It has been another busy year for advisers working with pensions who have grappled with the introduction of new rules on defined benefit transfers and the continuing fallout from the British Steel Pension Scheme debacle.
The issue of unregulated investments was flagged up in two prominent court cases involving Sipp providers Berkeley Burke and Carey Pensions. Both rulings are expected to have wider implications for the amount of due diligence Sipp providers have to conduct around esoteric fund choices.
Three experts sum up the year’s key developments in pension planning.
New DB regulations and the fallout from British Steel
Aegon pensions director Steven Cameron
When it comes to DB transfers, the glass-half-full aspect is the FCA has come up with a new set of regulations in this area and clarified its expectations for advisers. That is positive and hopefully advisers will come back into the market.
But the glass-half-empty perspective is that the FCA’s ongoing suitability work linked to British Steel is casting a shadow over the market. My wish for the end of next year is that the problems of the past will be firmly behind us and we will have widely shared confidence among customers, advisers, politicians and regulators that advice on DB transfers is working effectively. The most recent suitability review did not come up with new issues but reminded us of the ones we were aware of.
I am therefore confident we are on the path to resolving them. If this is not the outcome, we are left with a demand for advice not being met by supply, which is in no one’s interest.
My biggest disappointment of 2018 was the lack of progress in designing an effective triage process ahead of DB transfers, where planners could talk with a client about a DB transfer before providing advice. It has disappointed me because I think it is something which would benefit clients and advisers by saving time and money. We need to work creatively with the FCA to arrive at effective triage and this should be a priority for 2019. I remain optimistic as we have seen some innovative work on educational videos and there are ideas out there.
It is therefore about working with the FCA to develop triage solutions that the watchdog is comfortable with.
Curtis Banks group communications director Greg Kingston
This year will prove to have been the turning point for Sipps as they begin to be viewed more positively again. It is not the industry’s nadir – that was several years ago – but will prove to be the year that the good and genuine providers moved on, while others became known as something else. No one should be surprised. What other industry has been the recipient of three thematic reviews from the financial regulator in just the first six years of becoming regulated?
Publicity centred around Berkeley Burke’s high-profile loss of a judicial review at the High Court and, to a lesser extent, the reporting of a High Court case against Carey Pensions. The cases were nuanced and different, but at the centre of each was one key question: what responsibility did the Sipp operator have to undertake due diligence on a self-directed investment, and did it perform this adequately?
Regulatory guidance lacked a good deal of clarity in the early years of regulation, and some providers will argue a healthy dose of hindsight has been given during the course of these cases.
It is important to realise not all will have the subsequent liability that may follow the final outcomes of these cases, and others will be insured against their potential impact.
The weight of numbers will be the decisive factor; the firms who took on too much of this business risk failure, while the others will work through their relatively smaller issues and emerge stronger, as the positive and true side of the Sipp market. The direction has already been set; 2018 just put 2019 on notice for taking the final steps.
Dunstan Thomas director of retirement strategy Adrian Boulding
Collective defined contribution schemes have now won government support, and the pensions minister is bidding for legislative space in next May’s Queen’s Speech to bring CDC in general – and the Royal Mail plan in particular – into being.
I see CDC as the natural successor to auto-enrolment. We brought around 10 million new savers into pensions with auto-enrolment, and they really didn’t have to think about anything to begin their pension-saving journey.
Of particular note is that around one third of these new savers had already been offered membership of their employer’s pension scheme but had not bothered to join it.
This underlines the fact that people are happiest when others are managing their money for them. For those with enough money, that means having a personal financial adviser.
For the rest of the working population, it means going with the flow with their employer’s scheme.
And if you need any further proof of this, just witness that 99 per cent of those auto-enrolled are in the default fund, which someone else chose for them.
The CDC concept has the potential to move this automatic management on from simply joining a pension scheme to tackling the difficult question of how much you need to pay in to achieve a target benefit.
Or if you are on a fixed budget, it is the other side of the same coin: how much pension will you get for a certain level of contributions?