corporate Governance and Stewardship for 2014 has seen an increase in signatories to the Stewardship Code with signs of better engagement with large companies by investment managers.  However, the FRC considers that more needs to be done to ensure asset owners and managers follow-through on their commitment to the principles set out in the Code.

In 2015 the FRC will continue to focus on the issue of company culture and behaviours, as well as the application of the Stewardship Code and the role of proxy advisors.

Pensions Policy Institute research into DC choices

On 15 January 2015, the Pensions Policy Institute (“PPI”) published a report, “Supporting DC members with defaults and choices up to, into, and through retirement: qualitative research with those approaching retirement”.  The research explores preferences for how, in light of new legislation, savers might wish to draw a retirement income, the financial trade-offs that they are willing to make, and the default products and strategies that could best support them.

The research found that the Budget freedoms are popular with DC savers.  However, once they begin to understand the full scale of choices and trade-offs involved in deciding how to access their DC pension pots at retirement they can quickly become daunted.  This suggests that disengagement and inertia amongst consumers from April 2015 is a key risk without the provision of effective default strategies and appropriate guidance and advice.

The idea of their pension scheme or existing provider offering a default investment or drawdown option into retirement resonated with DC savers, with some believing that providers even had a “duty” to offer this; though they recognised the importance of wider individual and household circumstances and the need for there to be some element of choice for those who want it.

The research uncovered a number of specific risks which the PPI considers policy makers, regulators and the pensions industry should work together to address.  These notes include:

• Reluctance or inability to plan beyond the next few years, which means locking into a specific course of action either before or at retirement is generally unpopular.
• Poor understanding of both spending needs throughout retirement and likely life expectancy and, in particular, the probability of living beyond age 85, which means DC savers are likely to underestimate the importance of longevity insurance.
• Perceptions that there are “safer” or “better” investments they can use outside of pensions, which, when probed, are based on misguided beliefs or have not properly been thought through.
• Lack of engagement (even very close to retirement) leading to the potential for consumer detriment if the defaults available are not suitable and designed in the best interest of savers.

The qualitative research is the first of two stages in the project. The second stage of this research is intended to build on these findings to explore the potential challenges around comparing different options for DC savers at retirement, with a particular view to exploring the tools, visuals and rules of thumb that might help to benchmark different options available for providing income in retirement.

TPR sets out approach to publishing information about cases

On 15 January 2015, TPR has released a guide setting out its approach to publishing information on its regulatory and enforcement decisions using its powers under Section 89 of the Pensions Act 2004.

The guide explains that when considering publishing reports on certain cases TPR will take into account one or more of the following aims, together with the public interest:

• transparency
• education and guidance
• deterrence.

It also explains that, where one or more of these aims are met, TPR will also take into account factors which may weigh against publication in whole or in part.  For example, any adverse impact on market behaviours, or prejudice to our investigations or investigations by other bodies.

Information published will include “restricted information” under Section 82 of the Pensions Act 2004, which is normally subject to restrictions on its further use and disclosure.

Public service pension schemes code laid in Parliament

On 14 January 2015, TPR published a new code of practice to help public service pension schemes meet governance and administration legal requirements.

The code is particularly directed at scheme managers and pension board members of public service schemes.  It sets out the standards of conduct and practice expected of them and also includes practical guidance to help them comply with legislation, including new requirements, which come into force in April 2015.

The draft code has now been laid before Parliament and the Northern Ireland Assembly and is subject to Parliamentary procedure.  Together with the legislation, TPR’s powers will come into force from 1 April 2015.

TPR has published an essential guide to help scheme managers and pension board members navigate the code.