Taking a look at the potential casualties of an EU exit
Fans of interminably dull Twitter debates will have been relieved to learn the process of the UK extricating itself from the European Union could drag on until 31 October. Whoever picked Hallowe’en as the deadline for Brexit clearly has a sense of humour.
But the “flextension” agreed between the EU and UK prime minister Theresa May could prove a nightmare for retirement policy. Even in normal times, pensions have to battle with other public policy areas for legislative attention, and at the moment that is at a premium.
Until recently, the Department for Work and Pensions was holding out faint hopes of getting a pensions bill through the House of Commons. That now seems as likely as me being called up to replace Harry Kane.
This is the vehicle that will house Guy Opperman’s legacy as pensions minister – a legacy which, politics-depending, may never see the light of day.
So here, in no particular order, are the pensions casualties of Brexit.
Pensions dashboards are set to become a reality later this year on a voluntary basis, although the DWP expects it to take three to four years for the majority of pensions details to be made available to savers. A key part of making dashboards useful and credible will be mandating that all schemes provide information.
While modern providers that are net receivers of pension transfers will have both the capability and incentive to offer up data voluntarily, other providers – particularly those administering older-style life policies – are likely to drag their feet.
Legislation is therefore crucial if dashboards are to provide a genuinely useful service to savers.
Collective defined contribution schemes
The DWP has given enthusiastic backing to CDCs – plans designed to offer a halfway house between defined benefit, where the sponsor takes on all the risk, and defined contribution, where the risk is entirely on the member.
The CDC design still leaves those investment risks on the shoulders of savers, although they are shared across the entire membership rather than being borne individually. Advocates of CDC point to the potential for reduced volatility this brings, although members will have to sacrifice flexibility and choice.
While demand for CDC appears relatively muted across the private sector, the fact Royal Mail is keen to adopt the structure for its 140,000 UK staff means getting the legislation passed is a key priority for the DWP.
The government wants to bring forward legislation to allow DB “superfunds” to drive consolidation of sub-scale schemes. Although DB consolidation is possible, the DWP believes legislation is needed to ensure potential cost savings are maximised and members’ interests remain at the fore.
Pressure in this area has been ratcheted up by the failures of some pretty high-profile scheme sponsors – most notably BHS – and subsequent demand for action by the influential work and pensions committee.
The DWP has already committed to ensuring members of superfunds have equal protections to members of other DB schemes and addressing risks around the loss of employer covenant. All of this will require new legislation.
The idea of midlife MOTs is simple – by requiring employers to facilitate a financial check-up for employees, the government hopes more people will be kicked into action and take greater responsibility for their financial futures.
There is debate about the point in time this intervention should happen. While the DWP suggests 45 might be the right age, there is an argument for ensuring people are given this nudge earlier so good financial habits are ingrained from a younger age. But without legislation, there is no guarantee employers with various competing priorities will offer midlife MOTs to their staff.
The government is still waiting for legislative time to get two important pension scams interventions on to the statute book.
While the cold-calling ban introduced in January was a welcome step, measures to make it easier for schemes to block suspect transfers and harder for scammers to establish dodgy schemes in the first place remain in the stocks. These are vital consumer protections and have already been delayed for too long.
Some of these ideas may well be pulped in the fullness of time. Others will survive. But all are currently stuck in the legislative nether zone created by Brexit.
Tom Selby is senior analyst at AJ Bell