In recent years the pensions landscape hasn’t stood still for long. Even after the introduction of the pension freedoms in 2015, the government continues to tinker with pensions legislation as pressure on budgets continues.
Here, we enlist the help of Richard Parkin, head of pensions policy at Fidelity, to find out what he thinks will be the big themes for the coming year.
1. Defined benefit pensions
2016 was a bad year for members of final salary schemes, with the collapse of BHS and ongoing troubles at Tata Steel highlighting the risks these schemes face. 'The industry is eagerly awaiting the Department for Work and Pensions (DWP’s) thoughts on how to handle some of these issues. While it’s important that we do what we can to provide increased security for pensioners this can’t be at the cost of degrading benefits significantly.'
He adds: 'In the same vein, transfers from DB schemes have increased significantly in recent months yet the government requirement to take advice on larger transfers is putting some strain on the system. The industry needs to work with regulators to ensure the availability of quality advice in this area can be maintained.'
2. Tax relief
Although former Chancellor, George Osborne, consulted at length on possible reforms to the tax relief on pension contributions he stopped short of implementing change. Currently HM Treasury maintains that tax reform is not on the agenda, nonetheless the state of the UK’s finances means it may be too tempting an opportunity.
Mr Parkin says: 'Even if wholesale reform is not on the cards the government has shown it can’t help but tinker with the rules. The proposed reduction in the amount those who’ve accessed their pensions under the new freedoms can save in the future is the latest example of this.'
3. The Lifetime Isa
The Lifetime Isa will enable savers under the age of 40 to combine savings for property and retirement in one tax-efficient account. Savers will be able to pay in £4000 a year, which will be topped up by a government bonus worth 25 per cent. It is due for launch in April this year.
Mr Parkin says: “The performance of the Lifetime Isa will be worth watching. Suggestions that it will undermine automatic enrolment are, we believe, overdone. We do see it being very popular with those looking to buy a first home and we expect many existing savers to shift to the new product. Our biggest concern in the near term is that the product proves too popular and so more expensive than government anticipated. How would policymakers respond in this case?”
4. The Retirement Outcomes Review
This report from regulator the Financial Conduct Authority (FCA) will investigate how competition is developing in the retirement income market, following the pension freedoms in 2015. This change of legislation means retirees are now able to spend their pension savings as they wish. Although it is not due to be published until the summer, we may see an interim report in the spring.
Mr Parkin says: 'It will be particularly important how the FCA deals with non-advised drawdown. While it can be complex, many are using it just to take tax-free cash and singling out drawdown from other ways of accessing cash makes no sense. We need an approach to guidance and advice that is focused on what people are trying to achieve rather than how they are trying to achieve it.'
Mr Parkin adds that shopping around will also be on the agenda. He says: 'While it’s essential that people get the best value, assuming shopping around will yield the same consumer benefit for other retirement products such as drawdown as it has for annuities may be misplaced. Many accessing their savings are doing so through low-cost well governed workplace pensions so transferring may not be in their interests, particularly if they are still actively contributing.'
5. Automatic enrolment review
Since auto-enrolment was launched in October 2012, some 6.7 million workers have been signed up to workplace pensions. However there are still many people that fall outside its scope and this is what this review aims to tackle.
Mr Parkin says: 'The government has signalled the scope of this review looks to be more focused on coverage (i.e. who’s in the system) versus adequacy (i.e. how much they’re paying). We think this is right as while we can’t ignore adequacy, we still have a way to go before we reach the automatic enrolment minimum of 8 per cent in 2019. The more pressing challenge is making sure everybody benefits with the self-employed and those with multiple jobs being particularly urgent cases for examination.'