#malg15 workshop a pensions & money advice - slideset
TRANSCRIPT
Pensions and Money Advice
A new challenge for advisers and creditors
For the debt adviser A poten4al mine field
• For most, pensions are essen4ally just long term savings • Using savings to repay debt or choosing alloca4on of available
income between saving or repaying debt is not a new challenge for money advice...
• But new pension freedoms mean more op4ons to access pension savings a@er age 55, and
• Increased auto-‐enrolment means more debtors are being encouraged to save into a pension
• Advice/guidance to debtors is important in these areas • But needs care to help client consider wider implica4ons and
also to ensure that adviser keeps within regulatory boundary
Pension Freedoms • Op4on to access DC pension savings in full or in
part a@er age 55. • So, op4on to use pension savings to repay debt • FCA report 204,581 accessed pension savings
in first 3 months (95,731 in same period 2013) • ABI es4mate £5bn pension savings accessed in
first 6 months
Automa6c Enrolment Started 2012
-‐ now over 5.4 million auto-‐enrolled across 58,000 larger firms;
-‐ 1.8 million smaller employers enter AE by 2018
Minimum Contribu4ons
Date Employee Contribu4on
% of qualifying earnings Employer Contribu4on % of qualifying earnings
Un4l September 2017 1% = 0.8% a@er current tax relief
1%
Sept 2017 – Sept 2018 3% = 2.4% a@er current tax relief
2%
Sept 2018 onwards 5% = 4% a@er current tax relief 3%
Regula6on -‐ Keeping within FCA rules needs careful aAen6on...
PENSION ADVICE
Advice on acquiring or disposing of rights under a personal pension scheme is generally regulated advice . See PERG 12.1 & 12.3
DEBT ADVICE
CONC 8.3.2R A firm must ensure that:
(1) all advice given and ac4on taken by the firm or its agent or its appointed representa4ve: • (a) has regard to the best interests of the customer; • (b) is appropriate to the individual circumstances of the customer; and • (c) is based on a sufficiently full assessment of the financial circumstances of the
customer;
CONC 8.3.7R A firm must:
...
(2) before giving any advice or any recommenda4on on a par4cular course of ac4on in rela4on to the customer's debts, carry out a reasonable and reliable assessment of:
• (a) the customer's financial posi4on (including the customer's income, capital and expenditure); ...
• (c) any other relevant factors
and don’t forget the interest of...
PROFESSIONAL INDEMNITY INSURERS
Impact of pension changes on DRO and bankruptcy advice
DRO – guidance from Insolvency Service, March 2015
• Where the debtor is over 55 and has access to an undrawn personal pension fund both official receivers and DRO intermediaries should consider whether right to access pension means that debtor is able to repay debts. If so:
• In bankruptcy the official receiver will consider whether it would be appropriate to seek an annulment. In a DRO, an intermediary should contact the DRO Team to establish whether the official receiver will grant the applica4on.
Bankruptcy
• Conflic4ng High Court decisions on whether bankrupts can be forced to elect to take pension to be included in IPO
• Raithatha v Williamson (April 2012) -‐ court can force a bankrupt to take part pension
• Horton v Henry (December 2014) -‐ declined to follow Raithatha.
• Now wai4ng on Court of Appeal determina4on
Two Examples Mark is 56 years old. He has £20,000 in a personal pension plan and debts of £19,000. Should he take his pension benefits to repay his debt? Samantha is 26. She is auto-‐enrolled into a pension scheme, currently paying 1% (0.8% a@er tax relief) of her qualifying earnings. Should she stop pension saving to repay her debt? How/should any advice or guidance be reviewed in the future?
Moving Forward... • How do money advisers best meet the client
need for advice? • Need to brief managers and trustees/
directors? • Agencies and na4onal organisa4ons to
determine prac4cal approach? • Would auto-‐enrolment guidance benefit from
money advice?
And the creditor? A poten4al mine field
A recovery tool? • Will creditors expect, or pressure, consumers to
access pension savings to repay debts?
• If a consumer is on a reduced repayment plan, how will a creditor react to a further reduc4on in repayments where the borrower is auto-‐enrolled on a pension scheme?
• Are they likely to be realised?
Probably not FCA expecta4ons are fairly clear:
• CONC 7.2.1R(2) – A firm must establish clear, effec4ve and appropriate policies and procedures for … the fair and appropriate treatment of customers….
• 7.3.10R(3) – A firm must not pressurise a customer ..to raise funds to repay the debt by selling their property….
• Above all: Principle 6 – A firm must pay due regard to the interests of its customers and treat them fairly.
But what about creditors that are not subject to the FCA?
But is it as simple as that? Consumers might choose, independently, to dip into the pot to repay a debt or indicate an inten4on to do so. • What, if anything, should the creditor do? • Would the creditor know? • How should the creditor treat the payment? • Should the creditor suggest that the consumer gets some
advice? • Where to signpost the consumer for advice?
It’s not just about debt Creditors will also have to think about the effect of the pension freedoms on lending into re4rement. • Projected pension earnings might be relevant to assessing
affordability. • Drawing down might affect lending decisions • May also affect ongoing affordability for lending decisions
already made.
Some challenges…
• Gelng informa4on to assess affordability. • Living for the now – spend rather than save. It’s a consumers choice?
• Financial capability – are consumers equipped to make these decisions?
• Availability of accessible quality advice and appropriate signpos4ng?