Proposals announced today (5 April) by the Financial Conduct Authority have revealed the Treasury is planning to slash funding for Pension Wise by 27 per cent.
The guidance service’s budget as it exists will shrink by just over £10m, from £39.1m to £28.7m.
Today’s funding cuts follow a decision by the government to merge the functions of Pension Wise with the Pension Advisory Service, but also because it spent £7.3m less in 2015/16 than was budgeted.
A total budget for the new merged body will be £16.5m, or 42 per cent, lower than the moeny set aside last year just to cover Pension Wise, according to the FCA’s paper on fees and levies.
Pension Wise, like its successor, is paid for by the pensions guidance levy collected from the financial industry, including advisers, deposit acceptors, life insurers, portfolio managers, managers of collective investment schemes and pension schemes.
Despite the cuts, levy payers will be charged an extra £1.2m to cover the initial cost of providing consumers with guidance on the incoming secondary market for retirees to trade their annuities.
Pension Wise fund requirement
| Pension Wise fund requirement | 2016/17 £m | 2015/16 £m | Movement |
| Existing pension guidance service | 28.7 | 39.1 | -27% |
| Secondary market for annuities guidance service | 1.2 | N/A | - |
| Less 2015/16 underspend | (7.3) | N/A | - |
| Total 2016/17 funding requirement | 22.6 | 39.1 | -42% |
Source: FCA
The drop in Pension Wise funding followed news last month the Money Advice Service would be scrapped in favour of a new delivery model merging the functions of The Pensions Advisory Service and Pension Wise.
At that time, it was announced by Chancellor George Osborne he had decided to replace Mas with a much smaller body to focus on providing “frontline” services to those in financial difficulty.
The FCA paper on fees and levies also stated that distribution of the Pension Wise funding should be unchanged from last year’s model.
The unchanged distribution will also apply to the part of the 2016/17 Pension Wise funding requirement that relates to the extension of Pension Wise to provide guidance to consumers ahead of the new freedoms regarding annuity income.
Pensions guidance levy fee blocks
PGL Fee-blocks | Proposed 2016/17 £m | Proposed 2016/17 % | Actual 2015/16 £m | Actual 2015/16 % |
| Deposit acceptors | 5.4 | 24 | 9.4 | 24 |
| Insurers – life | 5.4 | 24 | 9.4 | 24 |
| Portfolio managers | 5.4 | 24 | 9.4 | 24 |
Managers and depositaries of investment funds, and operators of collective investment schemes or pension schemes | 3.6 | 16 | 6.2 | 16 |
| Advisory arrangers, dealers or brokers | 2.7 | 12 | 4.7 | 12 |
| Total | 22.6 | 100 | 39.1 | 100 |
Source: FCA
ruth.gillbe@ft.com
