The pension industry can be confusing at the best of times. However, throughout the previous twelve months, further layers of complexity have been added.
The coronavirus pandemic upended many people’s retirement strategies, whilst Brexit uncertainty caused many savers to become concerned about the value of their pension investments. Indeed, our executive chairman, Andrew Megson, has discussed these topics extensively in the likes of the Daily Express and BBC Radio 4.
That said, these will not be the only noteworthy trends within the pension industry throughout 2021. So, we have identified some other important trends, which are likely to dominate headlines throughout 2021…
Investment Pathways
As of 1st February, pension companies which provide income drawdowns, will start offering investment pathways to existing customers who haven’t sought professional advice.
This policy, which was announced by the Financial Conduct Authority in April 2020, will entail providers asking clients approaching the age of 55, how they plan to manage their pension pot. They will then be given four options: “I have no plans to touch my money”, “I plan to use my money to purchase an annuity”, “I plan to start taking my money as a long-term income” and “I plan to take out all my money”. The customers will then be offered one of four default funds to invest their pension pot.
Arguably, generic “cookie cutter” guidance cannot truly help savers to develop a retirement plan to suit their specific needs – only a regulated independent financial adviser can do this.
That said, investment pathways will likely disrupt the sector. The offering could mean that consumers will overlook the benefits of independent financial advice, in favour of generic, albeit free, guidance – and this could prove damaging to people’s financial futures. It will certainly be difficult to ignore this trend throughout 2021.
Pension Schemes Act 2021
The implementation of the Pension Schemes Act 2021 will also have a significant impact on the sector this year.
The Pension Scheme Bill aims to secure better outcomes for defined contribution (DC) savers. It will drive numerous positive changes, including the introduction of new criminal offences to prevent employers knowingly placing workplace pension schemes at risk for personal profit, and stronger enforcement powers for The Pension Regulator. Most notably, the Act also sets the legal framework for the Government’s pension dashboard, which is set to be formally launched in 2023, and will make it much easier for employees to track multiple pension pots.
Of course, this is not an exhaustive list of the multiple changes the Act will drive; further details can be found on the Government’s website. Hopefully, these changes will encourage more employees to take advantage of their workplace pension scheme and begin saving for retirement as early as possible.
Budget 2021
The Budget 2021 will inevitably cause shockwaves across the pension sector.
The impact of the coronavirus on Government spending has been monumental. Indeed, the furlough scheme, along with various business support packages, will have dented the public purse. So, it is inevitable that the Chancellor will try to make cuts to pay for these.
November alone saw the Government announce that the Retail Price Index (RPI) will be scrapped in 2030, which will have an inevitable knock-on effect on defined benefit (DB) pension scheme members and annuity holders. And there are rumours that Budget 2021 could bring further change.
A leading rumour is that the Chancellor is considering cutting pension tax relief. Of course, this is just speculation, so savers needn’t make any decisions just yet. That said, come the 3rd March, all eyes will be on Rishi Sunak, as the sector braces itself for change. It would therefore be wise to monitor for further developments to ensure they are aware of all potential changes.
It certainly looks like 2021 will be an eventful year for the pension industry. However, savers needn’t panic. Instead, it could be beneficial to keep abreast of the latest developments, and seek advice where possible, to ensure that they are prepared.