“Potential new pension scams. Pension liberation means that after April 2015, more over 55’s will be accessing their pension cash and there is the potential for us to see a wave of new fraudulent scams.” So says Elliott Silk, Head of Employee Benefits at Sanlam.
We have already experienced the dangers of ‘pension liberation’ companies which are set up to dupe people into accessing their pension with devastating financial effects. We expect to see a new wave of corrupt boiler room scammers using high pressure telephone sale techniques to target the 55’s and over. They will promise high returns in exchange for cash from small pension pots, promising to invest in non-existent structures such as ‘Eastern European property ventures’. At the moment, the consumer does have limited protection because pension companies can freeze a client’s money and prompt an investigation if they are concerned about a potentially dodgy pension transfer request. This protection will be lost in April as clients will be drawing out their money, rather than transferring it between legitimate pension providers.
Pension Providers close their doors to auto-enrolment. The Department of Work and Pensions have introduced changes and new responsibilities for pension companies. These include a charging cap at 0.75 percent, the removal of commission and the abolition of active member discounts, rules which all pension companies must comply by April 2015. We are concerned that some pension companies may channel their resources into meeting their new legal requirements from the DWP and close their doors to auto-enrolment business in the first quarter of 2015. Pension companies are legally required to have their administration in order, whereas the responsibility of auto-enrolment lies with the individual business. Pension companies could well close their doors to auto-enrolment applications whilst they get their own house in order.
Exit of employee talent from UK PLCs. The Pension Freedom changes in April are being welcomed by many individuals who have substantial pension savings. We are already providing pre-retirement advice to those who were once planning to work until their 60’s but under the change of rules are bringing forward retirement plans because they can access their private pension monies at 55. For many this is a pure lifestyle choice; why continue working when you don’t have to? Annuities would have paid many of these people a poor income amount, whereas being able to draw down from pension funds offers new flexibility in managing money. We expect to see a wave of mature talent and key employees retire early and this is likely to have an impact on UK PLCs next year.
Auto-enrolment; a churn in industry. It will be interesting to see how the secondary auto-enrolment market pans out. The first company staging date was in October 2012. These were the largest sized companies, and most of them appointed advisers to guide them through the process, the majority of which worked on a 3 year contract as software or middleware providers. Most of these companies started several months before their staging date so they could engage with their stakeholders. What we are going to see is a lot of those contracts expire in the first quarter of 2015. We think we will see a big churn in the industry with new adviser appointments and middleware providers. This will create a huge strain on the industry as large businesses will be coming back to market again to tender, at a time that smaller companies are seeking auto-enrolment advice. We think there will be a restriction on accessible advice for smaller employers, as not all advisers have capacity to take on the new small company clients at a time when they sorting out their tender pitches for their existing large clients.
Change in political direction. Steve Webb has been the longest ever serving Pensions Minister in his role, which has given stability for auto-enrolment and pension reforms in recent years. The General Election in May could bring a change in political power. A new Pensions Minister under a new political leadership is likely to lead to significant changes to pensions which could affect both the consumer and the industry.