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

• ABI publishes consultation on simplifying pensions language
• FCA issues policy statement on pension reform
• Consultations on the secondary annuity market
• Survey shows TPAS enquiries up 71%

ABI publishes consultation on simplifying pensions language

On 19 April 2016, the Pensions Language Steering Group launched a consultation – “Making Retirement Choices Clear” – on simplifying the language used in connection with retirement options.

The new guide, which is co-ordinated by the ABI, with the support of industry, Government, regulators and consumer groups, aims to make pensions language simple, clear and consistent in order to help customers better understand their options at retirement.

The consultation looks to gather views, including from media and consumer organisations, in the hopes that the guide and language will eventually be consistently applied across the sector. Responses will be welcomed until 19 June 2016.

FCA issues policy statement on pension reform

On 25 April 2016, the FCA issued a Policy Statement reporting on the main issues arising from Consultation Paper 15/30 which sought views on pension reforms and proposed changes to the FCA’s rules and guidance), together with the finalised versions of the rules and guidance. The Policy Statement gives an update on the areas where it invited discussion and sets out the FCA’s next steps.

The FCA explains that the rules and guidance are relevant to “all those with an interest in the pensions and retirement space”, including consumers who have or will have contract based DC pension funds, or who will look to access their pension savings from a DC fund (including by transferring into a contract based pension).

One area where the FCA is introducing further flexibility, as a result of responses it received to the consultation, is in the rules relating to retirement risk warnings. The FCA will now permit firms delivering such risk warnings to start asking consumers questions before the consumer has decided how to access their pension savings, although firms will still be required to deliver the risk warnings after the consumer has made their decision. The Policy Statement also notes that the FCA will consider making changes to FSCS compensation limits, both overall and with regard to pension products; it will consult on any proposed changes later in 2016.

Consultations on the secondary annuity market

Three consultations have been launched in connection with the proposed secondary market for annuities, which is due to take effect from 6 April 2017.

HMRC tax framework

On 20 April 2016, HMRC published its consultation on the tax framework for the secondary market for pension annuities.

HMRC states that the creation of a secondary annuity market is intended to extend greater flexibility and freedom to people who had little choice but to buy an annuity with their pension pot. These changes aim to remove current tax constraints and provide scope for individuals to sell their annuity bought with funds from a tax relieved pension pot, in return for a taxable lump sum, or for the sale proceeds to be paid to a more flexible pension product.

The consultation lays out the proposed detail of the tax framework, and asks for views on a number of issues.

The closing date for comments is 15 June 2016.

FCA rules and guidance

Meanwhile, the FCA launched a consultation on its proposed rules and guidance for the secondary annuity market on 21 April 2016. The secondary market – in which buyers and brokers will need to be authorised by the FCA – is due to come into effect from April 2017.

The rules are designed to help provide appropriate consumer protection while promoting effective competition in the interests of the consumer. FCA Director of Strategy and Competition Christopher Woolard said: “Opening up this market extends the government’s pensions reforms to those who have already bought annuities, however, there are potential risks involved for consumers and we recognise that some consumers may be particularly vulnerable. We have set out proposed rules and guidance today that will help ensure that consumers have an appropriate degree of protection should they decide to sell their annuity income.”

Amongst other proposals, the FCA wants brokers to set out charges upfront, rather than being paid by commission.

The consultation closes on 21 June 2016.

New regulated activities

The third consultation was published by HMT on 21 April 2016, seeking views on the draft legislation that will create three new specified activities under FSMA, to apply to individuals operating in the new secondary annuity market.

The dedicated regulated activities requiring authorisation and supervision by the FCA are:

• entering into a regulated annuity assignment agreement as a purchaser
• entering into a regulated annuity buy back agreement as an annuity provider
• regulated annuity broking.

HMT states that the aim of the legislation is to make it easier for the FCA to apply specific, tailored rules for UK firms participating in the secondary annuity market.

The consultation closes on 2 June 2016.

Survey shows TPAS enquiries up 71%

According to analysis by Teamspirit, there has been a 71% increase in people seeking guidance from TPAS since the introduction of the pension freedoms just over a year ago. TPAS dealt with more than 180,000 enquiries over the year, with the most common trigger points being members reaching the point of retirement or beginning to receive pension payments.

The analysis also looked at TPAS’ latest “Women and Pensions Survey”, which found that 43% of respondents did not feel confident in making decisions around saving for their retirement, citing barriers of confidence, confusion and trust.

The report suggests that individuals would benefit from the industry taking the following positive actions:

• targeted and concise communication that ends the ‘boiler plate’ approach which can leave people discouraged and disengaged
• enabling easy access so that people can find information, set up and save regularly into their pensions – such as through automatic enrolment
• signposting to help people navigate the pensions landscape.