Pensions  

Pension update

Self-invested personal pensions (Sipps) are to be forced to disclose the interest they retain on client accounts in projections. As part of its consultation on the pension freedoms (published 1 October), the FCA revealed many firms do not include the interest, meaning many projections are being overstated and charges understated. The changes will come into effect six months from 1 October (1 April 2016).

As of 2013, firms have been required to treat the interest retained on cash accounts as a charge. As part of MM’s survey, we asked providers how much interest they retain. Many either did not disclose information or do not retain any. The Table shows the amount retained.

The regulator’s paper – CP15/30 – states it is designed to ensure the market works well for consumers. The paper invites discussion with industry and consumer groups and consultation is open until 4 January 2016.

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Meanwhile, it has not been more than six months since the freedoms came into effect, but many have bemoaned a lack of innovation around solutions in the market given the demand. According to research by MetLife, 72 per cent of advisers believe clients should have some guaranteed income while 82 per cent of savers want to have most of their income guaranteed. The survey – carried out among 1,164 working adults aged 45 and over – proves there is strong demand for a form of guarantee.

Simon Massey, wealth management director at MetLife said, “The six-month mark is a natural time to review freedoms, and the verdict for the industry is that we must do better.”

Incentives

Pension tax relief has come under fire, with research fellow at the Centre for Policy Studies (CPS), Michael Johnson, slamming the current system and arguing that it is “expensive, incompatible, inequitable, illogical, incomprehensible and an ineffective use of Treasury funds”. Its report, ‘An Isa-centric savings world’, suggests all income tax and national insurance contribution relief on pension contributions should be scrapped, and be replaced by a 50p Treasury incentive per post-tax £1 saved. The report suggested it would “significantly help” to realise the National Pension Commission’s vision for median earners to have a two-thirds total combined earnings replacement rate.

The proposals have not been welcomed on the whole. Malcolm McLean, senior consultant at Barnett Waddingham, said they were “very radical” and challenged much of the established thinking as to how best to stimulate and support long-term saving through tax relief and other incentives.

Rebrand

Elsewhere, the National Association of Pension Funds (NAPF) has been renamed as the Pensions and Lifetime Savings Association (PLSA). The declared purpose of PLSA will be to help everyone achieve a better income in retirement.

It will speak for all of the workplace pensions community and will also look beyond pensions and speak about lifetime savings, while supporting savers. The cost of the rebrand has not been disclosed as it is deemed “commercially confidential”.

And more than 7m men over 65 and women over the age of 62 were offered the chance to top up their state pensions from 12 October. Pensioners could get up to £25 a week more on their state pension in return for a one-off contribution, but how much they have to pay depends on their age. The offer is open to existing pensioners as well as anyone who will reach the state pension age before April 2016.