Are the new private pension reforms enough?

Earlier this week (January 30), the government published a number of documents that included: a new framework for assessing value for money for workplace schemes; a proposal to extend the framework for collective defined contribution schemes; and a call for evidence on options for addressing the growing number of small dormant pots.

It also published confirmation that the regulations for excluding performance fees from the charge cap will take effect from April 6 this year, and trustees will need to start explaining their policy on illiquid assets from October.

Trott said the UK is missing a trick, compared to the likes of Denmark and Canada, by not having access to these assets and this change will give trustees greater flexibility to invest at more meaningful levels, maximising the opportunity for members.

The big question remains about whether this is enough? Truthfully, probably not.

As part of the changes, Trott announced a new value for money framework, which will require pension schemes to disclose investment performance and the introduction of legislation for CDC schemes exclusive for decumulation, since these could help “improve member choice and outcomes”.

Now, for the most part, these measures have been welcomed by the industry as they will go a long way to reforming private pensions and developing the success that automatic-enrolment has brought.  

However, the big question remains about whether this is enough?

Truthfully, probably not. More can, and has, to be done to encourage saving and make it as easy as possible to do so. 

One aspect in particular where there needs to be a focus is offering regulated personalised guidance to close the advice gap.

Unfortunately, individuals currently may be auto-enrolled but do they know what this means?

Many individuals are now on a pension scheme but do not realise they have the option of salary sacrifice or even simply increasing their contribution =, thus allowing the employer too as well.

There needs to be more help for savers to understand their pension choices but due to the regulatory restrictions currently in place, it is quite difficult.

First and foremost, they need to understand the basics of a pension and process it from a personal perspective.

The value for money framework will help this in some way as it will at least allow employers and members to weigh up what is best for them, but I think that’s actually something for later.

First and foremost, they need to understand the basics of a pension and process it from a personal perspective.

The Financial Conduct Authority has said it is looking at transforming the advice and guidance rules, and while this will be great when it comes about, the when is a big question.

A timeline is yet to be provided for this and the hard lines of regulation currently mean pension providers are not able to directly alert customers to solutions that might be better for them as this would constitute advice. 

More needs to be done to help prompt and nudge customers to making a decision that is tailored to their own circumstances, particularly as the cost of living continues to squeeze.

The best-case scenario would be to have the guidance boundary regulation developed alongside the new pension reforms to really allow members and employers to maximise the potential.

Without that, will these new reforms have the same success as AE? Who knows.

Another area the government needs to provide insight into is the implementation of the reforms following the 2017 auto-enrolment review. 

While it’s fantastic that the age threshold will be lowered to 18 – the question is: when?

While auto-enrolment has been the big pension success story, industry and government need to make sure that feedback is taken into place.

A timetable is needed to implement the auto-enrolment reforms to give providers, employers and members a timeline to prepare. 

And while it’s fantastic that the age threshold will be lowered to 18 – the question is: when?

Taking a birds eye view of the situation, these reforms are great and will do a whole lot to the pensions industry as a whole.

But with the issue that people don’t realise they aren't saving enough and are under a false impression about the state of their retirement, something more needs to be done. And quickly. 

Sonia Rach is deputy news editor of FTAdviser

(Photo via Pexels/Leopoldo Fernandez)