UK roundup: Budget reforms, TPR, auto-enrolment
The UK government has relaxed the need for independent financial advice for savers moving defined benefit (DB) funds to defined contribution (DC) after April.
In conjunction with the budget freedoms announced last year for DC savers, which come into effect this year, the government placed the requirement on DB funds to provide independent financial advice for all members wishing to transfer funds from DB to DC.
However, as the law – which removes the requirement for DC savers to annuitise – reaches its final legislative stages, the government said this would only be required with DB savings exceeding £30,000 (€40,170).
Towers Watson senior consultant Stephen Green said: “The fact advice is not required for small pensions does not mean this is a decision to be taken lightly – especially where people have little else besides their state pension to fall back on.
“But if someone’s other final salary pensions will provide them with a good income in any case, their desire to swap a small pension for a pot of capital they can access as they like may have overridden any financial advice not to do so.”
The government previously consulted on whether to outlaw the transfer of DB funds to DC in light of the freedoms granted to the latter.
However, industry respondents suggested few transfers would take place to materially impact DB investment strategies and sovereign bond markets.
In other news, the UK Pensions Regulator (TPR) confirmed the number of penalties issued to employers breaching auto-enrolment requirements reached 169 by the end of 2014.
In the last three months of the year, the regulator issued 166 fixed penalty notices as employers that had staged auto-enrolment failed to complete their declaration of compliance.
It also issued more than 1,000 compliance notices forcing employers to amend failures in compliance, before being fined.
TPR auto-enrolment director Charles Counsell said: “It appears some medium employers waited for a prompt from the regulator before completing their automatic-enrolment duties.”
The regulator announced last year auto-enrolment policing would dominate its budget and agenda, with its share of TPR’s budget rising from 37% to 52%.
Expenditure on auto-enrolment is said to have risen by 90% as TPR manages the staging of smaller employers.
Law firm Pinsent Mason’s pensions partner, Tom Barton, said threats of regulatory action did not just come from TPR but also the tax office and employees.
“The regulatory scrutiny could also throw a spotlight on practices such as contractual enrolment, unilateral changes to contribution rates and salary sacrifice,” he said.
“These are employment contract issues employers need to get right.”