Written by Jon Dean on Tuesday 29 April 2014
The world of pensions has never been so interesting. Not since the Maxwell affair has the subject received so much press coverage. Public sector pension reform is the subject of a long-running teachers’ dispute. The new single-tier state pension will kick in from 2016. Automatic enrolment is finally rolling out to SMEs from this year and has brought adviser and fund manager fees into the limelight. As a result, proposed bans on consultancy charging, active member discounts and a new 0.75% charge cap on default funds are all aimed at improving member outcomes and these are causing disruption for providers and advisers alike.
On top of this steady drip-feed of announcements from the DWP, the Chancellor’s surprise announcement relaxing the annuity and drawdown rules has the industry in turmoil. The pensions arena is notoriously slow to change and many are asking if the pace of political interference is becoming too fast.
We’ve seen something similar happening recently with the energy industry. Gas and electricity prices have been another political hot potato with the government trying to react to Labour’s “cost of living” campaign. With opposition leader Ed Miliband pledging an energy price freeze and much pressure from Ofgem, the Competition and Markets Authority (CMA) announced an enquiry into possible price fixing by the “big six”. In March, Centrica put a hold on their programme of power station investments, stating “You wouldn’t invest in new power generation if there was a possibility that you might have to divest as a result of a competition referral”. Meanwhile, the threat of the lights going out as our ageing infrastructure is decommissioned is growing, and Britain needs major investment in replacement generation capacity. It seems that regulation is discouraging much-needed development.
The DWP and Treasury proposals for pensions have all been broadly welcomed by consumer groups and by those within the industry who want to see public trust in financial services restored. After all, the customer’s need for a reliable income in retirement hasn’t gone away. With the Government having set some new expectations for the industry, isn’t there a case for a period of regulatory stability to allow time for providers to think about new simple and cost effective alternatives to annuities? Otherwise, much like in Centrica’s case, there’s a risk that further big announcements could discourage or delay innovation by providers.