Financial Services, Pensions, Investments & Savings - January 2010

Investment Advisors: Retail Distribution Review Questionnaire
On 22 January 2010, the FSA announced further research it is undertaking to assess the implications of the changes proposed in the Retail Distribution Review (RDR) Consultation Paper (CP09/18) published on 25 June 2009.

The further research seeks to collect data to help measure any incremental compliance costs that may be implied by these proposals, and to understand how firms operating in retail investment product markets might respond to the proposed changes. The further research is being undertaken in response to feedback from the consultation.

As part of this work, the FSA is asking a significant number of firms to complete an electronic questionnaire. There are three sections:
1. Profile of your firm 
2. Your firm's response
3. Compliance requirements

Source: http://www.fsa.gov.uk/smallfirms/your_firm_type/financial/library/questionnaire.shtml
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-----------------------------------------------------------------------------------------------------------------------------------------Government fulfils its pensions promise helping thousands who lost their savings
On 21 January 2010, it was announced that thousands of people who lost pensions when their employers went bust will get at least 90 per cent of their pensions guaranteed, as the final phase of the Financial Assistance Scheme (FAS) regulations are put before Parliament.  The Government will pay out £3.5 billion to around 150,000 people.

 

 

Before the Pension Protection Fund (PPF) existed to help them, thousands of employees lost their savings between 1 January 1997 and 6 April 2005 when their defined benefit pension schemes were wound up without enough funds to pay their pensions. FAS payments have been extended to members of schemes that wound up under funded although their employer was still solvent, and those in ill health and unable to work will get early access to their pension.

The FAS now provides help that is broadly similar to that provide by the PPF - at least 90 percent of the defined benefit pension accrued by individuals when their scheme began to wind up, which may be subject to a cap, paid from their normal retirement age.

The £3.5 billion cost is being part funded by the Government absorbing assets remaining in the affected pension schemes.

Responsibility for the administration of the FAS was transferred from the Department for Work and Pensions (DWP) to the Board of the PPF in July 2009, to establish a single organisation with responsibility for providing financial help to members of defined benefit pension schemes.

The regulations follow a public consultation, which ended on 6 October 2009. A copy of the Government Response to the Consultation is available at www.dwp.gov.uk/consultations.
Source: NDS - Department of Work and Pensions
Latest statistics can be found at: Latest Statistics
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The future of the UK Financial Services industry
The Future of Financial Services, which was published on 18 January 2010 to mark 20 years of the CBI/PwC Financial Services Survey, has suggested that the UK's financial services sector is more at risk of uncertainty surrounding future regulation than any other factor.

London still retains its position as a leading financial services centre but the shift in the global economy towards the East and the risk of UK authorities imposing new regulations are a serious threat to its stability.

The report contains several forecasts about the next 10 years including:

  • Government intervention and regulation: It is anticipated that the UK government will continue to be active in the industry for some time to come with a coordinated rather than independent focus on global action.
  • Customers and trust: The issue of restoring the confidence between industry and their customers will have more focus on the customer experience and less on products.

The future of the financial services industry by sector

  • Banking: A smaller number of banks will play a greater part in global affairs and banking is likely to see the emergence of new Asian competitors. There is ongoing discussion as to whether retail banking should be separated from investment banking.
  • Building Societies: Demutualised building societies which had tried to capitalise on deregulation to grow bigger had suffered the most. The possibility of an increased role for mutuals should be explored.
  • Insurance: A new role could emerge to manage the risks that accrued from the £1 trillion of final salary pension liabilities.

Source: The Confederation of British Industry (CBI)
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Increase in pensioners using homes to clear debt
The number of OAPs using the equity from their homes to repay debt has tripled in the past year, according to business activity analysis by Key Retirement Solutions on 12 January 2010.

Around a third of pensioners paid non-mortgage related debt using money from equity release during 2009, an increase from 11 percent in 2008. 20 percent of people said they needed the extra money just to keep up with regular bills.

Other uses of the money releases were home or garden improvements, holidays and helping family and friends.

Equity release can be achieved by either by taking out a lifetime mortgage, which is not repaid until they die or sell their home, or by selling a portion of their property to a home reversion company.
Source and full article:  The Independent
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Minimum pension age to rise to 55
From 6 April 2010, the normal minimum pension age will rise from 50 to 55. This is part of the pension reforms announced by the government in 2003. This will mean after that date, people wanting to start receiving their pension payments from an occupational or a personal pension scheme will have to be 55 or older. However those with severe ill health problems or those who can start their pensions at a lower age that is protected by the pension tax law will be exempt. Anyone already receiving pension payments will, not be affected.

Flexible retirement
The 2003 reforms allowed greater work/retirement flexibility and meant that people could start to take their occupational pension prior to retirement age whilst still working. Previously they would have had to wait until they fully retired from employment to take any pension income.

Changes to pension schemes' minimum ages
The 2003 reforms introduced a single minimum age of 50 to apply to all pension schemes that qualify for tax relief from 6 April 2006. This will rise to 55 from April 2010.

For tax relief on contributions, the pension scheme must set on minimum age for drawing pension income. Previously the 2003 reforms introduced a minimum age of 50 to qualify for tax relief but will increase to 55 from 6 April 2010.

Any changes to pension schemes' minimum age level above 55 will be left to the discretion of individual employers. The upper age limit of 75 to start drawing a pension is not changing.

Further information and advice announced on 11 January 2010 can be found on the HMRC website or you can call the HMRC helpline on 0845 600 2622.
Source and access to full report: HM Revenue and Customs
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Millions to get first pension - Employers to pay in
On 12 January 2010, the Department for Work and Pensions announced that millions of workers moved a step closer to getting a workplace pension for the first time as the final rules for the Government's pensions' reform were put before Parliament.

Calling this the most radical change to workplace entitlements since the introduction of the National Minimum Wage, the Secretary of State highlighted the fact that employers of all size would be joining employees in paying into a pension scheme for the first time. The changes kick off in 2012 starting with the largest businesses of over 120,000 employees paying into a pension scheme from October 2012. Employers will be staged by size from largest to smallest through to 2016, with start up small business given additional time to prepare to comply.

The regulations have increased flexibility and removed some of the burdens that were identified, without compromising the intentions or undermining protection for individuals, such as: 

  • Start-up businesses created from 2012 will be given until 2016 to start enrolling staff;
  • Businesses employing 120,000 staff start enrolling in October 2012, with smaller businesses phased in over the next three years;
  • Phasing in employer contributions from 1% in 2012 to 2% in October 2016 and to the full 3% by 2017.

The regulations reflect small changes to implementation announced in December 2009 - designed to help small and start-up businesses through the recession. Auto-enrolment will begin as planned in October 2012 and will be fully phased in by October 2017.

The Government's stated aim has been to introduce effective regulation without placing unnecessary burdens on employers or the pensions industry. The changes made in response to our consultations introduce increased flexibility and remove some of the burdens that were identified, without compromising our intentions or undermining protection for individuals.

Also published on 12 January 2010 is the National Employment Savings Trust Corporation Order and the Order to establish the National Employment Savings Trust Corporation and as a consequence, the Order which will wind up the Personal Accounts Delivery Authority in July 2010.

More than a million employers will be involved in these reforms, many of them small businesses.  The regulations follow changes to implementation announced last month designed to help small and start-up businesses through the recession.

The number of years needed to qualify for a full State Pension has been reduced to 30 years and we will be making it easier for women to make up any gaps they have in their contribution records. And grandparents will also now earn credit towards a fairer and more generous state pension for looking after their grandchildren.
Source: http://nds.coi.gov.uk/content/detail.aspx?NewsAreaId=2&ReleaseID=410269&SubjectId=2
The Regulations are available at: www.dwp.gov.uk/workplace-pension-reforms
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PADA launches new brand for The Personal Accounts Scheme
On 7 January 2010, the Personal Accounts Delivery Authority (PADA) announced that National Employment Savings Trust (NEST) will be the permanent name of the new national workplace pension scheme formerly known as the personal accounts scheme. 

NEST will be a national workplace pension scheme designed specifically for low-to-moderate earners. It is being set up as part of the Government's workplace pension reforms. It will be one of the schemes available for employers to use to fulfil their new duties under the workplace pension reforms, due to come into effect from 2012. NEST will be run by the NEST Corporation, a not-for-profit trustee corporation, and will have its own website. NEST will launch in low volumes in 2011:

  • It will be a new defined contribution pension scheme, designed to give millions of low-to-moderate earners a contributory workplace pension;
  • All employees whose employer does not have an equivalent or better pension scheme will be auto-enrolled into Nest from 2012 onwards, with their employer obliged to make a guaranteed minimum contribution of 3% of salary;
  • Employees will have to pay in a minimum of 4%, while at least one additional percent of salary will be added into the scheme via tax relief;
  • Employees can opt-out, but it is expected that millions will elect to have personal accounts administered by the new Trust. 

The ABI was quick to welcome the new name but more needed to be done to educate the public about pension planning (see ABI press release).
Source: http://www.padeliveryauthority.org.uk/documents/press-release-nest-07-01-2010.pdf
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FSA consultation on miscellaneous changes to the Disclosure Rules and Transparency Rules (DTR)
On 6 January 2010, the FSA published Quarterly consultation (No 23) (CP10/01). In this consultation paper, the FSA invited comments on miscellaneous amendments to the Handbook:

  • the Principles for Businesses (PRIN), to reflect the amendment the Treasury made in section 145 of the Financial Services and Markets Act (FSMA) in 2006 that allowed the FSA to properly implement the MiFID communication rules;
  • Chapter 16 of the Supervision manual (SUP) relating to the reporting requirements in SUP 16.12 - Integrated Regulatory Reporting;
  • the Collective Investment Schemes sourcebook (COLL) to provide greater clarity on winding up and terminating authorised funds; and
  • the Disclosure and Transparency Rules (DTR) to clarify the Transparency Rules within DTR that were created on 20 January 2007 in order to implement the Transparency Directive 2004/109/EC (TD) in the UK.

The FSA is also proposing to introduce a new Guidance Note on financial regulation for social housing providers.
Source: www.fsa.gov.uk/pubs/cp/cp10_01.pdf  
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Pension savings 'deteriorating'
The  results of a survey on pension trends carried out by the Association of Consulting Actuaries (ACA), published on 4 January 2010, has found 9 out of 10 defined benefit schemes are closed to new entrants. In addition, 18% of schemes are now also closed to future accrual (double that of 4 years ago). The ACA said that "the position continues to deteriorate. Just 6% of respondents say the Government's stated policy of supporting quality pensions is working - this is a real crisis which the next Government needs to tackle as one of its top priorities after the General Election."

Over half of all defined contribution schemes reporting to the survey are attracting employer contributions of less than 6% of earnings and less than 4% from employees, although contributions into defined contribution schemes are increasing slowly.
Source and access to full report available at: ACA Pensions survey
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Changes needed to improve retirement income options
The Association of British Insurers (ABI) published policy proposals intended to improve peoples' options for taking retirement income from their Defined Contribution (DC) pensions. The policy outlines proposals to enable people to get maximum benefit from their pension savings, to include:  

  • Raising the current age requirement for buying an annuity from age 75 to 80;
  • Encouraging the development of 'value protection annuities' and products that provide a lifetime income guarantee;
  • Addressing the issue of 'stranded pots' by harmonising rules for occupational and contract-based DC pensions;
  • Increasing the income allowance for Alternatively Secured Pensions;
  • Introducing proposals to encourage married and partnered couples to consider their joint retirement income needs.

Source and access to full report available at: ABI policy proposals
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Building Society lending steady in November
The Building Society Association (BSA) reported on 4January 2010 that balances held in savings accounts at building societies had been reduced by £0.6 billion in November 2009. After interest credited to accounts is excluded, building societies had a net withdrawal of £0.8 billion in November 2009.

They found that the economic climate had affected the amount people are saving. Building society members took out more money than they saved for the ninth month in a row in November 2009, with a net withdrawal of £775m.

This is due in part to savers withdrawing money from building society accounts to transfer into more competitive accounts with Government guarantees, in particular National Savings.
Source and access to full report available at: Building Society Association Report
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Equitable Life reintroduces interim bonuses
On 4 January 2010, Equitable Life announced that, with immediate effect, it had reintroduced interim bonuses and reversed the reduction in policy values made in March 2009.

This means that an interim bonus of 3.5% has been awarded to UK with-profits pension policies. Policy values of UK with-profits pensions policies have been awarded a one-off increase of 2%, reversing the reductions made on 1 March 2009 and the corresponding figures for UK life policies are 2.8% for interim bonus and a one-off increase to policy values of 1.6%.

This is considered to a small important step towards providing increased value for policyholders.
Source and access to full report available at: Equitable Life News
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Iceland Refusal to Repay Debt to Britain 
On 5 January 2010, Iceland's president, Olafur Ragnar Grimsson, refused to sign a bill to repay Britain the £2.3bn that was lost by British savers when one of the island's banks collapsed.

Iceland's parliament had previously voted in August 2009 in favour of a bill to pay back Britain over the next 15 years the billions of pounds lost in the collapse of online bank Icesave, which hit British & Dutch savers. This bill was passed the end of 2009 in spite of protests from the country's electorate.

A national referendum will now have to take place as a result of his decision, though a date has yet to be announced.
Source and access to full report available at: Government Offices of Iceland - press releases
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Money Lessons for children
Children will be taught how to look after their money when personal finance lessons become a compulsory part of the national curriculum. Schools are to be required to teach children how to spend with restraint, borrow within sensible limits and save prudently. Under a new personal, social, health and economic (PSHE) curriculum all pupils in England, aged five to 16 will be given financial literacy lessons - this will become compulsory for all pupils from September 2011:

  • Five-year-olds will start off learning how to identify different banknotes, and by 16 will be taught about mortgages and loans;
  • From seven to 11, youngsters could learn about managing bank and savings accounts, and how to budget.
  • From 11 to 14, in secondary schools,, pupils could be given lessons on credit cards, mortgages and loans, or about managing household finances, such as bills; and
  • 14-16-year-olds could be taught about debt and how money problems can have an effect on people's lives.

The lessons are being ordered by Ed Balls, the schools secretary.
Source: www.direct.gov.uk
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