Existing auto-enrolment schemes Most schemes were established by individuals with little or no knowledge about pensions. There are now employers looking to move to a pension provider that can provide a better or more efficient service. In addition, auto-enrolment and the Equality Act are not natural bedfellows. The selection of some pension schemes has introduced ‘indirect discrimination’ into the workplace and employers are now looking to undo this harm. Examples of how schemes can discriminate against groups of employees include:
- Tax relief system (i.e., net pay with low-income employees)
- Religion (i.e., no Sharia fund option for Muslim employees)
- Fee structure (i.e., fixed monthly fees with young and low-income employees)
Regulation and consolidation. TPR has been very clear about its desire to reduce the number of own trust and small master trusts in operation. In essence, TPR is giving pension trustees three options:
- Upskill
- Employ a professional adviser/ trustee
- Consolidate into one of the large master trusts
The last two options are the most likely outcomes and are ones that many financial advisers could provide services to meet.
The Pension Schemes Act 2021 received Royal Assent in February and despite being watered down from the version proposed in 2020 it will still make significant waves across the pension and investment industries. The headlines are:
- Introduction of the pensions dashboard
- New criminal offences for trustees and advisers
- A new funding regime for defined benefit (DB) schemes
- Introduction of collective defined contribution (CDC) schemes
- Introduction of ESG into investment structures
The last three points all create new opportunities for financial advisers.
Ongoing factors to consider
Regulation
Despite the FCA and TPR saying they will work together, it is not yet obvious how this is happening. For example, in the last year or so we have seen them introduce different reporting standards, value for money assessments, and ESG implementation requirements.
Perhaps now is the time for the regulators to follow their own requirements and consolidate to create the value for money and better consumer outcomes they require of those they oversee.
Fees
In January 2021, the Department for Work and Pensions (DWP) confirmed there would be no change to the 0.75 per cent charge cap for defined contribution (DC) workplace pension schemes.
The price cap freeze was announced alongside the results of the government’s Pension Charges Survey 2020. Within the results, we find that the average charge being paid by savers is 0.48 per cent, which is significantly below the 0.75 per cent cap.
Arguably, those advisers looking to evidence value for money will find the 0.48 per cent a useful benchmark when negotiating pricing with existing providers and potential new ones.
When it comes to fees there are two areas that advisers should be wary of within their research:
Opaqueness
