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New Pensions Bill to provide more protection for retirement savers

Published 18/05/2016

Baroness Altmann recently told a parliamentary committee she shared concerns over master trusts
Baroness Altmann recently told a parliamentary committee she shared concerns over master trusts

A new Pensions Bill promises to bolster protections for those saving for their retirement and remove barriers for people who want to access their savings flexibly.

The Bill tackles concerns raised about "master trust" pension schemes, as automatic enrolment into workplace pensions continues to roll out.

More than six million people have been placed into a workplace pension under auto-enrolment and eventually the drive will mean around 10 million are newly saving into a pension or saving more.

The Commons Work and Pensions Committee recently raised concerns about master trusts, which provide occupational pension schemes for multiple employers who are otherwise unconnected.

The Pensions Regulator expressed concern to the committee that it was not able to exercise stronger regulation over the trusts and some of the smaller ones "may not be run by competent people".

The new Bill promises to provide better protections for members of master trust pension schemes, including millions of automatically enrolled savers.

Master trusts will need to demonstrate that schemes meet strict new criteria before entering the market and taking money from employers or members.

The Pensions Regulator will be handed greater powers to authorise and supervise the schemes and step in when necessary.

Meanwhile, early exit fees charged by trust-based occupational pension schemes will be capped and a system will enable consumers to access pension freedoms without "unreasonable barriers".

Introduced last year, the pension freedoms give people aged 55 and over a wider range of choices over how they take their pension pot, rather than having to buy a retirement income called an annuity. But some people found that after the freedoms started, they could not access their pot in the way they wanted to.

As of January this year, nearly 400,000 pension pots had been accessed flexibly under the new freedoms, with many customers getting a range of options. But data collected by the Financial Conduct Authority (FCA) showed that nearly 700,000 customers (16%) in contract-based schemes who are able to flexibly access their pension could face some sort of early exit charge.

The Government also plans to restructure the financial guidance available to consumers. A new guidance body will be created, bringing together the Pensions Advisory Service, Pension Wise and the pensions service offered by the Money Advice Service (MAS).

The MAS will be replaced by a new money guidance body, which will identify gaps in the financial guidance market to make sure people can access high-quality debt and money guidance.

Former pensions minister Steve Webb, who is now director of policy at Royal London, said the Bill in its current form fails to tackle the "big issues in pensions".

He said: "The elephant in the room is the under-saving crisis in the UK, and this Bill will do little to address that problem.

"The DWP's (Department for Work and Pensions) own figures show that more than 12 million people are not saving enough for their retirement and this Bill will barely scratch the surface of that problem.

"Urgent action is needed to get employees saving more than the statutory minimum of 8% of their pay, and also to get more than two million self-employed people into pension saving for the first time.

"Regulators also need new powers to protect people's pensions when corporate transactions leave workplace pension rights at risk.

"Unless new powers are added to the Bill during its passage through Parliament it will simply fail to address the big issues in pensions."

Lesley Titcomb, chief executive at the Pensions Regulator, said: "W e are pleased that today's announcement proposes to give us the power to implement these safeguards."

Yvonne Braun, director of policy, long-term savings and protection at the Association of British Insurers (ABI), said: "Trust-based schemes, including master trusts, do not currently have to comply with insurers' strict requirements, which means they can be set up far too easily.

"This causes unnecessary risks for savers, leaving them vulnerable to scams and dubious investments."

Tom McPhail, head of retirement policy at Hargreaves Lansdown, said there is currently an "alphabet soup" of different regulatory bodies with various abbreviated names involved in pensions.

He said: "Ultimately, there are too many pension schemes in the UK and arguably too many regulators too."

Pensions Minister Baroness Altmann said: "We have radically changed the pensions landscape with the rollout of the new state pension, automatic enrolment and by giving pensioners the ability to access their pension pots more freely.

"The Pensions Bill will provide essential protections for people's savings in master trusts. It will also remove barriers for consumers who want to flexibly access their pension savings. Finally it will ensure that access to financial guidance is made easier.

"We will work closely with the sector in the coming months to further shape our plans."

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