The Labour Party announced over the weekend that if it returns to office after the next election in 2015 it will “fix the broken pension market” by, amongst other things, a) imposing a cap on charges and b) making sure savers get the best deal when they turn their pension savings into retirement income.
Commenting on the statements, Malcolm McLean, consultant, says:
“Whilst it is helpful for everyone – public and pension practitioners alike – to know in advance what the opposition plans for pensions might be, there is, unfortunately, a distinct lack of clarity as to exactly how these proposals might work in practice and what the longer term impact might be.
“On charges, although the Labour press release did not specify any particular level for a cap, the information given to the BBC (and seemingly endorsed by Rachel Reeves) says the limit on management charges would be 0.75% to begin with, but that would be reduced to 0.5% within the lifetime of a parliament.
"Surprising to note that Labour plans to introduce a requirement for all savers to be referred to an independent broker."
“Crucially, however, there is no indication as to precisely when the 0.75% cap would come into force (presumably not before 2016/17) and whether the subsequent reduction to 0.5% would apply to all schemes, just new ones going forward or retrospectively to those schemes who had already enrolled prior to the cap(s) coming into force. All of this needs to be known and taken into account by those whose staging dates for the rolling programme of auto-enrolment have yet to be reached.
“Similarly, it is surprising to note that Labour plans to Introduce a requirement for all savers to be referred to an independent broker to make sure they get the best annuity deal possible – seemingly disregarding the fact that brokers do not give financial advice (they are essentially a non-advised service) and are not accountable for any actions the saver may take in consequence.
“Whether Labour is suggesting, or at least implying, that a brokerage service is preferable and/or less expensive (which it often isn’t) to that of an IFA is not clear but, if it is, it is a very dangerous path to go down given the complexity and lack of consumer familiarity with the whole decumulation process.
“We need a lot more clarity and possibly a slight change in emphasis if the Labour pension policy is to deliver what we would all like to see - making sure savers get the best deal possible from their pension plans thus enabling them to retire with a degree of comfort and at a time which suits them best.”