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

• Citizens Advice publishes report on “Life after pension choices”
• PLSA research reveals savings reality for those aged 18 to 35
• PPF: last chance to apply to the FAS

Citizens Advice publishes report on “Life after pension choices”

Citizens Advice published a report on 25 August 2016 which looks at consumers’ reflections after using the DC retirement freedoms (introduced in April 2015) and their thoughts on future choices. It is the third report in a series exploring how the retirement freedoms are affecting consumers.

The research indicates that the freedoms have been popular so far, with consumers happy to have control over their finances and the ability to make their DC savings work better for their circumstances. Significantly, 35% of consumers who have used the freedoms say they have directly improved their own retirement prospects. By contrast, 5% said that the freedoms have harmed their prospects.

The findings show that consumers are likely to use their money for practical purposes, such as savings (29%), daily living costs (29%), investments (18%) or paying off debts (16%). Just over one in five expect to use their retirement savings for luxury spending.

To date, the most popular option has been for consumers to transfer their DC retirement savings into a bank account – 29% of all consumers and 32% of those with retirement savings worth over £100,000 have opted for this.

Some 12% of consumers have experienced unexpected income tax effects in relation to tax or welfare payments. The research shows that issues such as emergency tax codes and deprivation of capital rules have affected budgeting and created problems for some. In addition, most consumers have not made plans for future care needs, even after accessing their retirement savings.

In the light of its research, Citizens Advice makes a number of recommendations, with the aim of ensuring that the freedoms work for as many consumers as possible. These include:

• a review by the FCA as to whether warnings are being sufficiently targeted
• work by the Government to ensure that consumers can access good quality guidance and advice after they have made their first retirement choices
• consumers being encouraged to consider future care costs
• pension providers adopting the ABI’s pension language code (this was subject to consultation between April – June 2016, the final version is awaited).

PLSA research reveals savings reality for those aged 18 to 35

New research from the PLSA indicates that 18-35 year olds want to save for the long-term but are hampered from doing so by short-term necessity. Key findings include that:

• 51% of respondents surveyed said they get more satisfaction from saving rather than spending
• 57% have no debt (excluding student loans)
• 65% acquire no debt on a monthly basis.

However, high living costs and low salaries are cited as the main causes which prevent long-term saving, alongside lifestyle and rent or mortgage payments.

For this group, when a financial decision or situation becomes a fact of life, for example, managing a student loan, individuals quickly accept it and adapt. This has also been seen in workplace pensions, with an opt-out rate of just 7% for those under age 35.

PPF: last chance to apply to the FAS

The PPF has issued a reminder that FAS will be closed to new applications from 1 September 2016. The closure of the FAS to new schemes was originally announced in March – see 7 Days dated 14 March 2016.

The PPF took responsibility for the management of the FAS in 2009, on behalf of the Government which funds it through the DWP.

The FAS provides financial assistance to people who have lost out on their pension because:

• they were a member of an underfunded DB scheme that started to wind up between 1 January 1997 and 5 April 2005 (ie before the PPF was introduced), and
• their scheme began to wind up and did not have enough money to pay members’ benefits, and
• the employer cannot pay the shortfall because it is insolvent, no longer exists or no longer has to meet its commitment to pay its debt to the pension scheme, or
• the scheme started to wind up after 5 April 2005 but is ineligible for help from the PPF due to the employer becoming insolvent before this date.