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Labour sets out plans to toughen up pension freedoms

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A long-awaited Labour report into pension freedoms has proposed a raft of new measures to protect consumers, including new “safe harbour” decumulation products.

The report, commissioned by the shadow work and pensions secretary Rachel Reeves in 2014, will form the basis of Labour’s pension policy.

Written by Cass Business School’s Professor David Blake, it targets savers’ need to receive lifelong income from their pension pots.

Blake calls for the development of a range of new safe harbour products, which advisers will be able to recommend without liability.

The products would be accredited by the FCA for accessibility, inflation protection and longevity insurance, and will have to meet common standards on transparency and value for money.

Blake says these products will be designed as “quasi-defaults” for savers who do not wish, or are unable to, make a decision on their retirement income, and could be provided either by private firms, or by an organisation like Nest.

The report also calls for all products which do not include longevity insurance to be classified as “high-risk” by the FCA.

It wants a new charge cap to include advice and platform charges, while all categories of advice and guidance should be rebranded as either “personal recommendations” or “financial support” to help with customer understanding.

The report also reiterates call for a permanent commission to report to Parliament, with a remit to look at pensions, savings and long-term care.

Shadow work and pensions secretary Owen Smith says: “This expert review asks serious questions about the sustainability of our current pensions system, and the increased risks being borne by individuals after recent Government reforms.

“The relative popularity of the pension freedoms reforms should not obscure those questions and Professor Blake is right to challenge Government and employers to play their part in mitigating the danger that pensioners who have saved all their lives might still have insufficient funds to last them through retirement.”

Smith adds: “We will use the strong foundations laid down to build a Labour pensions policy that will prepare Britain for the long term and protect the interests of workers, pensioners and wider society.”

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Sounds like they’ve re-invented the annuity. Well done.

  2. In other words – an annuity.

  3. In other words an annuity and still the consumer cannot be held liable for their actions as the nanny state will say “there, there” and give you a get out of jail card free.

    What is it with politicians and promises, especially concerning pensions. They cannot help themselves, over the decades they keep over promising and under delivered. At what stage will they come clean and TELL the UK public YOU need to save more and personally take responsibility.

    I wonder how they will pay for this guarantee via NEST, at a low cost. So far the Governments have thrown Billions away in loans to NEST, will they now take taxes to provide guarantees or be truthful and increase costs in line with open market operations?

  4. Annuity it may look like, but these are better. Much, much better: they are all-new quasi-default, longevity protected, safe-harbour decumulators. Sounds a bit like selling a recently varnished yacht to pay a debt off, but it’s to be a brand new retirement product issued by NEST (or some nasty private company, if need be), albeit that as NEST is a collective asset trust not subject to Solvency II regulation and it might not be possible reinsure a ring-fenced part that issues annuities. but let’s not let a tiny bit of detail get in the way of a some radical free-wheeling blue sky thinking. As for what interest rate you would use to price this given that Jez Corbyn has indicated that he wants to let the printing presses roll forever and thus keep long term interest rates at rock bottom levels….errr..oh heavens.

  5. I echo the comments above. It is a wish list for retirement income products not a plan for pension savings. Giving them buzz words like “Safe Harbour Decumulators” won’t necessarily mean that they can provide any significantly higher payments from the same funds which all have the same financial world of for example low interest rates and advancing longevity to work within. Putting a cap on adviser charges won’t encourage the widening of the availability of financial advice (and as with rent controls on property 40 years ago may have the very opposite result if set too low).

    What we all find clients ideally want when we first meet them is something which will provide a guaranteed indexing income, (potentially with additional capital withdrawals as required which have minimal effect on the underlying income), close to the income that they receive for working, with longevity protection which can be provided by low contributions (potentially over short periods), with minimal risk and volatility together with an earlier retirement date.

    An adviser’s job over many years is to allow clients to understand that this will require some (and potentially a great deal) of these factors to be changed to reach the result they want. For example maybe they will need to retire later to reach that income target, or pay considerably more so they can retire at 50, or accept more risk for reward, or accept a larger fall in income post retirement, or possibly accept no or minimal indexation and save for capital sums separately.

    To pretend that somehow by mandating this from a major political party study you can somehow change low savings rate, or increase annuity Rates, or somehow place the high cost of guarantees due to longevity somewhere else by mandate is pandering just to what clients want to hear. As Scotty from Star Trek says “I can’t defy the laws of physics” (although that was fiction so he always did).

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