New Year 2015 Predictions; Pension Industry

By Elliott Silk DipPFS

Head of Employee Benefits

Elliott Silk, Head of Employee Benefits at Sanlam said:

Potential new pension scams. Pension liberation means that afterApril 2015, more over 55’s will be accessing their pension cash andthere is the potential for us to see a wave of new fraudulent scams.We have already experienced the dangers of ‘pension liberation’companies which are set up to dupe people into accessing theirpension with devastating financial effects. We expect to see a newwave of corrupt boiler room scammers using high pressure telephonesale techniques to target the 55’s and over. They will promise highreturns in exchange for cash from small pension pots, promising toinvest in non-existent structures such as ‘Eastern European propertyventures’.

Pension Providers close their doors to auto-enrolment. TheDepartment for Work and Pensions is introducing changes and newresponsibilities for those responsible for certain pension schemes.Likewise the Financial Conduct Authority are bringing in similarrequirements for providers of contract based workplace pensionschemes. Examples of the changes include a charging cap at 0.75%,the removal of commission and the abolition of active memberdiscounts, rules. Those responsible must comply with newrequirements from April 2015. We are concerned that some pensionproviders may channel their resources into meeting their new legalrequirements and close their doors to auto-enrolment business in thefirst quarter of 2015. Pension providers are required to have theiradministration in order, whereas the responsibility of auto-enrolmentlies with the individual business. Pension providers could well closetheir doors to auto-enrolment applications whilst they get their ownhouse in order.

Exit of employee talent from UK PLCs. The Pension Freedomchanges in April are being welcomed by many individuals who havesubstantial pension savings. We are already providing pre-retirementadvice to those who were once planning to work until their 60’s butunder the change of rules are bringing forward retirement plansbecause they can access their pension funds in defined contributionschemes at 55. For many this is a pure lifestyle choice; why continueworking when you don’t have to? Annuities would have paid many ofthese people a poor income amount, whereas being able to drawdown from pension funds offers new flexibility in managing money. Weexpect to see a wave of mature talent and key employees retire earlyand this is likely to have an impact on UK PLCs next year.

Auto-enrolment; a churn in industry. It will be interesting to seehow the secondary auto-enrolment market pans out. The firstcompany staging date was in October 2012. These were the largestsized companies, and most of them appointed advisers to guide themthrough the process, the majority of which worked on a 3 year contractas software or middleware providers. Most of these companies startedseveral months before their staging date so they could engage withtheir stakeholders. What we are going to see is a lot of those contractsexpire in the first quarter of 2015.

We think we will see a big churn in the industry with new adviserappointments and middleware providers. This will create a huge strainon the industry as large businesses will be coming back to marketagain to tender, at a time that smaller companies are seeking auto-enrolment advice. We think there will be a restriction on accessibleadvice for smaller employers, as not all advisers have capacity to takeon the new small company clients at a time when they sorting out theirtender pitches for their existing large clients.

Change in political direction. Steve Webb has been the longestever serving Pensions Minister in his role, which has given stability forauto-enrolment and pension reforms in recent years. The GeneralElection in May could bring a change in political power. A newPensions Minister under a new political leadership is likely to lead tosignificant changes to pensions which could affect both the consumerand the industry.

This article is for information purposes and should not be treated as advice. Individual

circumstances should always be considered prior to purchasing any financial products. For

further information please contact your Wealth Planner.

Sanlam is a trading name of Sanlam Wealth Planning UK Ltd (Reg. in England 3879955) and

English Mutual Ltd (Reg. in England 6685913). English Mutual Ltd is an appointed

representative of Sanlam Wealth Planning UK Ltd which is authorised and regulated by the

Financial Conduct Authority.