This year has been a very different one for pensions, with Brexit consuming all the government’s capacity to introduce any changes to pensions legislation, at least for the meantime.
Because of this, the pensions industry has found itself in the unusual position of being able to take stock of how well it is serving the end consumer, and while our report card would contain some satisfactory or excellent scores, there are also a number of ticks in the ‘could do better’ box.
Nowhere was this more powerfully illustrated than when nine steelworkers and their wives from Port Talbot sat down in front of a room of financial advisers and explained how they had been led to give up their defined benefit pensions for an investment in a discretionary managed fund within a self-invested personal pension.
It was not just that they had been misled, which they had, but what really hit home was just how deep the impact of getting it totally wrong can be. These were real people, and they had been badly hurt. It was a picture no one in the room will soon forget, and nor should we.
Pension transfers continue to be a dominant theme, with the Financial Conduct Authority’s publication of PS18/6, CP18/7 and PS18/20. Building on the equally snappy CP17/6 these papers formally introduce the new appropriate pension transfer analysis and, within it, the transfer value comparator, as well as dealing a pretty strong body blow to the concept of two-adviser models, whereby one adviser provides the wider generic advice and the other provides the pension transfer specialist service.
The majority of the changes are undoubtedly positive and have been largely accepted by the industry. There were, however, some exceptions:
There were, however, some exceptions:
- Firstly, the decision not to ban charging. Many advisers strongly believe it creates bias and should not be allowed; many others are adamant there is no evidence to suggest this. The FCA has pledged to “carry out further analysis” but there is a definite suspicion of long grass.
- Secondly, the issue of triage. The paper acknowledges the value of triage, but that it should not cross the advice boundary, which rules out some of the pre-October models on offer.
- Lastly, the TVC, where initially suggested assumptions have been honed down to essentially a no-risk, no-return investment discount. One might believe that the purpose of all of this is to reduce the number of people transferring out of defined benefit schemes, or at least not until they start to take benefits.
The consensus is that the new Apta will not actually make much difference to consumer choices, largely because of the relatively high transfer values that remain on offer, and the relatively easy access to benefits under pension freedoms.
The latter continues to be closely monitored and may be leading towards the mandatory use of cash flow planning in assessing capacity for loss and sustainability of income.
The issue of technology and advice tools is another key theme for 2018 and beyond.
Now we have breathing space from legislative change, it may be time to reassess the many tools available on the market and how they can be used to create the most efficient and accurate service to clients as their retirement needs evolve.
With existing providers continually updating their offerings and new entrants starting to appear, it will be important to keep up with developments and keep an eye out for likely winners and losers.
Finally, 2018 was also the year when the final staging dates for auto-enrolment were reached and on the whole it has been a success, with criticism of the process focused on those who have not been auto-enrolled rather than those who were.