Aries Insight's Ian Neale says government and regulators should look to restore public trust in pensions in 2019, ensuring previous priorities such as the pensions dashboard do not fall by the wayside.
Maintaining trust and confidence in pensions should be their top priority, whatever the outcome of the political and economic uncertainty.
There are also a number of other important issues to be addressed, however.
One clear priority for the Department for Work and Pensions is to secure parliamentary time in the summer for a new pensions bill
It is now quite crucial to the recovery of public trust and confidence in pensions that these hopes are realised
This will include key enabling legislation for collective defined contribution schemes, as well as delivering the promised stronger defined benefit funding code, DB scheme consolidation, and even more powers for the Pensions Regulator.
Before it can get to this though, the government has to ensure a smooth transition of pensions guidance functions from the Pensions Advisory Service and Pension Wise to the Single Financial Guidance Body.
Sections 18 and 19 of the Financial Guidance and Claims Act 2018 – requiring members to be referred to appropriate pensions guidance before transferring or taking benefits – are among the few that are still not in force. Enabling this protection goal without making it look like a ‘hoops-and-hurdles’ obstacle course for members should be a priority for the Department for Work and Pensions.
The SFGB will also be responsible for implementing DWP policy to deliver a non-commercial pensions dashboard.
Great hopes had been raised that people will be able to see all their accrued pension rights, including the state pension, in one place. It is now quite crucial to the recovery of public trust and confidence in pensions that these hopes are realised.
A big year for DC
On the regulatory front, a significant deadline looms at the beginning of April: TPR has to ensure a successful outcome to its mastertrust authorisation process.
Existing mastertrusts not intent on continuing in business need to find another scheme to transfer out members’ accrued rights and benefits before winding up.
It is not immediately clear whether there are schemes willing to receive large numbers of what might be tiny pension pots.
The regulator, the DWP and HM Revenue & Customs all have an interest in the success of the second step-up in auto-enrolment minimum contributions from April 6, to 8 per cent from 5 per cent.
While opt-out rates did not leap when workers started paying 3 per cent instead of 1 per cent last April, the new rate of 5 per cent could be a bigger challenge where wage growth is still lagging inflation.
Government sluggish on net pay
HMRC could play a crucial role if the government decides to fix the net pay anomaly, whereby a growing number of low-paid workers don’t receive any tax relief when auto-enrolled into a scheme operating net pay arrangements – as most mastertrusts do.
This unfair situation first emerged in the 2015-16 tax year when the earnings trigger – the level above which pension contributions start to be deducted – remained frozen at £10,000, while the personal allowance increased above that.
The number of workers thus penalised will increase again in April when the personal allowance rises from £11,850 to £12,500.
A technical solution to the problem has been demonstrated to the Treasury and HMRC a year ago, but so far the government has not changed its policy, risking reputational damage to auto-enrolment and pension saving.
Self-employed – too difficult?
Pension saving by self-employed workers is another area where a policy change could boost pensions and future societal stability. Currently outside the scope of auto-enrolment, the self-employed don’t benefit from the ‘what you’ve never had, you don’t miss’ principle.
The Taylor Report in July 2017 put forward ways of using the self-assessment process. That is on the back-burner for now as the DWP pursues other ideas.
A high priority for the department this year should be facilitating scheme compliance with the court judgment on guaranteed minimum pension equalisation. HMRC, too, may play a role here, with some staff presumably well-informed after years immersed in GMP reconciliation.
Finally, and to return to my opening point, both regulators – TPR and the Financial Conduct Authority – should, alongside their general remit to protect pension savers, and in conjunction with the SFGB, make it a priority to redevelop public trust and confidence in the UK pensions industry.
Ian Neale is director at Aries Insight
