Money Advice Scotland Annual Conference & Exhibition 2016 Crieff Hydro, 2 nd & 3 rd June 2016

Pensions and Money Advice A new challenge for Advisers, Creditors, & Debt Collectors

For the debt adviser

For most, pensions are essentially just long term savings Using savings to repay debt or choosing allocation of available income between saving or repaying debt is not a new challenge for money advice... But new pension freedoms mean more options to access pension savings after 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 implications and also to ensure that adviser keeps within regulatory boundary

Pension Freedoms Option to access DC pension savings in full or in part after age 55. So, option to use pension savings to repay debt HMRC report 232,000 accessed pension savings of £4.3bn in first 12 months Insurers data shows around 20% used pension money to repay debt

Automatic Enrolment DateEmployee Contribution % of qualifying earnings Employer Contribution % of qualifying earnings Until April 20181% = 0.8% after current tax relief1% April 2018 – April % = 2.4% after current tax relief2% April 2019 onwards5% = 4% after current tax relief3% Minimum Contributions Started million workers in target group; 9 million newly saving or saving more by million smaller employers enter AE by DWP estimate annual saving will increase by £15bn because of AE

Regulation - Keeping within FCA rules needs careful attention... DEBT ADVICE CONC 8.3.2R A firm must ensure that: (1) all advice given and action taken by the firm or its agent or its appointed representative: – (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 recommendation on a particular course of action in relation to the customer's debts, carry out a reasonable and reliable assessment of: – (a) the customer's financial position (including the customer's income, capital and expenditure);... – (c) any other relevant factors (including any known or reasonably foreseeable changes in the customer’s circumstances PENSION ADVICE Advice on acquiring or disposing of rights under a personal pension scheme is generally regulated advice. See PERG 12.1, 12.3, & 12.6 Also see PS16/12 plus, what is the impact on PROFESSIONAL INDEMNITY INSURANCE?

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 application. Bankruptcy Conflicting 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 waiting on Court of Appeal determination

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% after 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?

And for creditors and debt collectors?

A recovery tool? Will creditors expect, or pressure, consumers to access pension savings to repay debts? FCA expectations are clear: CONC 7.2.1R(2) – A firm must establish clear, effective and appropriate policies and procedures for … the fair and appropriate treatment of customers… R(3) – A firm must not pressurise a customer..to raise funds to repay the debt by selling their property….(FCA to add guidance on pensions) 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?

Impact of AE on ability to pay ? If a consumer is on a reduced repayment plan, how will a creditor react to a further reduction in repayments where the borrower is auto-enrolled on a pension scheme? Should lending practice reflect future increased pension contributions? Does AE affect ongoing affordability for lending decisions already made.

Does it go further? Consumers might choose, independently, to dip into the pot to repay a debt or indicate an intention 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?

Some challenges... How do money advisers best meet the client need for advice? Would auto-enrolment guidance benefit from money advice? How do consumers access advice/guidance?