Finally some details on the guidance guarantee. Soon-to-be pensioners will receive independent guidance from April 2015, as the government clarifies the guidance guarantee announced in this year’s Budget.
The delivering partners at launch will include The Pensions Advisory Service and the Money Advice Service. In a recent editorial, we predicted TPAS would have a leading role in delivery of the guidance.
“The government welcomes expressions of interest from a range of trusted consumer-facing organisations, including Citizens Advice and Age UK,” chancellor George Osborne said in the written ministerial statement.
Michelle Cracknell, chief executive officer of TPAS, said in a press statement that "a personalised conversation with someone who understands the issues affecting people as they come close to retirement can be life-changing".
The preparatory work will cost the government £10m, and the Treasury is seeking approval for a further £10m. The guarantee will also be funded by a levy, payable by "regulated financial services firms and those operating in the pensions market".
The delivering partners at launch will include The Pensions Advisory Service and the Money Advice Service. In a recent editorial, we predicted TPAS would have a leading role in delivery of the guidance.
“The government welcomes expressions of interest from a range of trusted consumer-facing organisations, including Citizens Advice and Age UK,” chancellor George Osborne said in the written ministerial statement.
Michelle Cracknell, chief executive officer of TPAS, said in a press statement that "a personalised conversation with someone who understands the issues affecting people as they come close to retirement can be life-changing".
The government's response – 'Freedom and choice in pensions' – stated the Financial Conduct Authority will have the appropriate duties and powers to set standards and monitor the guidance given.
It added: "The government will work with the FCA, the Pensions Regulator, industry and other key stakeholders, to consider how individuals can quickly and simply access information on multiple pots in an easily usable format."
As we suspected, the response also stated that not all guidance will be face-to-face, with online or telephone support being used.
The preparatory work will cost the government £10m, and the Treasury is seeking approval for a further £10m. The guarantee will also be funded by a levy, payable by "regulated financial services firms and those operating in the pensions market".
Source: Financial Conduct Authority
The government also announced members of funded defined benefit schemes will be able to transfer to defined contribution arrangements. There is an emphasis on funded, with members of unfunded public sector schemes excluded. However, members of funded public sector schemes will be permitted to move to DC schemes.
The government has estimated the proportion of people expected to transfer out of DB schemes to be below 10 per cent.
However, those wishing to transfer will be subject to safeguards:
Safeguard on: advice
Those that want to transfer from a DB to a DC arrangement will be required to take advice from a professional financial adviser who is independent from the scheme and authorised by the FCA.
Members will be expected to pay for this advice.
According to the ministerial statement released today the Association of British Insurers and Confederation of British Industry recommended this statutory requirement.
However, the need for advice will not apply to those with pots below £30,000, as trivial commutation rules would still apply.
Safeguard two: funding
Trustees will be allowed to ask the Pensions Regulator for more time to make transfer payments and will be able reduce the transfer values to reflect the schemes’ current funding level.
The government quantifies this by saying “it is unlikely that the number of members of defined benefit schemes wishing to transfer would be sufficient to destabilise any individual scheme”:
Source: HM Treasury
Government will work with the regulator, employers and trustees to develop guidance to make clear these powers to delay payments and take into account scheme funding when allowing transfers.
Tax regime
The government's consultation response also lays out the new tax regime for those accessing DC schemes. It stated that a permissive statutory override will be introduced to allow schemes to follow tax rules rather than their own scheme rules.
In a bid to prevent members from using new flexibility to reduce the tax bill, the government has put an annual allowance limit of £10,000 for those in flexible drawdown.
The government will also announce changes (read: lowering) of the 55 per cent tax charge on pension saving in drawdown account at death, in the Autumn Statement.
It will also consult on removing the requirement to transfer to a DC scheme for those DB members who want to access their savings flexibly.
So while trustees might not have to pay for it, they will be legally required to "clearly point their customers" to the guidance.
While clarity on the guidance guarantee and pension reforms will be welcomed by the industry, I'm sure many will be left wondering, with little more than eight months until these are to be in effect, if there is time to properly put a framework in place.
