The government is to introduce additional measures to protect members of master trust pension schemes through a new Pensions Bill.
The Pensions Bill was unveiled in background briefing documents following the Queen’s Speech in the Houses of Parliament yesterday (18 May).
Under the proposals, master trusts would be required to demonstrate that schemes meet strict new criteria before taking money from employers or members. The Pensions Regulator (TPR) would also be granted the power to authorise and supervise schemes.
The Pensions Bill also confirmed the restructuring of financial guidance bodies, as announced by Chancellor George Osborne in the March 2016 Budget.
A pensions guidance body will bring together Pension Wise, the Pensions Advisory Service and the pensions services delivered by the Money Advice Service. A new money guidance body will replace the existing Money Advice Service.
The bill will also place a cap on early exit charges by trust-based workplace pension schemes, with the aim of removing barriers for those who wish to take advantage of the pension freedoms at retirement.
Milan Makhecha, principal consultant at Aon Hewitt, said: “Today’s announcement comes as no surprise to us. We are pleased to see the government taking action and deciding to legislate to tighten the market entry requirements for master trusts. Although the detail remains to be seen, we hope this will allow the Pensions Regulator to identify and deal with the rogue master trusts already in the marketplace.
“Even though there are currently over 100 master trusts in the marketplace, we believe that good-quality master trusts already exist and, when set up and governed properly, they have the potential to improve member engagement and retirement outcomes. This combined with better member education and easier access to advice [or] guidance, another positive outcome of [the] Queen’s speech, is a good step to help our future generation of pensioners to plan for, and achieve a much better retirement than they currently face”
Government presses ahead with lifetime individual savings account
A Lifetime Savings Bill has also been confirmed, which aims to encourage individuals to save for the long-term. The bill encompasses the lifetime individual savings account (Lisa), which was first unveiled in the March 2016 Budget.
Adults under the age of 40 will be able to pay up to £4,000 year into a Lisa and receive a 25% government top-up to a maximum of £1,000 a year. The savings and government contribution can be put towards the purchase of a first home up to the value of £450,000, or withdrawn as retirement income from the age of 60 without charge.
Chris Noon, partner at Hymans Robertson, said: “We agree with the government that lifetime Isas (Lisas) should encourage the next generation to get into the habit of regular saving. If Lisas are run in parallel with pensions they might help bridge the long-term savings gap. But, as with all financial products, there needs to be strong protection in place for consumers to make sure they don’t pay over the odds in fees or invest inappropriately. Offering these through the workplace could help with that.
“Our biggest worry is that Lisas could, in due course, replace pensions, heralding the end of the pensions system as we know it, along with the generous system of tax relief accompanying it. This would exacerbate an already acute long-term savings crisis; a crisis made worse by lower state pensions for future generations. To avoid this, Lisas must be offered alongside pensions.
“If the government is truly committed to ‘freedom to choose’, then we urge it to continue to allow individuals the choice of a pension as well as Lisas.”