Pensions insight
Let my pension go!
Henry Tapper, founder of the Pension PlayPen, alerts us to good news and suggests action we can take
M id-November I received an email from John Yeo at the Financial Conduct Authority (FCA) informing of publication of its final rules (see http://bit.ly/2gbop7g) on capping early exit charges for consumers eligible to access the government’s pension reforms from age 55: “ From 31 March 2017, early exit charges will be capped at 1% of the value of existing contract-based personal pensions, including workplace personal pensions. Early exit charges that are currently set at less than 1% may not be increased. Firms will not be able to apply an early exit charge to personal pension contracts entered into after these rules take effect.” This is very important news both for employees in a workplace pension scheme and for those employers who have set up such a scheme (as part of automatic enrolment). It’s important to those who have been saving for later life using what the pension industry call ‘legacy pensions’. The vast majority of these pensions are not as good as the workplace pensions that we’ve been setting up over the past four years. Not only are they not as ‘good’, some are positively ‘bad news’ because of the way their complicated charging structures work. These structures are ‘back end loaded’, which means the costs and charges are loaded into the back end of the contract so that when you have the most money in your pension, you find yourself being hit with the worst charges. I have a pension where I’m paying around 6% per annum in charges, because I only paid into it for three years (back in the 1980s). That pension is now worth
£20,000 meaning I’m paying my insurer £1,200 annually for virtually nothing; that’s £100 per month for sending me a letter annually telling me the value of my fund is the same or less than it was last year. The FCA ruling means I will be able to release this terrible pension sometime between now and 1 April 2017 for a fee no greater than £200. Further, as my workplace pension only charges me 0.5% per annum, I’ll be paying £100 to my provider, which is about 1/12th of what I was paying for my legacy pension. ...contact the government’s Pension Advisory Service... governance committees asking to hear what they are doing to get the pension providers they govern to give them a timetable for change. The sooner we clean up these mucky legacy pensions the better. Here is something you can do, assuming you have a qualifying workplace pension that accepts transfers from legacy schemes – which they all do apart from the National Employment Savings Trust which should be able to do so from April 2017. You can write to your staff with the above notice from the FCA, suggesting that they contact the insurance company with whom they have a personal pension and ask whether the pension is eligible for transfer to your workplace pension. I have been writing to the chairs of insurance company independent
At this point, I should be suggesting they contact an independent financial adviser (IFA) to help them, but it may be an IFA will not want to give advice or will do so on the transfer but at a price that makes this not cost-effective. So, I have ‘Plan B’... If your staff haven’t got an adviser but want help with how to go about things, they can contact the government’s Pension Advisory Service (TPAS) (www. pensionsadvisoryservice.org.uk; 020 7630 2250). A lot of people feel powerless to manage their pension pots into one place, as there are a lot of snags and pitfalls along the way. I’ve found dealing with TPAS really helpful – they won’t tell you what to do but will give you a clear path to the decision you have to take that will ensure you are aware of pitfalls and don’t give up any important guarantees when transferring. What is more, their help and guidance is absolutely free. I’ve written a lot about how employers can help their staff to better pensions. Though I am an advisor myself, I don’t believe in charging people to help them do transactional stuff like transferring legacy pensions to workplace pensions. I think this is work that people can do for themselves. But they need a leg-up from employers. If you are an employer – work in human resources or payroll or are simply someone other staff listen to – then you might like to give TPAS a ring yourself and find out how you will be able to organise it for your staff to get the help they need to take advantage of the great news from the FCA. n
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Issue 26 | December 2016/January 2017
| Professional in Payroll, Pensions and Reward |
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