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 statistics on pensioners’ income in 2013/14
• EIOPA annual report 2014
• European Commission publishes report on gender gap in pensions
• FCA discussion paper on smarter communications
• FCA publishes rules on 2015/16 regulated fees and levies
• HMRC publishes updated technical specifications for pension scheme returns, event reports and accounting for tax
• HM Treasury progress report on the Equitable Life Payments Scheme
• Law Commission to launch new website
• NAPF launches new financial education service with WEALTH at Work
• NEST publishes retirement income blueprint
• OECD warns of the effect of the current economic climate on pension schemes
• OECD publishes pension policy notes
• PensionsEurope publishes discussion paper on pension funds and the Capital Markets Union
• PPI updates its Pensions Primer
• TPR survey on DC quality features in trust-based schemes

DWP statistics on pensioners’ income in 2013/14

The DWP’s “Pensioners’ Income Series” provides estimates and commentary on trends in and sources of pensioners’ incomes, from 1979 to 2013/14.

Among the key findings, the DWP’s statistics indicate that:

• the gap in average weekly incomes between pensioners and the working-age population has decreased notably over the past two decades
• pensioners have become less reliant on benefits as a source of income
• the percentage of pensioners in the bottom fifth of net income (after housing costs distribution) for the overall population has decreased from 43% in 1979 to 13% in 2013/14.

EIOPA annual report 2014

The European Insurance and Occupational Pensions Authority published its 2014 annual report on 26 June 2015.

The report outlines EIOPA’s main deliverables across its goals to strengthen consumer protection, deliver quality and timely regulation, ensure convergence, consistency and quality of supervision, support financial stability and develop as a modern and competent authority.

Chairman, Gabriel Bernardino, notes that EIOPA’s ultimate goal is to “ensure that insurance companies and pension funds are soundly managed, have a robust solvency position and treat policyholders, members and beneficiaries in a transparent and fair manner”.  He goes on to explain that EIOPA has “continued to work on its contribution to the EU regulatory framework for occupational pensions, with a focus on three fundamental objectives: enhancing sustainability, strong governance and full transparency.”  At the same time, it has been working on the prudential regulations and consumer protection measures needed to create a single market for personal pensions in the EU.

Among its top five achievements for 2014, EIOPA lists the publication of a consultation document on the solvency of Institutions for Occupational Retirement Provision (IORPs) and preliminary Advice to the Commission on personal pensions. 

European Commission publishes report on gender gap in pensions

On 23 June 2015, the European Commission published a report on “Men, women and pensions”, in which it outlines current gender differences in pensions within the EU.

Among other things, the Commission found that the gender gap in pensions remains wide, ranging from 4% to 46% depending on country.  Women, on average, receive pensions that are 40% lower than men’s, with current gender gaps in pay, employment and working hours remaining significant contributing factors.

The report also notes that reduction of the gender gap in pensions is a crucial means of ensuring economic independence for women, as well as being a building block towards greater gender equality in the EU.

The Commission intends to continue monitoring the gender gap in pensions, with a view to understanding its causes and effects and to establishing a comprehensive set of preventative and mitigating measures.

FCA discussion paper on smarter communications

On 25 June 2015, the FCA published Discussion Paper DP15/5 on “Smarter consumer communications”.

The discussion paper challenges firms to consider innovative ways of engaging and communicating with consumers about products and services, for example, by using videos, infographics or other new approaches to present information to consumers clearly and in a way that is easy to understand.

The FCA’s thematic work and market studies have previously revealed that the type of information consumers receive, when they receive it and the way it is delivered can drive both poor and positive consumer outcomes.  As the FCA notes, information needs to empower consumers to make informed decisions about products and services.

The FCA also notes that clear and engaging information helps to promote competition and deliver products and services that consumers want.  Whilst some firms are already developing new ways of engaging with customers, the FCA wants all firms to consider whether there is room for improvement in their own communications.

Examples of smarter communications include:

• communications using plain language, short format, bullet points and clear graphics
• use of interactive apps to help consumers understand and manage their product
• the use of infographics to explain complex information and concepts to consumers in an engaging way
• use of videos to help consumers engage with the essential terms and conditions of a product.

The FCA is seeking views on the discussion paper by 25 September 2015, with a view to publishing feedback on the responses later in the year.  The FCA intends to use the responses received to inform its ongoing interactions with both EU and domestic regulators on issues relating to disclosure.

FCA publishes rules on 2015/16 regulated fees and levies

The FCA is funded by the fees and levies recovered from the firms it regulates.  On 23 June 2015 it published revised rules for the tax year 2015/16 relating to its regulatory fees and levies for the FCA, the pensions guidance levy (Pension Wise), the Financial Ombudsman Service general levy, and the Money Advice Service.

FCA Policy Statement PS15/15 also includes feedback on the second part of its consultation on 2015/16 fees.

HMRC publishes updated technical specifications for pension scheme returns, event reports and accounting for tax

On 26 June 2015, HMRC published updated technical specifications for scheme returns, 2015 to 2016 event reports and accounting for tax.  These include event report XML schema, validation rules and error messages for pension schemes.

HM Treasury progress report on the Equitable Life Payments Scheme

In its June 2015 progress report, HMT reports that over £1.06 billion has now been paid out to Equitable Life policyholders through the Equitable Life Payments Scheme.

Since the last progress report in February 2015, the scheme has issued payments to a further 6,000 policyholders, meaning that over 902,000 eligible policyholders have been sent tax free payments.

The scheme was set up by the government in 2011 to make fair and transparent payments to policyholders who suffered financial losses as a result of government maladministration which occurred in the regulation of Equitable Life.

Law Commission to launch new website

On 30 June 2015, the Law Commission will launch a new website which has been developed using feedback from users of its existing site.

The Law Commission notes that the new site will be “more logical” and “much easier to navigate”.  There will be quick-search buttons for finding projects, publications and open consultations.

Everything on the existing site has been copied across to the new one and it is intended that all Law Commission reports and consultation papers going back to 1965 will eventually be uploaded to the new site.

NAPF launches new financial education service with WEALTH at Work

The NAPF has today (29 June 2015) launched a new financial education service which is designed for pension schemes to offer to their members, as well as for individuals approaching retirement.

The NAPF’s education and training arm, the NAPF Academy, supported by “WEALTH at work”, will offer pre-retirement financial education seminars from September 2015 in a number of locations, including: Edinburgh; Harrogate; Liverpool; Manchester; Birmingham; and London.

The sessions will address key issues for individuals to think about when considering their finances in retirement, including sources of income, the impact of risk, being tax efficient and recognising the actions that are key when planning ahead. The seminars will also look at the importance of taking into account other savings and investments as well as pensions, when planning for retirement.

The seminars are designed to provide useful support in addition to, and independent of, the Government’s guidance service, Pension Wise.  They will provide information only and will not include or constitute personal financial advice.

NEST publishes retirement income blueprint

Back in November 2014, NEST published a consultation report on “the future of retirement” by which it set out to explore how NEST might be developed in the light of the new pension freedoms that were introduced in April 2015.

This was followed by the publication of interim findings in March 2015, in which NEST described some high level themes which emerged from responses to its consultation.  NEST also set out six guiding principles to inform the design of default retirement solutions for DC pension savers.

NEST published its full consultation response on 27 June 2015, setting out the NEST trustee’s blueprint for a core retirement income strategy which is intended to “meet the needs of a significant proportion of NEST members”.

The retirement income blueprint provides for three building blocks that are designed to cover three phases of later life, from mid-60s to mid-70s, mid-70s to mid-80s and mid-80s and beyond:

• Income drawdown fund: To provide a steady income with the aim of protecting members against inflation, as well as giving them full flexibility to change their mind and withdraw some or all of their money.
• Cash lump sum fund: to be highly liquid so it can be used by members for unexpected events without affecting their core income stream. It is envisaged that it would be possible to top up this pot with additional lump sums during good market conditions.  This would be a fund from which members could move money in ad hoc lump sums into their bank account to use as they like.
• Later life protected income: To be “bought” gradually over time through small payments from the drawdown fund. This would remain refundable up to a certain age, at which point that money would be locked in to ensure a secure income is available for the remainder of a member’s life, to protect against the risk of running out of money before they die.

NEST now plans to work with the investment and insurance industries to determine how such a core strategy for members could be delivered.

OECD warns of the effect of the current economic climate on pension schemes

The OECD has published a new report in which it warns that the “current low interest rate environment poses a significant risk for the long-term financial viability of pension funds and insurance companies, as they seek to generate sufficient returns to meet promises”.

The inaugural edition of the OECD Business and Finance Outlook,  published on 24 June 2015, suggests that the “search for yield” creates a number of issues, including the potential risk of insolvency.

Angel Gurría, OECD Secretary General, said: “Generating the resources needed to confront the challenge of ageing populations will require a better global allocation of resources to the most productive investments but without excessive risk-taking […] much remains to be done to strengthen the ability of the financial system to absorb shocks and avoid the bubbles and busts of recent decades”.

OECD publishes pension policy notes

On 22 June 2015, the OECD published a series of two page notes which summarise the main features of various pension systems and the challenges that each of them faces.

The notes, which cover Australia, Belgium, Canada, Denmark, Germany, Italy, Korea and the UK, as well as OECD accession country Colombia, identify two key pension policy measures in each jurisdiction which would help improve the performance of those pension systems depending, on the countries’ current socio-economic situation.

The policy note for the UK calls on the government to reconsider the new pension freedoms that were introduced in April 2015.  The OECD considers that taking pensions as a lump sum could lead to pensioners having insufficient resources long after they have retired.  The note also suggests that professional training should be developed for workers in physically demanding jobs, with a view to improving their job prospects as they get older.

PensionsEurope publishes discussion paper on pension funds and the Capital Markets Union

PensionsEurope published a discussion paper on 24 June 2015, which examines the way in which pension funds contribute to jobs and growth in Europe and how they could strengthen their participation in the CMU.

The paper asks what should be done to increase the flow of capital to European projects and companies, highlighting the obstacles that long-term investors, such as pension funds, can face.

PPI updates its Pensions Primer

The PPI maintains a Pensions Primer – a “Guide to the UK pensions systems” – which provides a detailed description of the current pensions system and some archaeology of its different layers.

The Primer has been updated to reflect the current position, and legislated future changes to, the UK pension system as at June 2015.

TPR survey on DC quality features in trust-based schemes

On 23 June 2015, TPR published its 2015 survey into the presence of the DC quality features amongst trust-based schemes.  The quality features are set out in TPR’s DC code of practice, which is designed to help trustees to run schemes to high standards, so that they can deliver good outcomes for their members.

This latest research shows that, whilst the governance processes of 90% of master trusts and 86% of other large DC schemes have been reviewed against TPR’s quality features, many small and medium sized DC schemes have more to do – only 59% of medium sized and 39% of small DC schemes having been reviewed against the quality features.

The survey also reveals that 74% of small DC schemes and 48% of medium sized DC schemes have little or no knowledge of the quality features.  This compares with much greater knowledge of the quality features amongst master trusts (100%) and other large DC schemes (88%), which knew “quite a lot” or “a lot” about them.

A similar pattern is revealed in relation to the introduction of new minimum legislative governance standards in April 2015.

Executive director for DC pension schemes, Andrew Warwick-Thompson, said: “The survey demonstrates that, in the main, large schemes are better placed to exhibit the standards that we believe are necessary for good outcomes for retirement savers.  Therefore we urge all small employers preparing for automatic enrolment to choose a high quality large scheme such as a master trust or a group personal pension plan.”

The survey also shows that the areas with greatest scope for improvement related to TKU, investment strategies and administration systems.

TPR is in the process of updating its DC Code (which has been in place since November 2013 – see our Alert: TPR publishes suite of DC documents), to take account of recent changes in the law and in order to make the code shorter and simpler to apply.