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Government facing Lords defeat tomorrow over refusal to protect consumers

23 October 2017

  • Government faces Lords defeat tomorrow over refusal to protect financial consumers
  • Hard to understand why Ministers are resisting changes that have widespread support
  • Policy needs action not words – let’s not miss this opportunity to introduce cold-calling ban

Cross-party amendments to Financial Guidance and Claims Bill call for:

  • Ban on cold-calling for pensions
  • Mandatory guidance for pension savers before transferring money out
  • Breathing space to protect people with huge debts (vital as interest rates set to rise)

The Government faces potential defeat in the House of Lords tomorrow evening if it refuses to agree to cross-party amendments at teh Report Stage of the Financial Guidance and Claims Bill.

Ministers blocking measures to ban cold-calling ban and offer breathing space for debts: Having announced it wants to ban pensions cold-calling and introduce breathing space for people with unmanageable debts to help reschedule their payments, it is hard to understand why Ministers are refusing to agree to introduce the necessary legislation in the Bill now going through Parliament. Yet there is widespread support for this ban, across all political parties, consumers groups and providers.

Government says it won’t legislate for years: The Government has so far resisted all calls for these measures to be included in the Bill. Indeed, it has indicated that any legislation may have to wait until 2020. By that time, millions more people will have been plagued by nuisance calls, will be at risk of scams, and may lose their pensions. If the Government is serious about protecting consumers, then it has the ideal opportunity to act now.

Amendments to the Bill will be debated tomorrow with wide support across the Lords: A group of cross-party Peers has worked hard with the Parliamentary authorities to find ways to include these measures in the Bill. We are all concerned about doing more to protect consumers. The amendments would make a significant difference to the public and would pave the way for the Government to actually fulfil its commitments to ban cold-calling, help vulnerable customers and to allow those with big debts to have more time to receive help to sort out their financial affairs.

Ban Cold calling and use of data obtained by cold calling: One of the amendments will introduce legislation that enables the Government to ban cold-calling for pensions. Currently, it is illegal to cold-call about mortgages, but not about pensions. The proposed measures will make it an offence for anyone to make unsolicited approaches to the public about their pensions and will also ensure that the financial regulators have powers to remove the licence to operate from firms who do the cold-calling, or use data obtained from cold-calls.

Mandatory guidance before transferring money out of pensions: The Amendments will also try to ensure further consumer protection by requiring anyone who wants to transfer money from their pensions to have either independent financial advice or to speak to the free national guidance service. This helps to protect people against scam schemes in which they may be enticed into transferring to, as well as ensuring they understand the risks and implications of transferring money out of their pensions. Currently, the take-up of PensionWise is woefully low and people are moving money out of their pensions without realising the tax penalties they will pay.

Customer protection clause and breathing space: We are also calling for a special duty of care for vulnerable customers who need help with their financial affairs, including a breathing space for people with unmanageable debts, so when they approach the Financial Guidance body for help, their interest payments can be suspended for a short period, giving time to reschedule, rather than risking bankruptcy. Especially as interest rates seem set to rise, such protection is vital.

Combining MAS, TPAS and PensionWise into one free holistic guidance service: The Bill has received little attention so far, but is really important. It will merge the existing Money Advice Service, Pensions Advisory Service and PensionWise into one new body, that will offer holistic financial education, information and guidance under one banner. This will be a national service to provide free financial guidance, information and education to the public, to help them manage their money, savings and pensions.

Aim to improve financial capability and help the public make better financial decisions: Currently, many people do not know where to get to get help. There are numerous free services, but their activities are not ‘joined-up’ and many people are confused or simply do not know about the help available. The idea of improving these services is excellent and the Government should be congratulated for bringing forward this Bill. However it must take the opportunity to make the new system work better for the public.

So sad to have to vote against the Government but I am passionate about protecting consumers: I do not want to vote against the Government, but I came into politics with the aim of improving consumer protection and financial education, ensuring customers were treated more fairly by financial firms. This is something I am passionate about and it saddens me that I have had to join with Opposition parties to try to force such measures through, when it is so clear they are important for protecting the public. It is not good enough for Ministers to make promises, when the legislative chance arises we have to take it. Now is the time and I do hope the Government will listen to reason.

October 23, 2017   No Comments

Government too complacent on final salary schemes

27 September 2017

  • Three million pension scheme members have no more than 50/50 chance of getting their pensions
  • ‘Superfunds’ could ease pension pressures before more employers become insolvent
  • As Brexit economic and political uncertainty worsens, final salary pensions are more at risk

No room for complacency as closed schemes will need better ways to manage liabilities: Britain’s Defined Benefit (DB) final-salary type pension schemes are under unprecedented pressure. So far, the Government has been rather complacent about the risks, but with the ongoing ultra-low interest rate environment and rising economic and political uncertainty, new thinking is urgently needed.

Millions of members at risk: The PPF estimates 3 million people have no more than a 50% chance of getting their promised benefits, while three quarters of sponsors are facing significant challenges in running their schemes.

Deficits have stuck at £400bn for past ten years, despite £120bn employer contributions: Despite ploughing £120billion into DB schemes to improve funding, the aggregate DB deficits have stayed around £400billion for the past ten years. Employers have been running to stand still and the hoped-for funding improvements have generally remained elusive.

As most schemes are closed, sponsors will soon be desperate to get rid of legacy liabilities: With the majority of schemes now closed, within the next 5-10 years, these sponsors will have no interest in or worker connection with the scheme. 90% of FTSE350 schemes are expected to become cash-flow negative in the next 5 years. Sponsors will look for ways to get rid of this legacy risk, or will go bust, especially if the economy weakens. The Government must plan ahead for this now.

Not enough flexibility – making the best the enemy of the good: Many companies would like to honour their obligations, but in an affordable way. However, the options for employers and members are binary. Employers who can continue in business, must purchase annuities for full benefits before severing links to the scheme. This is prohibitively expensive, especially in the current interest rate environment and it is questionable whether excessively expensive annuitisation is a sensible use of corporate resources.

Pensions can’t be reduced unless sponsor going bust: Quite rightly, employers cannot walk away from their schemes. But once employers are facing inevitable insolvency, benefits are reduced by around 10-20% in the PPF. There is no flexibility for companies which struggle on in business.

BHS and Tata may provide a blueprint for companies which are managing to keep afloat to ‘wind-down’ rather than having to ‘wind-up’: BHS and Tata schemes, however, have been allowed a different option. Their trustees are running their schemes with the aim of paying benefits better than PPF, based on assumed prudent future investment returns, without annuitising. BHS and Tata sponsors paid a premium over the expected future cost of the promised pensions and trustees will aim to deliver promised benefits over time. Using this as a precedent, one can suggest a new option to allow employers to meet their obligations at more affordable costs, without insolvency and without annuities. This is rather like allowing the schemes to wind-down, rather than winding-up and be a model for other schemes.

‘Superfunds’ could help with consolidation: PLSA proposals for ‘Superfunds’ could be helpful in achieving this aim, because pooling schemes will allow reduced costs of delivering the pensions. And allowing employers to rely on future investment returns as well, rather than annuitising, will help remove pension risk from their balance sheet and free them to focus more resources on their business, or improving pension contributions for other workers.

Members have better chance of receiving higher pensions: By offering sponsors a viable alternative to unaffordable buyout, members would have better chances of receiving full benefits, rather than reduced PPF pensions. The idea would be that employers must pay in enough money to meet expected future pension payments, with assumed investment returns over time, plus a capital buffer (perhaps an extra 5-10%). This would be much less than the cost of buyout but would still be expected to deliver full pensions to all members.

Pooling can reduce costs and improve expected investment returns: By joining thousands of small pension schemes together into much larger Superfunds, administration costs would fall. The Regulator estimates average per member costs of administration and advice for schemes with over 5000 members is £87, while for schemes with under 100 members it is £653. Superfunds should also improve investment returns, risk management and governance. Large pools of assets can achieve better diversification and access higher quality fund management, with a larger and broader spread of asset classes.

Superfunds could benefit the economy as more assets invest in infrastructure or social housing: Not only could Superfunds reduce costs of administration, external advisers, legal and accountancy fees, but they would also allow more pension assets to be used to fund infrastructure, social housing or other long-term much needed investments.

Employers could raise one-off loans to pay the pension debt and avoid future profit drain: The employer could perhaps take out a loan to meet the required additional funding of the consolidation scheme, cleaning up its balance sheet and without the same drain on future profits because the debt would be a one-off capital transaction. Once the extra funds were put in, the employer would have no residual liability for members’ pensions.

Standardising benefits could halve admin costs: In order to achieve the necessary cost reductions, it would certainly also help to standardise and simplify benefits. It is estimated that administration costs could be reduced by over 50% if benefits were streamlined.

Win-win for members, employers, economy and younger generations: Such a reform would be a win-win for employers (who can get rid of pension risk more affordably), for members (who would have more chance of getting full pensions) and for the economy (as more money could invest in public or higher return projects) and for younger generations (if employers have more resources to devote to their pensions, rather than buying out members of closed schemes).

September 27, 2017   No Comments

One pension provider looking after low earners

13 September 2017

  • Government failing to recognise problem of low earners losing out in auto-enrolment
  • Companies using Net Pay schemes are not treating low earners fairly
  • Many low paid women are being forced to pay 25% more than they should for their pension
  • One pension provider is taking the moral high ground – Now:Pensions is paying these workers their tax relief

I am delighted to see that Now:Pensions has confirmed it will give its low-paid customers the tax relief that is denied to them by current Treasury rules. The company is going to pay the tax relief that these low earners should be entitled to, but which the Government is denying them.

Any worker earning under £11,000 last year was entitled to 20% tax relief (which amounts to a 25% Government bonus) on their pension contributions.  If their pension scheme operates on a Relief at Source basis they will have received the money. But if the pension provider chosen by their employer is administered on a Net Pay basis, then these low earners, mostly women, cannot get the 25% top-up. So many women and other low earners are forced to pay 25% more for their pension than they should.

This scandal has been going on for a long time, but the Government has failed to address it.

It is good to see one company taking the moral high ground.  Now:Pensions is a NetPay scheme, but it has chosen to give the extra money to its low earning customers from its own pocket. None of the other Net Pay schemes has been willing to ensure low earners do not lose out.

Ideally, the Treasury needs to allow low earners to claim the tax relief they are entitled to. As auto-enrolment pension contributions are set to quadruple by 2019, the amount of money these low earners lose out on will increase sharply and more women will be denied the Government help they should have. This scandal needs to be urgently addressed and I hope the Treasury will take the matter more seriously as most of these low earners will be women, who are far more at risk of inadequate pensions than men.

In the meantime it is good to see at least one company making a stand to improve women’s pensions and treat low earners fairly.

September 13, 2017   No Comments

Finally, a ban on pensions cold calling

20 August 2017


  • Great to see DWP will act, not just keep consulting
  • Protecting people’s pensions from fraudsters is so important
  • Can give clear message to the public that anyone who contacts them out of the blue about their pensions is a criminal
  • This issue has clear cross-party and industry support

Banning cold calls and tightening protection against transfers to fraud schemes: The Government has bowed to the overwhelming pressure from politicians in all parties, consumer groups and the pensions industry to urgently introduce a ban on pensions cold calling. This is great news. It is also going to toughen rules on transfers out of occupational schemes and tighten HMRC requirements that will make it much more difficult to set up fraudulent schemes.

The case for banning unsolicited approaches seems clear and unequivocal: Currently, any scam company can buy a list of ‘prospects’ and contact them out of the blue to offer them a free pension review that leads to them losing their entire pension in a fraudulent scheme. Cold calling for mortgages was banned years ago and the public needs the same protection for other financial matters. People can only be approached about a mortgage if they have expressly requested contact from the company by name. Just ticking a generic box about financial promotions would not make the approach legal. Doing the same for pensions would be a significant step forward in protecting the public

Banning unsolicited approaches means we can send clear message to the public – JUST HANG UP! No reputable company should need to contact people out of the blue – they can find better ways to generate business. A ban would send a strong signal to the public that if someone contacts them out of the blue to discuss their pension, they should ‘Just Hang Up’. If they receive unsolicited texts or emails, ‘just delete them’. Anyone who does this will be a criminal. Even that friendly person offering a free review will not have your interests at heart. A ban would make the situation clear.

Public needs to be better protected: Since 2014, people have been scammed out of £43million of pensions and just in the first five months of this year they have lost £5million to fraudsters. This is money people need for their retirement and the scams nearly always start with a cold call. Government initiatives so far have not worked. Measures to impose Caller Line Identification and campaigns such as ‘Scorpion’ and ‘Project Bloom’ are not protecting people enough. ‘Action Fraud’ figures show over 2000 frauds reported since 2014, but only 7 suspects have been summonsed or charged and no convictions.

Pension freedoms give people more flexibility but also mean they need better protection: The new pension rules ensure people can use their pensions more freely, but this also increases the risks they face and leaves more people in need of guidance. It is right to give people more flexibility and choice over their pension savings, but the Government is right to ensure that it also increases protection against fraudulent unsolicited approaches.

Government will also tighten rules to stop set up or transfer to fraud schemes: It is also welcome news that the Government intends to tighten HMRC rules that will make it harder to establish fraudulent schemes and also toughen rules on transferring pensions from one scheme to another. Only companies who produce regular accounts will be approved as pension schemes and trustees of occupational pensions will be required to check that receiving schemes are regulated by the FCA, or are authorised as MasterTrusts or have a clear employment link.

Public should always check with PensionWise: Some scammers have masqueraded as a ‘Government approved’ review service. Individuals may have heard that the Government has indeed set up a free guidance service, called PensionWise, but it is vital to let people know that PensionWise will NEVER cold call you or contact you without you approaching them first. So the clear message to the public is that you should always contact PensionWise or your independent financial adviser before reviewing or making decisions about your pension.

The sooner the Government acts, the sooner we can improve protection for people’s pensions: We will never stop such fraudsters completely, but these measures will certainly protect the public better – about time too.

August 20, 2017   No Comments

Women’s state pension age rises – IFS research

2 August 2017

  • Controlling State Pension costs is right but 1 in 5 women affected pushed into poverty
  • IFS research shows rising State Pension age saves billions but leaves many in hardship
  • Working age benefits are not enough to support women unable to keep working
  • Government failure to properly inform women could justify helping some bridge the gap

Government is right to look to control the costs of state pensions: Clearly, in an aging population, with rising longevity and pay-as-you-go pensions, younger generations need to be protected against excessive burdens of old-age support. Equalising men and women’s pension ages makes sense, especially as women tend to live longer than men.

Failure to adequately warn women about rise from age 60: Ideally, though, any policy changes would be communicated well in advance and those affected would be given sufficient time to prepare for delays in starting pension receipt. Unfortunately, as the WASPI campaign highlights, the failure to communicate clearly and effectively is causing real problems for many of the women affected by the sharp pension age increases which started in 2010.

IFS shows significant cost savings: Research released today show the scale of the impact of rising State Pension age on those older people affected and on the public finances. The rise in women’s State Pension age between 2010 and 2016 has saved over £5billion in public spending and has benefited the Government in three ways. Firstly, the money saved by not paying pensioner benefits. Secondly, higher tax and national insurance receipts as women have continued working while waiting for their State Pension. Thirdly, the additional work these older women are doing should have boosted the economy.

But delayed pensions also caused increased poverty: Many of the women waiting longer for their state pension have been pushed into poverty. The IFS suggests one in five women aged 60-62 were in income poverty when their state pension age was increased to 63. It is clear from this new research that as long as women can keep working, they can mitigate the impact of delayed State Pension receipt, but those who cannot work either through illness, caring duties, unemployment or workplace age discrimination are left struggling.

Men are also affected by this change: Up to 2010, older men who were unable to work and had little other income could claim pension credit but the starting age for receipt of means-tested Pension Credit is also tied to women’s state pension age. So, as women’s state pension age rose to 63, men also had to wait longer for extra help. The IFS suggests that many single men have also been forced into income poverty as a result of this delay.

As State Pension age keeps rising, no allowance is made for those who cannot work:  There is a stark cliff-edge between the benefits available to people below state pension age and those above it. This is designed to encourage more people to keep working, however it makes no allowances for the problems of the significant minority of older people who genuinely cannot work. By 2020, the age for men and women will rise to 66 so the numbers in poverty will grow.

The poverty is temporary, but there’s no help to bridge the gap: The IFS points out that this poverty is temporary and as soon as they reach the new higher State Pension starting age, people will be better off. However there is nothing in the system to help those who really need to bridge the gap. If they have no private pension or other savings (and many older women have been particularly disadvantaged throughout their lives by lower earnings and lack of pension rights) then they have no choice but to cut back their spending to minimal levels. The IFS suggests they are not facing ‘material deprivation’ but politically there is a large group of older people who feel they have been unfairly treated and were not given sufficient chance to prepare themselves. Those affected might have been able to cut their spending in earlier years if they had been aware of the coming increase in their pension age. By failing to properly inform them, the hardship caused has been exacerbated.

Government could consider measures to ease the hardship of transition: There are no easy answers here, and it is important to control state spending, but I do hope Government might consider devising interim measures to help women – and men – in the transition period between their previous State Pension age and the new later date. Perhaps with early but reduced access to State Pensions, or payments that recognise poor health and other impediments to working longer, targeted on those in hardship due to the delayed pension age. It cannot be beyond the wit of policymakers to recognise the problems caused by the sharp rise in pension ages over a relatively short period of time and, in light of the cost savings, perhaps some help could be offered.

August 2, 2017   9 Comments

State Pension Age and Social Care

21 July 2017

  • Government needs to rethink the retirement contract for older people
  • Just relying on the triple lock and rising State Pension age is not sustainable
  • National Insurance needs to help those with lower life expectancy or needing social care

The Government has just announced that the UK State Pension age will increase faster than previously expected. By 2039, nobody will be able to start their state pension before the age of 68. This affects people born between 1970 and 1978 who would be eligible to receive their state pension at age 67 under the current planned timetable.

This rise was recommended by John Cridland’s recent official review of State Pension age and is based on forecasts of average longevity. As ‘average’ life expectancy is rising, and the Government needs to control State Pension costs, the state pension age keeps rising. This will save around £75billion to future taxpayers.

However, it does not take any account of the significant differences in life expectancy across the country, between social classes and also between occupations. The current national insurance system makes no allowance for people who will not live long enough to reach state pension age, or who will die soon afterwards.

National insurance amounts to over 25% of salary for most people, yet some will get little or no pension even if they have contributed for the full 35 years. Of course, as life expectancy and health improve, most people should be able to wait longer for their state pension. But what about those who cannot?

I would like to see more flexibility in state pension age: perhaps with a flexible band of ages at which the pension could start, or perhaps allowing people to take their state pension at a lower age, either because they are seriously ill or because they have worked for more than 50 years.

People might be allowed to start their pension between the ages of 65 and 70 – perhaps even with the rate they receive being adjusted for early access. This would be much fairer to more disadvantaged people, allowing them a choice they are currently denied. There might also be earlier receipt for people who have, say, 50 years worth of National Insurance contributions. For example, if they had left school at 16 and contributed for 50 years, perhaps they could get their pension at age 66.

At the moment, the state pension is flexible only for those who are healthy and wealthy enough not to need to take it at state pension age. If they can afford to wait longer, they can get a higher state pension; but if they cannot manage until that age, it is just too bad. They cannot get a lower pension, they will get not a penny earlier. Is this the best we can do?

It is true, as John Cridland says, that there would be some difficulties in this approach, but just because a policy is challenging does not mean it is wrong. The central issue here is whether the state pension should be run on a one-size-fits-all approach, based purely on estimates of the “average”, or whether it should have some flexibility to account for people’s increasingly flexible lives.

Yes, it is great news that more people are living longer. And most people can work longer – but surely we can find ways to include those who are unable to do so, and who have much lower-than-average lifespans.

I would like to stress, though, that I do not agree that the state pension age should never rise above age 66, as proposed by the Labour party. And the cost of allowing everyone to get a full pension at 66 for decades to come would be too much of a burden on younger generations in our pay-as-you-go national insurance system.

Clearly, many people will want to work longer, and can wait for their state pension. However, it would be fairer to allow some to choose to take a pension sooner, if they really need to.

We need to move away from the idea of just one “magic” age at which people should aim to stop working and live on a state pension. A band of ages would take us from this one-age notion and would accommodate the reality of 21st-century retirement, which is that people will increasingly move from full-time work, to part-time work, before stopping altogether.

The more we can encourage this kind of “pretirement” phase, the better it will be for our ageing population. Individuals who can work flexibly in later life can achieve higher lifetime incomes, can boost overall economic activity, and could have more money to spend in their advanced older age.

Finally, the current state pension system offers no help for social care. If William Beveridge was designing our national insurance arrangements now, he would surely make provision for care needs in advanced old age, rather than assuming that the only income for retirement the state needs to pay is a state pension.

Incorporating social care into national insurance would offer an opportunity for the government to rethink state pension age and overall retirement provision, and take account of individual needs. Leaving out those who have been hard manual labourers for all their working lives, or who have a much shorter life expectancy, may need to change.

Future reviews of social care and state pension age would provide a chance to reconsider these issues. A fairer level of social support in retirement would be a major improvement on the current situation. Just promising a ‘triple lock’ on parts of the state pension is not enough for pensioners. It’s time to think again on how we help older people.

July 21, 2017   No Comments

Who will help sort out this auto-enrolment pension scandal?

21 July 2017

  • Who will help sort out this auto-enrolment pension scandal?
  • Low earners losing money but don’t know it yet

I want to highlight a major pensions injustice concerning employers who choose an auto-enrolment scheme administered on a net pay basis.

Such schemes cannot add the 25 per cent bonus of tax relief to contributions of workers earning less than £11,500 a year from the employer.

Auto-enrolling these employees – mostly women – into a net pay scheme forces them to pay extra for their pension. Every £10 that someone on more than £11,510 a year puts into a pension will cost only £8 but every £10 low earners contribute costs them the full amount. So the lowest paid are paying £2 more for the same pension.

If their employer were to use a relief at source scheme instead, no one would have to pay more than £8 for their £10 of pension. But most employers would not understand the difference between choosing a net pay or relief at source scheme.

When discovering this as Pensions Minister, I tried desperately to address it but nobody was interested in helping the low earners. Officials said “It’s not much money”, which I found unacceptable.

Firstly, it may not be much money, but it could and should be theirs if their employer had chosen a different scheme.

Secondly, auto-enrolment contributions will quadruple and personal tax thresholds will rise, so the numbers of low earners and the amounts of money they are losing will just keep growing. When I was Pensions Minister I was astonished to find that even though I asked The Pensions Regulator to alert employers to the issue, they refused to listen. The first reason they have was that it is not illegal to deny low earners this money, so the Regulator could not get involved. I was so disappointed at this.

I then highlighted that the Regulator’s own template letters and website, designed to help employers choose a scheme and explain auto-enrolment, misleadingly said workers would receive employer contributions and tax relief under auto-enrolment when this was not necessarily true  if they were low earners in a Net Pay scheme. After many months I eventually persuaded it to change this but the wording was weak and fails to explain the issue clearly.

I met the people running the MasterTrust Assurance Framework, asking them to assess whether net pay schemes were being honest with employers and members about this issue as part of its seal of approval. But they too did not consider it an important issue.

I asked Treasury ministers to help. They initially replied that tax relief was being consulted on. Then I asked them to amend the rules or at least allow net pay schemes to reclaim the extra relief for their low earning members but was turned down every time. I did have one real success. Now:Pensions MasterTrust, which operates only on a net pay basis (Nest uses relief at source and The People’s Pension offers both) offered to pay the extra 25 per cent bonus to all low earners from its own resources. This was not widely publicised but it deserves high praise.

Since leaving Government, I have asked a series of Written Parliamentary Questions on this issue which have been replied to with non-answers. Ministers just continually ignore my requests to solve the problem, claim they do not know how many people it affects and that it is up to the Regulator to help and inform employers about how to choose a good pension scheme. Clearly, the current situation is unacceptable. All I can do is keep flagging it.

If or when these workers discover they have been charged more for their pensions than they should have been, what will they do? They had no control over the choice of scheme; it was arranged by their employer, who may have used an adviser or relied on regulator and Government guidelines. It is not clear the workers have any protection under the law, this hasn’t been challenged yet. But if the situation remains unresolved, I do believe this could turn into another scandal – which is the last thing pensions need. The injustice is only going to get worse. The sooner this issue is properly sorted, the better, and I would welcome help from you in pressuring for change.

July 21, 2017   No Comments

Pension Schemes forced to stop discriminating against same-sex partners

12 July 2017

  • UK pension funds cannot discriminate against same sex partners
  • Landmark ruling rightly requires pension schemes to treat all partners equally
  • Costs could run to hundreds of millions of pounds

The Supreme Court has ruled that same-sex partnerships must be fairly and properly recognised within UK pension schemes. In a landmark ruling, ( INNOSPEC VS. WALKER) the judges ruled that a pension scheme member who is married to a same sex partner must be treated the same as if they had an opposite sex partner. At last, there is clarity that pension schemes cannot discriminate on gender grounds in this way.

What has the Court ruling changed?  Until today, members who were married to someone of the opposite gender would know that their surviving partner will inherit part of their pension. Even if the member married that person long after they left the scheme, the inheritance rules would apply.  However, if the member had a partner of the same gender, even though they may have been together for decades, their pension scheme might refuse to pay a survivor’s pension on the grounds that the law only recognised gender-equal partnerships since 2005.

Will this affect all UK pension schemes? In reality, most pension schemes have already been treating all partnerships the same, but around 20% of private schemes have not yet done so and Mr. Walker, who has lived with his partner for decades, has sued the Innospec pension scheme because it refused to agree that his partner would inherit his survivor pension rights for the entire period in which he belonged to the scheme. Having had to fight all the way up to the Supreme Court, the issue has been settled and all UK pension schemes will now have to pay survivors’ pensions to same-sex partners on the same basis as they would for opposite sex partnerships.

What might this cost? Estimates suggest that the cost to private sector pension schemes could be around £100million and there will also be costs for public sector pension schemes too. Of course we will not know the precise costs because the money only needs to be paid once the member passes away and only if the  member is survived by their partner.

What other implications might there be? There could be further implications of this ruling, in that widow’s pension rights in many schemes differ from the pension rights of widowers.  In some schemes, a husband cannot inherit the wife’s pension, but a wife will inherit that of her deceased husband.  I expect this issue will now be looked at again – and the cost to public sector pension schemes could be hundreds of millions of pounds.

July 12, 2017   No Comments

Pension Freedoms need to work better for customers

12 July 2017

I welcome the FCA Retirement Outcomes Review and its focus on the customer but I am disappointed that the pensions industry has so far failed to radically change its approach.

The pensions industry needs to wake up to the tremendous new opportunities offered by pension freedoms and auto enrolment. This is the time to show real, innovative thinking in the customer interest but sadly the industry has so far failed.

Where are the new products or default options? And why are they called ‘default options’ anyway? The word ‘default’ is hardly attractive to non-pensions people!

Customers may be taking money out of brilliant pensions products without realising the benefits they are giving up – and possibly paying unnecessary tax too.

New thinking might include, for example, a concept of ‘Lifetime Pension Accounts’ which stay invested until you really need some income or capital. ‎These could seamlessly run from a ‘growth phase’ to an ‘income phase’ when the customer wants to, without the huge extra charges involved in drawdown. Taking money out of pensions too early is detrimental to your financial well being.

The Government’s free guidance service could also help customers understand the benefits of staying invested for longer especially if still working. So perhaps we should make PensionWise free guidance mandatory or at least the default option.   Ideally people need advice but at least PensionWise can steer them away from dangerous decisions

This FCA study is another wakeup call‎ for the pensions industry to up its game and look after customers.

July 12, 2017   1 Comment

Pension freedoms mean pension transfers make more sense

21 June 2017

Good news: Regulator wakes up to new landscape for pension transfers

  • Advisers encouraged to recognise that transferring out of a final salary scheme could be the right thing to do
  • Pension freedoms have radically improved attractions of Defined Contribution pensions
  • Vital to understand both risks and benefits, rather than assume transfers always wrong

The new world of pension freedom and choice paves the way for fresh thinking on transferring out of Defined Benefit pension schemes. Here’s a summary.

Strong reasons not to transfer will include:

  • If you are frightened that this decision is irreversible and you might regret it
  • If the DB scheme is your only pension
  • If you value the peace of mind of a guaranteed regular income
  • If you are concerned about inflation and have an inflation-linked DB pension
  • If you do not want to take investment risk
  • If you don’t want to pay someone to manage a pension fund for you
  • If you might exceed the Lifetime Allowance and face a hefty tax charge
  • If you might lose enhanced protection

And there are some strong reasons why DB transfers make sense:

  • If you have several DB pensions, could transfer some and still retain guaranteed income
  • If you’re in poor health and fear dying young
  • If you are single and have no use for spouse pension
  • If you want to pass any unused pension fund on tax-free to anyone you choose free of inheritance tax (and free of all tax if you die before age 75)
  • If you are happy to take some risk and want the chance to benefit from future tax-free investment returns
  • If you are comfortable with managing money or finding someone to do that for you
  • If you want a fund to help pay for care if needed (£20 a week DB pension could be worth £30,000-£40,000
  • In some cases, if you have large debts, the money could help you to pay them off

FCA recognises case against DB transfers has radically changed: The FCA has just launched a consultation which could change the way people wanting to transfer out of a final salary-type (DB) pension schemes are treated. Two years after the pension freedoms were introduced, making Defined Contribution (DC) pension schemes far more user-friendly, the Regulator is rightly recognising that the case against transferring out of guaranteed employer schemes has radically changed. Each case should be considered individually to assess the benefits and risks for that person.

Can be strong reasons to transfer out but must understand risks first: In the new pensions world, there are some compelling arguments in favour of DB transfers but the decision must not be taken lightly, particularly because it is irrevocable. Anyone whose transfer is worth over £30,000 must get independent financial advice.

Advisers have been under regulatory pressure to assume transferring out is wrong: In the old regime, the regulators rightly warned strongly against advising anyone to transfer. Indeed, financial advisers often refused to do the transfer for clients still wanting to after being advised against it. But the pension freedom reforms mean this attitude is outdated.

DC much more attractive now: Defined Contribution pensions, which build up your own individual pot of money for your retirement, are much more user-friendly now.

End of mandatory mass-annuitisation: In the past, someone who wanted to take their tax-free cash from a DC pension would usually have to buy an annuity with the rest, unless it was a very large fund. These annuities were inflexible and might not suit their needs. Now you can take out some money if you want to and leave the rest invested for later life. Some people can even get more tax free cash from a DC scheme than from DB.

No 55% death tax, can pass on IHT-free: People can now pass their pensions on in full to loved ones free of inheritance tax, whereas in the past they would face a 55% death tax charge on their unused fund. A DB scheme will only provide a fraction of the pension income for a partner and perhaps nothing for other relatives.

Those in poor health could benefit from transferring: Someone in poor health, who dies relatively young, will not have had much money from the scheme, but could pass on a fund to their loved ones instead. If they are single, the partner’s pension in their employer DB scheme will have no value to them.

Transfer values have risen enormously as interest rates have plummeted: Low interest rates have increased transfer values, which makes them more attractive. Capital sums worth 30 to 40 times the annual pension could provide good alternative financial security for some. There are those who think the period of low interest rates will end soon and, therefore, feel today’s transfer values are likely to fall in future, so want to take the money now. There is no certainty that rates will rise, but there are other reasons to consider transferring.

Some people have large debts: If you have no other way to pay off debts, it may be worth considering transferring a small pension to help you out. It is vital to get advice, perhaps from PensionWise first though.

Many have several DB pensions – could transfer some and keep others: Many people have a few past pensions from previous employers, often some small deferred pensions of only a few pounds a week. But these could be worth thousands of pounds. A £10 a week DB pension could be worth £15,000 – £20,000. People with a good base of guaranteed pension income from other past schemes could cash-in some while retaining others.

Could use DC transfer to provide money for care: People could also use the funds from a transfer to provide a pot of money for long-term care. A £20 a week pension would not pay for care, but £30,000 – £40,000 in a DC pension could help enormously. This alone is a powerful reason for those with several pensions to consider transferring, as nobody has set money aside to cover care costs. In fact, the Government should think about allowing tax-free DC withdrawals if used for care.

But beware of Lifetime Allowance rules: Given the sharp rise in transfer values, people need to be careful of hitting the lifetime allowance, or losing enhanced protection. DB pensions are treated much more favourably than DC under the illogical Lifetime Limit rules.  The DB lifetime allowance test of 20 times starting pension means a £40,000 DB income is worth well below £1m but could generate a £1.5m transfer value with a hefty tax charge.

Of course, many people will still be best-advised to stay with their employer’s guaranteed pension: Especially if they have no other pension, the certainty of the employer promise (even with the risk of reduction in the PPF) is very valuable. Those who value guaranteed income with inflation and partner protection, and do not want to worry about investment risk, should not transfer. The decision is irrevocable, so it is vital to get good advice first.

FCA recognises that DC pensions are more attractive now: Transferring out will not be right for everyone, but there are now some compelling arguments in favour of DB to DC transfers and the Regulator is recognising this reality with its consultation. That’s welcome news.

June 21, 2017   1 Comment