THE QUESTION: Should TPR put a similar requirement on trust-based schemes as the ABI code of conduct on annuities puts on product providers in contract-based schemes?
Tom McPhail, head of pensions research, Hargreaves Lansdown
Unquestionably yes. This is something that, in my role as chair of the Pension Income Choice Association I have discussed with The Pensions Regulator. TPR acknowledges that more needs to be done around the open market option. But it has stopped short of adopting the ABI’s code of conduct. Trust-based schemes have patchy outcomes – some are good, but some are demonstrably poor, and that is not acceptable.
Using the code of conduct as a starting point would be a good first step. TPR could say that if you are doing this as a bare minimum, that would be a good start.
But there are differences between trust and contract and TPR is not the same as the ABI. TPR operates on the basis of guiding and nudging, whereas the ABI is a trade body that has of its own volition sat down and agreed some minimum standards for its members. Actually instigating regulatory action is a different level of intervention.
But surely we should be able to agree minimum standards across the board that lead to good member outcomes for everybody.
Darran Burton, manager, DC regulation, The Pensions Regulator
We have undertaken considerable work in this area, including publishing detailed regulatory guidance for trustees. The guidance emphasises the importance of obtaining financial advice, the open market option, and also sets out a process for trustees to follow including obtaining quotes and a brokerage service.
As a member of the OMO review group we very much welcome the ABI’s code of conduct. It’s important to note that the Code is industry best practice and is not a regulatory solution. It may be that some annuity providers are not members of the ABI or that providers elect not to comply with this best practice.
This is why we’ll continue to work with Government and industry stakeholders on the OMO review group to address the issue of how we can ensure that the ethos of the code can apply to trust-based schemes.
Trustees have a duty to act in members’ best interests, including in the information sent to members approaching retirement, which can have a substantial impact upon their income in retirement.
Ros Altmann, director general, Saga
Trustees should actually have a higher duty of care towards scheme members than product providers. And I don’t think the ABI code of conduct goes far enough but it is a step in the right direction.
The Pensions Regulator should be requiring that trustees make sure people get the best possible annuity. It should have responsibility to make sure they are getting advice or at the very least getting proper information and guidance as to what sort of annuity they should be buying.
Decumulation is just as important as accumulation and if they are not doing that, they are not doing their job properly.
Annuity purchase is irreversible and if people are not finding out about guarantees, spouse’s benefits and enhancements then they could be buying a sub-optimal annuity for their circumstances.