Radical pension rules, new risks and a new minister – 2015 was another year of monumental change for the pensions industry. While 2014 saw Chancellor George Osborne announced the most important reforms for a century, the impact has only begun to be understood over the last 12 months.
As consumers have abandoned annuities, providers – with varying success – have had to update systems and redraw their product offerings.
Guidance service Pension Wise, the Chancellor’s safety net for his reforms, has faced a barrage of criticism. Appointment numbers have been low and Citizens Advice – which provides face-to-face sessions – has been found to be diverting funds to other services.
The rollout of automatic enrolment has also reached a tipping point. Half of all eligible employees are now saving into a scheme but the vast majority of UK firms are still to stage. New charges added by the biggest providers seems destined to mean most will turn to Government-backed Nest. However, there are growing fears low barriers to entry to the master-trust market will leave vulnerable employers exposed to conmen.
Although not taking effect until April, the launch of the new state pension has been a thorn in the side of the Department for Work and Pensions.
The public’s lack of clarity over how much they will be paid led to claims the Coalition government “missold” the changes, while an increasingly vocal campaign representing women born in the 1950s has garnered the support of MPs.
Money Marketing revealed the Treasury’s plan to allow people to sell on their annuities. Though the start date has been delayed to April 2017, the Government appears committed despite the many stumbling blocks.
Looming large over the industry is the Treasury’s consultation on tax relief reforms. An announcement on the Government’s preferred model is due in March but uncertainty is already driving behaviour among providers and consumers.
The general election brought a majority Tory Government and a new pensions minister. Baroness Ros Altmann was handed Steve Webb’s job and has not had an easy transition from consumer champion to Government mouthpiece.
Dash for cash?
According to HM Revenue & Customs figures published in November, £2.7bn has been withdrawn in partial or complete withdrawals since the freedoms were introduced in April.
However, the Association of British Insurers claimed £4.7bn had been taken from pensions, the highest number explained by the inclusion of tax-free lump sums and withdrawals made by people already in drawdown.
Standard Life head of pensions strategy Jamie Jenkins says the “Lamborghini scenario” has not played out, with the vast majority of withdrawals being small.
He says: “So far our experience – which is true broadly of the industry – is around 94 per cent of people who could have used the freedoms haven’t done anything at all.”
Money Marketing revealed how thousands of people who did access their pots left funds languishing in low-interest bank accounts.
Elsewhere, the FCA is investigating the appropriateness of charges in the non-advised drawdown market, as well as the potential risks faced by savers trying to make their money last over decades.
Some firms have struggled to give savers access to the freedoms at all. Friends Life had to write to customers to apologise because it could not let them make partial withdrawals.
Pension Wise was meant to stop consumers making poor decisions when using their pensions. However, between April and June only one in ten people had an appointment.
As a result Citizens Advice redeployed underused staff on other services, prompting walkouts among guidance workers who refused to do non-pensions work.
Figures obtained by Money Marketing also revealed a divide between the two services. Customers are more likely to shop around and see an adviser as a result of a The Pensions Advisory Service session. Experts said before the service launched the lower requirements for Citizens Advice workers could be a problem and now the warnings seem to be coming home to roost.
The largest employers are in and 1.8 million small and micro firms are about to enter the pensions market for the first time.
Opt-out rates have been low but non-compliance has been rising and there are fears providers could be overwhelmed.
In response to the increased demand for support, The People’s Pension and Now: Pensions have added employer charges, of either a one-off £500 or £36 a month respectively, for schemes enrolling from next year.
This will be used to pay for beefed-up customer services teams but could drive many employers to Nest, which is committed to accepting all employers.
Baptism of fire
However, the biggest change of all is the potential for radical reform of the tax system. Long called for, the Treasury fired the starting gun on change with a wide-reaching consultation. The proposed solutions have been controversial and exposed the pension minister’s lack of political experience.
Money Marketing revealed both how she originally turned down the job in favour of a broader consumer role, and her opposition to the pension Isa model that would introduce tax-free withdrawals.
Altmann, who was expelled by the Labour party after taking office, has also come under fire for the state pension changes, which she said were “missold” by the previous government.
After a campaign focusing on boosting awareness of the new flat-rate pension, it has emerged millions of people do not realise they will be getting far less as a resulting of being contracted out.
She is also being urged to help women born in the 1950s who claim they were not given enough notice of changes to their state pension age.