Our monthly round-up highlights the drawbacks with HMRC’s tax relief statistics, the latest government statement on automatic enrolment reform and the FCA’s review of financial advice.
Understanding member engagement with workplace pensions – research report
Mark Dowsey, Kirsty Cotton | January 31, 2023
Along with a number of consultation papers and calls for evidence concerning DC pension savings, on 30 January 2023 the Department for Work and Pensions (DWP) published a research report on understanding member engagement with workplace pensions.
The report covers qualitative research by Ipsos MORI with 60 individuals saving into the default DC pension provision with their current employer. Its findings dove-tail with some of the other material that the Government has published at the same time – namely, those on (i) Value for Money including, in particular, standardised reporting on charges and investment performance and (ii) dealing with the proliferation of small deferred DC pots.
The report found that:
Attitudes to pensions were characterised by detachment, fear and complacency
Letters and other printed material were seen to be more important than e-mails
Participants trusted the decision that their employer had made regarding the pension provider and understood the value of employer contributions
People found illustrations of current charging structures difficult to understand and preferred amounts in pounds and pence rather than percentages
Fear of scams and lack of knowledge were barriers to members actively consolidating pensions, but people were happy with the choices of being either consolidated into a government-approved scheme or that of a new employer.
The research found that understanding what their pension meant for their future, the impact that making changes could have, together with the ability to view information easily and influence their pension outcomes, would help people engage better.
The government’s annual review has concluded that all earnings thresholds used for automatic enrolment will be frozen in 2023-24. As in 2022-23, the trigger will be £10,000 and the qualifying earnings band will be between £6,240 and £50,270 – the lower and upper earnings limits (LEL and UEL). On the question of abolishing the LEL by the mid 2020’s, as proposed by the 2017 Review of Automatic Enrolment (AE), this latest review states “Government remains committed to this, subject to discussions with employers and other stakeholders on the right implementation approach, and finding ways to make these changes affordable.”.
TPR has published its annual statistics on DC trust-based pensions, providing a high-level snapshot, including information on the number, memberships and assets of schemes. There were 26,990 schemes on its register, of which 25,700 had fewer than 12 members. Over the last year the total number of schemes has reduced by 2% and the number of non-micro (neither relevant small schemes – which used to be known as SSAS – or executive pension plans) has reduced by 11%.
There are 36 authorised master trusts, holding 23.7 million DC memberships (9,967,000 active) and over £105.3 billion in assets.
FCA faces legal challenge over British Steel pension scheme redress
Janine Bennett, Paul Barton | January 24, 2023
The Financial Conduct Authority (FCA) has announced that it has received a legal challenge against its decision to set up a redress scheme for former British Steel Pension Scheme (BSPS) members. The challenge has been made by a number of pension advisory firms who are members of the British Steel Action Group. The FCA says that “We regard the legal challenge as an attempt to delay the payment of redress that is due to some former BSPS members”. Some former BSPS members could find themselves out of time for referring their complaint to the Financial Ombudsman if the redress scheme is cancelled – albeit the FCA consider this unlikely. However, to avoid this, the FCA encourages those who think they have received unsuitable transfer advice before 30 April 2017 to lodge their complaint with their financial adviser now and refer it to the Ombudsman if they are unhappy with the response. Similarly, those who have already lodged their complaint and are unhappy should refer this to the Ombudsman within 6 months of the response, otherwise they also run the risk of being out of time if the redress scheme is cancelled.
The Work and Pensions Select Committee has published the Government’s response to its July 2022 report on saving for later life. In connection with the 2017 Automatic Enrolment Review – which recommended that contributions should always be calculated on earnings from the first pound and that enrolment should begin at age 18 – the Government said it was “committed to the implementation of the 2017 Review ambitions in the mid-2020s” but declined to commit to a legislative timetable.
FCA announces a thematic review of retirement income advice
Paul Barton, Mark Dowsey | January 20, 2023
The Financial Conduct Authority (FCA) is undertaking a review of the advice consumers receive about meeting their retirement income needs. The FCA describes it as a piece of discovery work that will explore how financial advisers are delivering this advice and to assess the quality of outcomes for consumers.
The review, delayed by FCA’s concentration of resources on its COVID response, has been prompted by the pensions freedoms launched eight years ago, which increased the ways that people can take their retirement income, with drawdown now being widespread. It will also focus on how firms are responding to changing consumer needs resulting from the rising cost of living. The FCA hopes to report before the end of this year, and it plans to link in further work on lifetime mortgages (equity release) as it seeks to better understand outcomes for consumers later in life. The report will also indicate how effectively firms are implementing the ‘Consumer duty’ which requires firms to act to deliver good outcomes for retail customers.
Cost of pensions reliefs on tax and national insurance contributions
Dave Roberts, Paul Barton | January 13, 2023
HMRC has published non-structural tax reliefs statistics, which include costings for pensions tax and national insurance contribution (NICs) reliefs for the years from 2017-18 to 2021-22 and a forecast for 2022-23. The figures are net of tax paid in retirement and the 2022-23 forecasting suggests that, for the first time, NICs relief (£27.8bn) will outstrip tax relief (£27bn).
