In the 2014 Budget, the government announced its intention to reform pensions, including introducing a "guidance guarantee", ensuring that all those with defined contribution pensions would be entitled to free, impartial guidance at retirement on how to use their pension savings.
From April to June the government consulted on its pension proposals, and published its formal response to the consultation on 21 July 2014. With regards to the guidance guarantee, the government announced that the guidance guarantee would be provided by organisations, known as "delivery partners" which are independent and have no actual (or potential) conflict of interest. The government also stated that, until the service has reached maturity, overall responsibility for service design and implementation would remain within HM Treasury, which would work with a range of organisations (including the Pensions Advisory Service (TPAS) and the Citizens Advice Bureau (CAB) (the initial delivery partners) to deliver guidance to individuals. This is now set out in amendments to the Pension Schemes Bill, proposed on 23 October 2014.
In addition, as part of its consultation response, the government outlined that whilst it did not believe it would be appropriate for the delivery organisations to be subject to FCA authorisation and regulation in respect of this activity, to ensure the conduct of these organisations was subject to appropriate standards, it would introduce legislation to establish a new, separate FCA standards regime, and to give the FCA, as the expert conduct regulator, the appropriate duties and powers to set standards and monitor compliance. The consultation response further noted that it would be HM Treasury which would be responsible for designating the delivery partners that will be subject to the standards regime, and would ultimately be responsible for ensuring that remedial action is undertaken on the basis of any recommendations about their conduct from the FCA.
The Regulator on the same day the government published its consultation response, the Financial Conduct Authority (FCA) published its own consultation paper (CP14/11) on retirement forms and the guidance guarantee. The consultation paper outlines the FCA's proposed approach with regards to implementing the guidance guarantee. In relation to standards for delivery partners, the FCA has set out in its consultation papers a number of proposed principle-based standards. The proposed standards include (amongst other things) that:
- The delivery partner must not charge the consumer for the guidance.
- The delivery partner must ensure the guidance is consistent, of good quality and delivered with due skill, care and diligence.
- The delivery partner must ensure those approving the design of any processes and tools, as well as delivering the guidance are competant and have sufficient knowledge and expertise.
- The delivery partner must have due regard to consumers and communicate in a clear, fair and non-misleading fashion.
- The delivery partner must establish appropriate systems and controls to ensure it meets the standard requirements (and its other obligations e.g. those relating to data protection).
- The delivery partner must establish an appropriate complaint management system.
- The delivery partner must establish processes to ensure the guidance is delivered consistently across the delivery channels. These processes must include, amongst other things the scope, purpose and limitations of the session as well as the information that will be used during the session. In addition, the processes must ensure that all relevant information from the consumer is requested, the consumer is alerted to other sources and advice as appropriate and relevant during the session. The processes must also ensure relevant options and the key facts and consequences for each option are discussed as well as other issues for the consumer to consider. The processes must also ensure that the next steps for the consumer to take are set out.
- The delivery partner must clearly point (or "signpost") the consumer to further information, advice or relevant support tools.
- The delivery partner must ensure that the signposts are appropriate and consistent with the principles of the guidance i.e. impartial, consistent, relevant and of good quality.
- The delivery partner must not recommend specific products, providers or financial advisers but must empower consumers to find further sources of information, a product or specialist advice, e.g. by referring the consumer to a directory of advisers.
- The delivery partner must ensure the consumer receives a record of their guidance session.
The FCA consultation paper also sets out its proposals in relation to collecting the levy to fund the provision of the guidance guarantee. The consultation paper notes HM Treasury will set the overall amount of the levy and that the FCA's proposals are aimed at striking a proportionate balance between applying the levy to the firms that could benefit from the provision of the retirement guidance and minimizing the costs to the industry of administering the levy. The FCA notes that it intends to use its existing "FCA 'A' fee-block" framework for collecting the levy to fund the retirement guidance. In summary, the FCA is proposing firms in the following fee blocks to contribute to the collection of the levy:
A.1 - deposit acceptors
A.4 - insurers - life
A.7 - portfolio managers
A.9 - managers and depositories of investment funds, and operators of collective investment schemes or pension schemes
A.13 - advisory arrangers, dealers or brokers
The FCA has also set out the changes it intends to make to facilitate the implementation of the pension reforms. The consultation paper notes that scheme trustees and contract-based pension providers will be required to signpost their members and customers respectively to the guidance, ensuring that they are aware they are entitled to the guidance and how to access it. For trust-based schemes, the FCA consultation paper notes that the DWP expect to consult on changes to regulations later in the year. With regards to contract-based schemes, the FCA proposes this will be enacted through changes to its Handbook (on which it it has worked with the DWP to ensure alignment with the equivalent trust-based regulations that are being developed). Amongst the rule changes being proposed are:
- Pension providers being required to signpost their customers to the guidance, explaining it is a freely available impartial service to help consumers to understand their options, as well as detailing how the guidance can be accessed by giving the website details and phone number and making it clear that face to face guidance is available to those who want it.
- Pension providers being required to provide their customers with the information to make an informed decision about their pension pots (either with or without use of the guidance)
- Pension providers being required to signpost their customers to the guidance between four and six months before their intended retirement date (unless the customer has requested a statement in the past 12 months) and reminding the relevant customer of this at least six weeks before the intended retirement date.
- Pension providers being required to signpost their customers to the guidance if they contact the provider indicating they wish to access their pension fund (unless they have recently received a wake-up pack).
The consultation closed on 22 September 2014, and it seems likely that the proposed measures will generate significant discussion, not least due to the proposed increased burdens imposed on pension providers as well as the extra costs proposed to be levied on financial institutions to finance the operation of the guidance guarantee.