Pension policy will continue to be driven by politicians responding to media pressure. John Greenwood reports
If anyone in the industry was ever in doubt as to who would be held accountable for failure to keep up with the breakneck pace of pensions reform, they surely can be no longer. Within hours of the national press declaring that the reforms were descending into a shambles, Government politicians were out pushing the blame squarely onto the shoulders of pension providers.
The sequence of events leading to the launch of the consultation on exit penalties and transfers for those seeking to exercise pension flexibilities is a reminder to anyone developing a proposition for the new retirement market of the way negative media pressure can very quickly lead to regulatory change.
On 10 June, within hours of the Daily Mail publishing a front page bearing the headline ‘Pensions: What a Shambles’, pensions minister Dr Ros Altmann was on Nicky Campbell’s Radio 5 breakfast show blaming providers for failing to do more to facilitate the flexibilities contained within the reforms despite having
had “over a year” to prepare for them. The Daily Telegraph was carrying a similarly damning message.
“I am very disappointed that the pensions industry itself is causing the problem,” said Altmann. “The Government wants people to have access to this money but the pensions industry has to be able to step up to the plate, and if companies are dragging their heels and things are not working well, the Government is putting them on notice that we will do something.”
Many of Altmann’s criticisms were fair ones, making it very difficult for providers to challenge her on those parts that were not.
Three days later, writing in the Telegraph, secretary of state for work and pensions Iain Duncan Smith threatened to name and shame providers that did not give easy access, telling savers: “It is your pension and it should be in your hands. I am determined that those who have saved should not remain handcuffed.”
With the pension reforms such a popular policy, the Government was always going to blame the industry if and when things did not go to plan. So although when the law was drafted in 2014 the flexibility to allow withdrawals was deliberately made optional rather than mandatory for providers – because it was clear that most would struggle to deliver everything by April 2015 – politicians wasted no time in shifting the blame onto them.
Within seven days of the Daily Mail’s salvo at the reforms, Chancellor George Osborne had announced the consultation, which had clearly not been drafted as it will be published in July. So how far and how quickly will media pressure drive regulatory change, and what other pressure can the industry expect from politicians when the next issue rears its head?
“My guess is that the forthcoming consultation on exit penalties and transfers will be a narrow one, but we will probably see attention shift to a charge cap on drawdown in the future,” says Towers Watson senior consultant David Robbins. “There will be headlines about charges, about people with high AMCs in retirement or facing high withdrawal fees, and that will put pressure on the politicians. I would be surprised if a charge cap does not happen.”
The row between the media, the politicians and the providers has left stakeholders asking yet more questions. Separating the rhetoric from the well-founded accusations is tricky amid all the noise.
The Telegraph summarised its position in ‘five demands’ for pension providers. These are: bank account-type access to money or, where that is not deliverable, free switches; a cap on charges for cash withdrawals; flexible features for Nest savers: a scrapping of exit penalties for all savers over 55; and a standardised process for transfers between providers.
While that penultimate demand sounds like the territory of the review set up in the wake of the 2013 OFT report into workplace pensions, the national press has also blasted the need to seek advice for pots of over £30,000 with safeguarded benefits, bemoaning the charges of up to £1,000 as a licence for IFAs to make money. Advisers not surprisingly do not want to get involved with advising people to give up valuable benefits, and have put up their prices to discourage this, effectively leaving the consumer stuck between reluctant providers and advisers, both fearful of regulatory comeback. Some providers argue the situation is so dire that the FCA needs to do more to make it more cost-effective to offer advice to retirees.
Royal London chief executive Phil Loney says: “Many savers with medium-sized pension pots are finding it hard to find advisers offering this form of advice. We also appreciate that advisers need an advice regime in place that is commercially viable. The only option is for the FCA or Government to rise to the challenge and make advice on pension freedoms affordable for all customers.”
All this points to more growing pains for the nascent flexible retirement market. The consultation on exit penalties is unlikely to be the last to be driven by political reaction to media criticism of a favoured policy.