Rachel Vahey looks at the inter-connectedness of all things pension in her latest article for RP
One thing I have learnt is legislation and regulation surrounding pensions never stays still. There is always some big change on the horizon, being planned for by either government or the regulators.
Managing these initiatives can turn pension administration into a roller coaster ride. What is especially hard is it can often feel like different pockets of policy teams are squirrelling away on their own pet projects with little regard for how they all bind together and what it means for the pension saver.
Take the current set of initiatives. Even though the recent Queen’s Speech didn’t include anything particularly related to pensions, there is lots going on. And it’s all inter-connected.
The Pensions Dashboard Programme (PDP) is working on the development of pensions dashboards. This is a long-horizon project, with the aim that people will easily be able to find out what pensions they have, the value of the pot, and the estimated retirement income they could get. That sounds a lot like an electronic statement to me, and at the same time the DWP is working on simpler statements for workplace pensions. Hopefully these two sets of people are talking to each other to provide consistent information to people.
Once you know how much pensions you have built up you may want to transfer them to a different place. There are a few initiatives going on in this space. First the DWP is working on removing the statutory right to transfer to schemes not on a ‘safe destination’ list. This may involve asking the individual questions about the receiving scheme and even referring them to PensionWise before a transfer is allowed to go ahead. However, other work by the FCA on stronger nudges also proposes referring individuals to PensionWise as part of the transfer process. Which makes you wonder how many appointments a person might have to make to be able to transfer.
The Treasury is also beavering away raising the minimum pension age to 57; but those who want to keep an earlier protected age of 55 may lose it on transfer. This would not fit in with DWP plans to introduce an automatic transfer of small pension pots to another pension scheme, and would not be welcomed by individuals who find they have lost the right to take their benefits at an earlier age.
The FCA is focusing on how to help people make better decisions. One team is working on the consumer investment market, another on introducing investment pathways for individual pensions, and a third on introducing stronger nudges to PensionWise when people take benefits. The link between these is the role providers could play in giving non-advised individuals better information to help them make better decisions.
Government and regulators working on these policies need to keep talking to each other and to the industry. At some point, they should step back and map the pension lifecycle. Then they can see how their policies are inter-connected and what it looks like from a pension saver’s point of view. If they don’t, they each risk implementing their own initiative but creating a fractured mess.
Rachel Vahey is senior technical consultant at AJ Bell
