1. Pension Freedom and Automatic Enrolment - Next Steps

2. Brief review of the impact of Pension Freedom and Automatic Enrolment on Indebted Consumers
What we know about how consumer behaviour has been affected by the change to pension rules
The essential next steps required of all those who engage with indebted consumers

3. Pensions are long-term savings
Using savings to repay debt or allocating available income between saving and repaying debt is not a new challenge
But recent and future changes make it more difficult, with potential detriment for consumers and risks for advisers

4. Pension Freedom allow more options for older consumers to access pension savings to repay debt
Auto-enrolment means more debtors are encouraged to save into a pension
Using savings to repay debt (particularly higher interest) is normally appropriate
But using pension savings impacts on later-life income and has potential, and complex, tax and other consequences
Saving for later life is a clear ‘good thing’ (with advantage of tax relief plus employer contribution) but with obvious tension between long-term saving vs short-term repayment of debt.

5. Pension Freedom – Take Up
Total value of payments made = £10,800 million (£10.8 billion)
Income Tax paid to HMRC = £2.7 billion compared to original forecast of £0.9 billion 
NHS Budget = 2016/17 = £116.4 bn
Scottish government devolved spending plans for 2017/18 = £38 bn

6. Pension Freedom – Take Up

7. What has Pension Freedom Been Used For?
We have surprisingly little information…
Citizens Advice 2016 survey of 521 individuals who had used Pension Freedom showed a potentially worrying intention to use pension money to meet short-term needs such as funding daily living costs (29% of those surveyed), paying off debt (16%), or paying for one-off essentials (14%).

8. Automatic Enrolment
DWP estimates that automatic enrolment covers around 11.2 million eligible workers, of which 10.1 million will be saving for the first time or saving more by 2018
Amount of additional saving is substantial; DWP estimates that £17billion more will be saved each year into workplace pensions by 2019/20, with employees contributing £8billion

9. Automatic Enrolment – Opt Out Rates
DWP’s originally estimated that up to one third of employees would opt out of automatic enrolment. Subsequently reduced to 15% in the light of actual figures reported by employers
Current opt out rate  is around 10%
But question of whether opt out will increase with future increases in contributions

10. Automatic Enrolment – Increases in Contributions
Minimum employee contribution is currently 1% of qualifying earnings = just 0.8% of qualifying earnings after basic rate tax relief. But this is scheduled to increase to 3% of qualifying earnings from April 2018 with a further increase to 5% from April 2019
Annual Qualifying Earnings
Current Monthly Minimum Contribution
with tax relief at 20%
Minimum Monthly Contribution from April 2018
Minimum Monthly Contribution from April 2018 with tax relief at 20%
Minimum Monthly Contribution from April 2019
Minimum Monthly Contribution from April 2019 with tax relief at 20%
£11,000
£9.17
£7.33
£27.50
£22.00
£45.83
£36.67
£15,500
£12.92
£10.33
£38.75
£31.00
£64.58
£51.67
£22,500
£18.75
£15.00
£56.25
£45.00
£93.75
£75.00
£30,000
£25.00
£20.00
£60.00
£125.00
£100.00

11. Next Steps
Joint paper with MALG/Money Advice Scotland/Money Advice Service
Explains impact of Pension Freedom and Automatic Enrolment on indebted consumers
Explains regulatory issues that can make it difficult for advisers and creditors to discuss pension issues…but also how regulation and best practice also requires that advisers and creditors do more
Offers recommendations for debt advisers and creditors

12. Some recommendations Advisers
Providers of debt advice should always signpost the availability of Pension Wise where the client 50+ and has savings in a defined contribution pension
Providers of debt advice should produce written generic information to explain the advantages, disadvantages, and implications of using pension savings to repay debt and make this widely available
Providers of debt advice should have a clear policy on how they offer or facilitate the provision of advice to indebted consumers who can access Pension Freedom. The policy should set down how far debt advisers can and will go to provide ‘in-house’ generic advice about Pension Freedom and/or how clients and customers will be referred or signposted to other advice if necessary
Debt advice providers should generally assume that automatic enrolment is in the best interests of their clients or customers. This default approach should be discussed with the FCA

13. Debt advice providers and Pension Wise should consider a pilot service to test how they can best use their respective skills and experience to jointly offer debt advice and pensions guidance within one discussion with the debt client/customer. The pilot service should seek positive and on-going engagement with the regulatory bodies
Debt advice providers should investigate whether and how the post April 2017 allowance for Pensions Advice can be used to provide advice on Pensions Freedom for debt clients/customers
Debt advice providers should always refer to regulated financial advice where clients/customers are interested in transferring defined benefit pension savings to take advantage of Pension Freedom
Debt advice providers should consider how automatic enrolment impacts on their clients or customers, how this will be discussed as part of the debt advice process, and how the future planned increases in contribution rates affects the recommended debt advice solution.
Creditors and Debt collection Companies
Where creditors and debt collection companies become aware that debtors are thinking of using Pension Freedom, they should signpost the customer to Pension Wise
Creditor and debt collection companies should consider how and when they will incorporate increasing automatic enrolment contributions within their lending and debt collection policies