Newsletter – December 2014

FCA retirement income report published

The Financial Conduct Authority (FCA) has published an interim report on its retirement income market study which seeks to assess whether competition in the annuity market is working well for consumers. The market study follows a thematic review of annuities which the FCA completed earlier this year.

The provisional findings of the report are that the market is not working well and that many consumers are missing out on a higher income by not shopping around or by not purchasing the best annuity for their circumstances. The report proposes the following remedies:

• Requiring firms to make it clear to consumers how their quote compares to other providers on the open market;

• Recommending that firms take into account the effect of how options are presented on consumers’ decision-making;

• Working with Government to develop an alternative to the current “wake-up” pack and other at-retirement communications;

• In the longer term, recommending the development of a “Pensions Dashboard” which would enable consumers to view all their pension savings (including their state pension) in one place;

• Continuing to monitor the market using a combination of consumer research, market data and on-going sector supervision.

Critics accused the FCA of “sweeping past mis-selling under the carpet”. Although the annuity market is likely to be significantly affected by the Government’s reforms due to come into effect in April 2015, the FCA’s analysis shows that for people with average-sized pension pots, the right annuity purchased in the open market offers good value for money relative to alternative drawdown strategies.

40th NAPF Annual Survey

The National Association of Pension Funds (NAPF) has published its 40th Annual Survey, illustrating the huge changes that have taken place in the pensions landscape since its first survey in 1975.

For the first time, active membership of DC schemes now exceeds the active membership of private sector DB schemes. With the continued roll out of automatic enrolment, this trend is set to continue. However, once deferred and pensioner members are included, DB schemes remain the dominant force.

The average contribution rate for DC schemes is 11.7% (down from 12.5% in 2013). This consists of 7.6% from the employer and 4.1% from the employee. Many new automatic enrolment schemes have contributions at the minimum rate.

Automatic transfers to begin in 2016

Pensions Minister, Steve Webb, has announced that automatic transfers, or “pot follows member”, will begin in Autumn 2016. The policy aims to make it easier for people to keep their pension savings in one place when they change employers. The government will publish further information about the implementation model and timetable in early 2015, ahead of consulting on draft regulations.

Company news

Pilots at Monarch Airlines face losing £10m in benefits because of the effect of the Pension Protection Fund (PPF) compensation cap. Monarch’s pension fund transferred to the PPF as part of the sale of the airline to Greybull Capital. However, many of the pilots’ pensions are above the cap of £26,572 pa for retirement at age 55.

Legal & General have secured the buyout of 22,000 pensioners of the TRW Pension Scheme covering £2.5 billion of liabilities. The buyout is the largest such transaction in the UK to date.

Hanover Pensions would like to wish all of its clients and contacts a merry Christmas and a prosperous New Year.

This Update should not be relied upon or taken as an authoritative statement of the law. For more information, please contact us using the details shown.