The ongoing uncertainty around the UK’s withdrawal agreement leaves much in the air. What can we do to prepare for an undefined Brexit scenario? This article explores the mechanisms that will start turning on 29 March 2019, and their relevance to adviser firms and fund managers. Read the full article.
One of the lesser reported outcomes of the FCA’s scrutiny on post-freedom pensions is the changes to the ‘wake up’ process – the regulatory mechanism by which consumers are prompted to consider their retirement options. More than ever before, investors are being encouraged to seek free guidance, with providers being leaned on to deliver this message. Read the full article.
At the time of writing, the proposed withdrawal deal continues to be a cause of much disagreement in the House of Commons, with fresh upheaval coming in the form of an exodus of nine Labour MPs. These MPs quit the party as a result of disagreements with Jeremy Corbyn and unease over the direction in which they felt the party to be heading. Of these nine, eight have now joined the Independent Group along with several ex-Conservative MPs.
It will remain difficult for any organisation to fully assess the implications of and prepare for Brexit until there is certainty regarding a withdrawal agreement or a no deal scenario. However, the FCA have been providing information for firms, fund managers and platforms alike, outlining some of the steps they might need to take ahead of Brexit. Here is what we know from them to date:
Brexit could have a significant impact on fund managers as they are often either based in the EU wishing to passport into the UK, or based in the UK wishing to passport into the EU. This means that a number of fund managers will be reviewing their corporate positions, and some have already begun to open offices in popular EU locations such as Dublin, Paris and Luxembourg.
The EY Financial Services Brexit Tracker has been keeping track of company plans and moves. Since the EU Referendum, 36% (80/222) of UK financial services companies tracked have said they are considering or have confirmed relocating operations and/or staff to Europe. This rises to 56% (27 out of 48) amongst universal banks, investment banks and brokerages.
30% (67/222) of companies tracked have confirmed at least one relocation destination in Europe to which they are moving or considering moving or adding staff. Dublin is the most popular destination, followed by Paris and Luxembourg.
The list of asset managers/intermediaries who have confirmed plans to open offices in other EU countries as a result of Brexit includes:
This comes as positive news for investors as it means fund managers are taking the necessary steps to ensure that they can still sell to and service investors in both the UK and EU.
Source: Ernst & Young Global Limited
Investor and business sentiment
Since the Referendum result was first delivered in the Summer of 2016 pundits have talked about ‘investor sentiment’ and whether retail and institutional investors are feeling positive about the UK in a post-Brexit landscape. There has been an ongoing focus on the strength of the pound.
Most clients have been aware of Brexit for the last two and half years and therefore are expecting some changes and volatility in the markets. Some advisers and DFMs have made small changes to client portfolios in order to minimise any potential sudden impact, but ultimately most are focused on a long term strategy.
Although the market has reacted with volatility and fund managers have made changes, investor sentiment remains positive but still uncertain. State Street have been carrying out a ‘Brexometer Index’ survey each quarter to monitor the changes in investor sentiment, looking at economic growth, business operations and risk, to name a few. In Q4 2018, 38% of respondents had a positive outlook for medium-term global economic growth - a slight fall from 43% in Q3. Q4 also saw a fall from 83% to 80% in the number of investors anticipating that Brexit would have an impact on their business operating model. View the report in full here.
How does your company intend to change its holdings of UK assets (equities, bonds or alternatives) in the next six months?
Source: State Street Corporation
We will continue to monitor changes and announcements that might affect our users. Please be sure to read our Adviser Update for important platform changes.
Are clients engaging with their pensions early enough?
The FCA’s current “wake up” process, intended to get investors thinking about accessing their pensions benefits, is tied to an intended retirement date. This makes some sense for occupational schemes with a natural retirement date, but for the majority of savers now using SIPPs and personal pensions to access their benefits flexibly, the concept of a scheme retirement date is out of touch with reality. Without a natural retirement date, scheme administrators are required to use the state pension age as a default trigger. By this point, most investors will already be engaged with the process of drawing benefits.
The regulator has recognised this issue and created a new model for engaging consumers. Policy Statement 19/1, part of the FCA’s Retirement Outcomes Review, details their new wake up process, which all pension providers must implement from 1 November 2019.
The policies outlined in the statement are primarily about improving consumer engagement with retirement income decisions. After consulting with the pensions industry on when best to engage people in retirement decisions, the FCA has decided that 50 is the most appropriate age to ‘wake up’ a consumer and start them thinking about their retirement choices and how best to meet their retirement objectives. It’s also the point at which they can start to receive guidance from Pension Wise.
Advice vs guidance
The new wake up packs will contain prescribed wording that will make investors aware of the guidance services available to them. Although wake up packs currently include this kind of signposting, from November there will be greater emphasis placed on the availability of free impartial guidance.
The Department for Work and Pensions’ new Mid-Life MOT website has already come under fire from Advisers for promoting The Pensions Advisory Service and The Money Advice Service as offering free ‘advice’. Using the word in a common parlance context is perhaps understandable on a website that’s designed to be straightforward for consumers, but clouding the FCA’s clear delineations is potentially unhelpful. The protection that comes with regulated financial advice is of great value to consumers, as are the personal recommendations offered by Advisers. The new wake up letters, whilst perhaps intended to promote the guidance services, do at least offer an opportunity for the definitions of guidance and advice to be clarified with the consumer.
Hammering the message home
The new ‘wake up’ process is more like a snooze button, with letters triggered at least every five years from age 50 until the client’s fund is fully crystallised.
An additional letter will be triggered around the client’s intended retirement date. This means that for a client in phased drawdown or accessing their benefits flexibly via Uncrystallised Funds Pension Lump Sums (UFPLS) the letters will keep on coming for as long as the fund lasts. Over the course of their retirement they might receive six wake up packs from every scheme of which they are a member. A client with three pension pots could therefore receive around 18 identically worded wake up packs.
Awareness of the guidance on offer will therefore be widespread and long lasting. Clients seeking advice will do so knowingly and after careful consideration of their circumstances; potentially they may also seek advice following guidance from one of the Government’s free-to-use services.
Full details of the Retirement Outcomes Review PS19/1 can be found here.