There is a need for calm reflection on what is right longer term for pension savers – and for reflection on which areas of gold-plating can now be put on pause says Aegon pensions director Steven Cameron
Following the decision to leave the EU, the UK will in the coming months inform the EU it’s withdrawing under Article 50. This will be the official starting pistol for a lengthy period of negotiation lasting at least two years, around the terms of exit and of new trading agreements.
In the meantime, and until we formally leave the EU, the FCA has reminded firms they must continue to comply with all regulations, including those which originate in the EU. Going further, it has advised firms that they must continue with plans to implement forthcoming EU regulatory changes.
The UK Government also has a number of significant financial services proposals underway, including the Treasury’s plans for a Lifetime Isa and a secondary annuity market. But unless some key aspects can be finalised very soon, there is a real risk that an April 2017 implementation will no longer be feasible. And there’s a risk that the Pension Bill to introduce new master trust rules could be derailed.
Until we officially exit the EU, the FCA has reminded firms to continue to follow regulations arising from the EU. Many of these are part of UK regulation and so will continue to apply unless and until the UK Government decides to change them.
But we are also facing a raft of new EU regulations, many of which are due to be implemented over the next two years or so. These include Packaged Retail Insurance Based Investment Products (PRIIPs) regulations, changes to the Markets in Financial Instruments Directive (MiFID) and to the Insurance Distribution Directive (IDD).
While the FCA has indicated firms should continue to implement these too, we would urge a thorough examination of whether each individual proposed change adds value for UK savers long term. Some may be needed as part of new trade agreements but others may tie up time and resources, which might be better spent on longer-lasting initiatives.
The FCA should consider initiating a process for thinking about pieces of regulation it is considering introducing, that it would not have done had it not been for EU regulation. It should consider identifying those outlier provisions that are not related to trade or consumer protection, and that are therefore not likely to feature in any future trade agreement.
For example, where the FCA thinks it would not introduce certain regulations – such as the rules around the sale of complex products without advice – if Mifid had not existed, it could give an indication that it is not likely to proceed with enforcing them, so we can save everybody the expense and effort of going to the trouble of dealing with them. The FCA does not have to apply Mifid to pensions, but it could do. Now is the time to reconsider whether we need any gold-plating of EU regulations.
We would also urge the Government to give an early indication of its plans to take forward initiatives such as the Lifetime Isa and the secondary annuity market. Unless we get more detail very soon, the April 2017 introduction looks very challenging. There could also be a question mark over the Pensions Bill announced in the Queen’s Speech to review master trust rules.
It is likely the Government will wait until the autumn before considering if tough decisions are required in response to any impact on economic performance, with the state pension triple lock highlighted pre Referendum as at risk. While domestic policy changes ahead of EU exit are a real possibility, we’d urge a truly long-term perspective in areas such as pensions. We would also caution against any radical changes such as a major overhaul of pension tax relief, which would run contrary to the wider desire to offer stability where possible.
As we all work to achieve an orderly transition to UK outside the EU, it’s important that industry works closely with both FCA and Government for the benefit of our customers.