The year 2015 was a huge year for pensions, and not just down to the advent of ‘freedom and choice.’
April was of course the month that heralded the biggest changes.
First up was the charge cap for qualifying workplace pension schemes.
This meant any existing or new schemes used for automatic enrolment after this date had to adhere to a maximum annual charge on employees’ pensions of 0.75 per cent.
This will ultimately affect some 1.8 million employer schemes as automatic enrolment reaches all of the UK’s employers.
But the charge cap was only one of a number of measures to increase the governance for workplace schemes.
Alongside that came the introduction of increased requirements on trustee boards for master trusts, and the introduction of Independent Governance Committees.
The latter were established to ensure that the perceived ‘buy side weakness’ – identified by the Office of Fair Trading back in 2013 – is addressed.
In short, this gives a voice to members of both qualifying and non-qualifying contract-based workplace schemes to ensure that everyone is receiving good value.
The main focus for IGCs in 2015 was the ‘legacy audit’; a piece of analysis carried out on pre-2001 schemes and those with charges exceeding 1 per cent a year.
The challenge was to ensure that everyone in these schemes was receiving value for money.
On the face of it, this is relatively easy to assess in terms of the charges levied, but more difficult when you start to try and place a value on other features, such as investment guarantees or service levels.
The work from the legacy audit will now form a series of actions for many providers throughout the course of 2016.
The now infamous ‘Lamborghini’ comment by the then pensions minister, Steve Webb, generated significant debate amongst industry commentators and politicians alike.
It typified the fear of those that were cynical about giving people such open access to their money; the fear that people would spend it all on desirable items rather than use it to fund their retirement.
Based upon Standard Life’s experience, even six months on, the cumulative number of people that had cashed in their pension or even taken any cash was only around 6 per cent of those who were eligible. And those that were cashing in tended to be doing so only with small pension pots.
Furthermore, the notion that people had lost all focus on income in retirement seems misguided.
Even some of those cashing in were doing so to repay debt; either a lingering mortgage or indeed high interest credit or store card debt. Either way, for many, this is tantamount to increasing income if it frees up their working wage for other purposes.
Lastly, we saw the introduction of Pension Wise, the consultation on pensions tax relief and of course the Financial Advice Market Review, all of which, however, are better covered with a forward view into 2016.
