European Commission backs down over £450bn Solvency II-style plans

The European Commission has delayed introducing Solvency II-style capital requirements for defined benefit pension schemes which were estimated to cost £450bn.

Proposals from the commission requiring DB scheme sponsors to hold extra capital in order to better protect occupational pension savers sparked an industry fightback last month, with pensions minister Steve Webb, the Confederation of British Industry and the National Association of Pension Funds all uniting against the plans.

The plans were set to be introduced through changes to the Institutions for Occupational Retirement Provision directive.

European Commissioner for Internal Market and Services Michel Barnier said last week more research is needed before introducing the new capital requirements. He will set out legislative proposals in the autumn that will instead concentrate on occupational pension funds’ governance, transparency and reporting requirements.

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The RDR 100 days on

As anticipated, most organisations were compliant with the statutory RDR requirements on day one and about 85% of advisors had gained the required qualifications and statements of professional practice.

Clearly some intermediary firms have been selling fee based propositions for many years. But for life companies and intermediaries embarking on RDR transition we estimate that the best prepared were at least 12 months ahead of the pack. We know that a number of players were burning the midnight oil between Christmas and New Year’s Eve and it is clear that many are still in transition to the post RDR world in terms of culture and, indeed, proposition.

We have identified some weaknesses in many of the post RDR service propositions we have seen. In particular some fee structures and rates seem to represent transition rather than the probable end-game; some ongoing service propositions do not appear compelling and there seems to be an absence of fail-safe systems and controls to ensure that the promised on-going service is actually delivered.

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Billy Burrows: Cheap is not always best for annuities

" I recently read that Tesco is entering the annuity comparison market. This provides me with the perfect opening comments.

Many commentators and annuity broking businesses view the annuity market in terms of lots of people with small pension pots who need to be sold the annuity which pays the highest starting income.

 It is hard to argue with the numbers; over £13bn of annuities are sold every year and the average purchase price is still less than £30,000.

It seems that Tesco and other firms who know a lot about retailing are aiming for this mass market.

But what about those who prefer to shop in more upmarket supermarkets where price is not necessarily the main driver and where personal service and quality are important factors. Where can they go to get advice on their annuities?

This brings me on to the theme of a paper which I have recently published in conjunction with MGM and Prudential and with help from Professor John Maule, a leading authority on behavioural economics.

The paper argues that it is time to question whether the traditional guaranteed annuity should remain as the default option for those with above average sized pension pots."


 To read the full article, click here and you can also download the report Annuities at a tipping point.