Compliance Update Round 2 - 2014 Pension Reforms

Key Learning Outcomes / Agenda Understanding the purpose of the Guidance Guarantee Understanding delivery of the Guidance Guarantee Assessing the impact of this service on your firm Awareness of regulatory changes as a result of pension reforms

Last Time FCA stated; ‘We are working with the Government to develop the impartial ‘guidance guarantee’ which will be offered to individuals at retirement from April 2015 and will consult widely about the detail of the standards governing this in the Summer’

Treasury Consultation Every individual will have the right to free and impartial guidance at retirement FCA responsible for the standards delivered Providers will have a duty to make individuals aware Relaxation of tax rules to allow greater freedom and flexibility This includes allowing annuities to decrease and pay lump sums

Entitlement to the Guarantee Everyone with a DC pension scheme Free access to impartial guidance which is easily accessible via; Printed publications Internet Telephone Face to face It must ensure customers are able to make informed and confident decisions

Delivery Channel For it to be trusted by consumers the services has to be offered by organisations which; are Independent have no conflict of interests This is to ensure they have no vested interest in the outcome

Personal circumstances Delivery of Guidance Personal circumstances Spouse/Partner Dependents State of Health (life expectancy) Potential LTC needs

Financial Circumstances Delivery of Guidance Financial Circumstances Pension entitlement (all pension pots inc. spouse/partner) Other income and benefits Capital expectations Tax status State benefit entitlement Home ownership Debt position

Delivery of Guidance Discuss objectives; Retirement plans Income needs Depletion of money in retirement

Discuss all options (to include); Delivery of Guidance Discuss all options (to include); Taking income via a retirement product Taking cash or a combination Taking no action It will include key facts and give consequences for each action; Taxation Sustainability Needs of family/dependants

Consumers will be responsible for the decisions they make The Guidance The outcome will NOT Confirm which option to use Make a specific recommend on; the product the provider which adviser to use Consumers will be responsible for the decisions they make

NO ADVICE NO PRODUCT FACILITATION MAS & PAS NO ADVICE NO PRODUCT FACILITATION

Guidance Outcomes Individuals have to self select Provision of information on how to shop around Signposts to; Debt advice services Benefits advice Full financial advice Ensure the individual is armed with the right questions to ask

Seek Regulated Financial Advice Client Record Each individual will receive a record of the guidance output which will include; Relevant options Key facts Consequences Next steps Directions for information / advice Seek Regulated Financial Advice

Advice Where specialist advice or information is needed the guidance will direct them to areas of support ie. directory of financial advisers

Funding Initially this was a Government funded service Treasury consultation is placing this levy on regulated financial services firms This will be targeted at firms that will benefit from these reforms The total levy will be set by the Treasury but collected by FCA

Our Response Simply Biz Challenges FCA on Advisers Share of Guidance Levy Ken Davy, Chairman of the SimplyBiz Group, has responded to the FCA Consultative Paper CP14/11 and challenged the apportionment of the costs of the Guidance Guarantee being proposed for advisers. The Consultation Paper proposes two options; the first would make advisers liable for 30% of the Levy and the second 20%.   A third option acknowledges the inherent unfairness of the first two options and seeks guidance on how a fairer system might work. In an extract from the submission, Ken Davy says; “The benefit to advisers (from the Guidance Guarantee) is likely to be approximately £12.5m per year.  It is essential to note however that this is not a cumulative benefit.  For the other fee-blocks the benefit is c£39m a year on a cumulative basis. Therefore, within just 5 years the insurers and money managers will have received a total of approximately £549m compared to the advisers total of c£62m and be receiving an annual income 14 times greater than that of advisers.”   Commenting on the FCA Paper, Ken Davy added; "The gap highlighted above and its inequality will continue to worsen year by year on a cumulative basis to the increasing disadvantage of advisers. We have seen with the Investors Compensation Scheme Levy, which continues to place a wholly unfair burden on advisers, how the unintended consequences of regulatory action can damage the sector.  We are also very concerned that the Guidance Levy is handing a blank cheque to the organisations tasked to deliver the guidance.  We are not against the Guidance Service itself; however it is vital that the costs are shared equitably and properly controlled.  Our detailed response to the FCA demonstrates that the adviser fee-block proportion should more properly be of the order of 6% or less rather than the 20% or 30% suggested". “We are not against the Guidance Service itself; however it is vital that the costs are shared equitably and properly controlled.  Our detailed response to the FCA demonstrates that the adviser fee-block proportion should more properly be of the order of 6% or less rather than the 20% or 30% suggested".

Our Views – Pensions Tech Keeley Paddon – Head of Pensions Technical “Whilst the debate on funding the guidance guarantee continues, we feel a number of positives will come from the changes. Whilst the Money Advice Service and The Pensions Advisory Service will be undertaking detailed fact-finding, neither party is permitted to choose or recommend an ultimate contract – only give guidance on the various options – nor will they be able to place business with the product providers. In our experience, providers will not deal with clients directly and still need to process any business via an advisory practice. This could lead to double fact-finding of course, but we expect to see an increase in both customer enquiries and those who are seeking full advice. With so many options to consider, we are quite sure that even more true advice (not guidance) will actually be required.”

Providers – New Rules Responsible for sending information to customers This must include; Size of pension pot Details of MVRs, Guarantees or other features Signposts to the guidance guarantee Clear direction where this can be found and if required free face to face meeting

Providers – New Rules Send out information 4 to 6 months and a further reminder 6 weeks before intended retirement date Refer to Guidance regardless of the type of communication made. This must not discourage the service Current requirement to inform customers of an open market option* continues and to open this up to other areas Confirm tax implications on selected option Must still send MAS retirement booklet *FCA’s review of the annuity market will continue

Providers – The Rules The Regulator expects product innovation! Illustrations – current requirement for drawdown; project income & fund value at 5 yearly intervals compare annuity now and in 10 years Only change is removal of withdrawal limits No change to pension projections ie. projection income via annuity Review automatic annuity processes

Adviser Firms Application of all pension reforms Awareness of new developments in the market Suitability reports; Income sustainability Tax implications

Unknowns – The Advice How will this be delivered? Execution Only Insistent Client Simplified Advice Limited / Focused Advice Full Advice

Any Questions?