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?