Pensions; DWP review, Pensions & climate change and more.

• The pensions advice allowance: Under review
• DWP review of the default fund charge cap
• GMP equalisation working group promises a busy 2021
• Pensions & Climate change
• MaPS publishes first annual report and accounts
• FCA publishes tool to help assess suitability of DB pension transfer advice

 

 

The pensions advice allowance: Under review

(AF3, FA2, JO5, RO4, RO8)

The Treasury is carrying out a review into the Pensions Advice Allowance (PAA) after evidence submitted to the Work and Pensions Committee (WPC) suggested the £500 amount was too low.

The PAA was introduced in 2017, and allows savers to take £500 from their pension, tax-free, to pay for regulated financial planning. Scheme members can take up to £1,500 from their pot – £500 per year for three years – if the system is facilitated by their pension provider. 

However, the policy hasn’t been particularly popular.

Speaking at the WPC’s inquiry into pension scams, pensions minister Guy Opperman said:

“I understand that the Treasury is doing an evaluation of the PAA, and reporting back in 2021.”

“As far as I am aware, the Treasury looked at the PAA as part of the FCA’s Retirement Outcomes Review and also as part of the Financial Advice Market Review. They have then gone off to do an evaluation of the take-up and effectiveness of the PAA and report back in 2021.”

Responding to a question from MPs on the WPC about whether ‘guidance or advice’ is more important in regard to how the Money and Pensions Service (Maps) interacts with consumers, he said:

“I looked at the evidence given to this committee on this particular point, that the amount of the PAA was too low to provide a proper service that was necessary in these circumstances.

The question is, do we think this is the right product, and does it help? It appeared to be too low for the individual.”

You can find more information here.

DWP review of the default fund charge cap

(AF3, FA2, JO5, RO4, RO8)

The Department of Work and Pensions (DWP) has issued the response to the Review of the Default Fund Charge Cap and Standardised Cost Disclosure. 

This confirms that the charge cap on the default funds of workplace pensions schemes used for automatic enrolment will remain at 0.75%.

The response also provides details of the next steps involved in reviewing the effectiveness of costs, charges and transparency measures in protecting pension member outcomes, and it confirms that flat fees will be banned for auto-enrolment pots worth £100 or less.

The DWP also issued a separate but linked report outlining the types and levels of charges across defined contribution (DC) trust-based and contract-based workplace pension schemes. According to the data, all members in the qualifying schemes covered by the research are now below the 0.75% cap, and the average charge of 0.48% across all members is significantly below the cap. The figures also revealed that the average charge for other workplace pensions not covered by the cap (non-qualifying schemes) is now 0.53%.

GMP equalisation working group promises a busy 2021

(AF3, FA2, JO5, RO4, RO8)

In an industry update to mark the turn of the year, the Chair of the PASA GMP Equalisation Working Group has published an “update” which looks to what has been delivered by the Group in 2020 and what is to come in 2021.  The latter promises:

• Guidance on the tax implications of GMP equalisation (which we understand will focus on “dual record” approaches), taking into account the information provided by HMRC in 2020 – by the end of February.

• Information, including case studies (which we understand will be based on what schemes are doing in practice), on GMP conversion, produced by a newly-established group – by the end of April.

• A second good practice guidance document on communications, this one focussing on communicating during the implementation stage of a GMP equalisation project (the first document covered communications during the early planning stage – see Pensions Bulletin 2020/32).

• Examples to supplement the existing methodology guidance (see Pensions Bulletin 2019/37) to help schemes understand and deal with the complexities of anti-franking as they specifically relate to GMP equalisation – for the second quarter of 2021.

• Good practice guidance relating to equalising past transfer values; no date is given for this but an update on delivery timescales is promised in the first quarter of 2021.

Pensions & Climate change

(AF3, FA2, JO5, RO4, RO8)

On 27 January the DWP responded to the consultation it launched in August last year on proposals to require large schemes to disclose their approach to managing climate risks and opportunities in line with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).

In order to implement these proposals, it also published a further consultation on two sets of regulations along with statutory guidance.  These regulations and guidance will use powers introduced by the Pension Schemes Bill once this receives Royal Assent.  This consultation runs until 10 March.

Accompanying this is the final climate non-mandatory guidance from the Pensions Climate Risk Industry Group (PCRIG) which had been issued for consultation last March.

Lane Clark & Peacock has published a News Alert setting out the Government’s new extensive and highly prescriptive requirements that come into force from as early as 1 October 2021. The timescales, by the Government’s own admission, are challenging.

Key actions for trustees:

• For all schemes, familiarise yourself with the DWP’s latest proposals and the final guidance from PCRIG. 
• If your scheme assets are less than £1bn, ensure you are managing climate related risks and opportunities for your scheme; do not make the mistake of thinking that this is only for very large schemes; prescribed climate requirements will likely apply to you in a few years.
• If your scheme assets exceed £1bn, implement a compliant system of climate governance by 1 October 2022.
• If your scheme assets exceed £5bn, or if you are an authorised master trust or intend to be a collective defined contribution scheme, implement a compliant system of climate governance by 1 October 2021.

MaPS publishes first annual report and accounts

(AF3, FA2, JO5, RO4, RO8) 

Somewhat belatedly, the Money and Pensions Service (MaPS) has published its Annual Report and Accounts to 31 January 2021.  Focussing on the pensions side of its operations are concerned MaPS spent £5.7m on “pension guidance” and £28.1m on “pension freedoms”.  Its overall spend was £106.6m with some £54.3m on debt advice and £18.5m on money advice.

Turning to the pensions part of MaPS operations:

• Its pension guidance service covers a wide range of pensions-related matters and in 2019/20 MaPS held 213,892 pension guidance sessions. This was 10.9% fewer than its (revised) 2019/20 target of 240,000 and characterised by gradually improving volumes over the year to February but unsurprisingly the number of sessions held fell dramatically as a consequence of COVID-19 in March.

• Its pension freedom service relates to the ‘Pension Wise’ guidance it provides to those who have DC pension pots and who need to understand their options in order to make an informed decision when taking their benefits. In 2019/20 MaPS had 205,493 interactions with individuals in this area – slightly above its target of 205,000.

The report also notes that while there was a small initial drop in demand for pension guidance due to COVID-19, there has since been an increased number of calls on specific matters, with customers expressing concern about the impact of market volatility on pensions savings, considering whether to push back planned retirement dates and dealing with the impact of bereavement or ill health, as well as a range of other challenges resulting from the pandemic.

FCA publishes tool to help assess suitability of DB pension transfer advice

(AF3, FA2, JO5, RO4, RO8)

The FCA has published a Defined Benefit Advice Assessment Tool (DBAAT) to help the market understand how the regulator assesses the suitability of DB pension transfer advice. The DBAAT is used to assess advice received prior to October 2020, while an updated tool incorporating rule changes which came into force on 1 October 2020 will be published in the coming months. The FCA website states: “The tool sets out the key factors to consider when checking the suitability of advice and disclosure, thereby allowing firms to understand what is expected. We are publishing it now to give all firms access to this tool and recommend that firms, compliance consultants, auditors, insurers and trade bodies use it to understand how suitability should be assessed.”