2021 has been a year of great upheaval in the pension industry. From rising inflation and rock-bottom interest rates to a Department of Work and Pensions (DWP) scandal and the temporary suspension of the state pension triple lock, individuals have been up against it when it comes to their retirement planning this year.
Our executive chairman, Andrew Megson, has discussed how these events have played out at length, but it is worth restating the fact that a large majority of Britons (87%) have no confidence in the Government’s pension policy, according to recent research from My Pension Expert.
But beyond Government decision-making and broader fears about omicron, pension planners might now be wondering what 2022 has in store. Here are some things to consider…
Government review of the state pension age
Last week, the Government launched a new review of the state pension age. This will consider whether the current state pension age policy is appropriate based on regional data surrounding regional differences, inflation and the latest life expectancy (which has not risen at the expected rate), amongst other factors.
The state pension age is currently 66, with two further gradual increases already set out in legislation – respectively, this will be a rise to 67 for those born on or after April 1960, and a rise to 68 between 2044-2046, for those born on or after April 1977.
As such, if any further changes are called for in the Government’s review, they are unlikely to have any immediate impact on savers planning for retirement. However, the team at My Pension Expert would urge the Government to be transparent with pension planners about any potential plans to increase the state pension age and how this might affect them.
Certainly, for many individuals, life expectancy may not match up with their ability to continue working up to and beyond the current state pension age. Consequently, I would advise anybody unsure about how this will affect their finances to seek financial advice – an adviser will be able to access their existing financial situation and help them to develop a sustainable retirement plan.
Will ethical pension investments lead the way?
Given the focus on COP26 and broader discussions about climate change throughout 2021, the UK Government has already announced its plans to force pension schemes to mitigate against climate risks – making it the first G7 economy to do so. So, it is likely that more pension savers will explore ethical and sustainable investment options in the new year and beyond.
Indeed, My Pension Expert has already seen increased interest and uptake for ethical investments amongst clients. Better yet, we are seeing a growing number of pension schemes facilitating the demand for ethical and sustainable investment practices – a clear sign that the pension sector is moving in the right direction.
Triple lock predictions
One of the more controversial announcements this year saw the Government break its manifesto pledge to protect the state pension triple lock, which ensures that the state pension rises in line with inflation or average wage growth. The rationale behind the decision aims to reflect fairness to taxpayers, who will see an increase in National Insurance Contributions in 2022/23.
As things currently stand, the state pension triple lock will to be suspended in the 2022/2023 tax year, leaving many savers concerned about their personal finances and retirement prospects. Indeed, the majority of those polled in My Pension Expert’s aforementioned survey said that they opposed the decision, while almost two fifths (39%) said that they were concerned about how this would impact their finances.
But if in doubt – ask. For those concerned, My Pension Expert is on hand to answer any concerns or questions they may have about saving for retirement against this backdrop.
A call for reform
Admittedly, the prospect of reform is more of a wish than a prediction, but in 2022, savers would greatly benefit from the Government committing to a thorough review of current pension rules and regulations. Clearly, some simplifications are in order for the sector to avoid any future scandals, such as the DWP’s underpayment problems earlier this year, which saw thousands of Britons owed £8,900 on average.
According to that same My Pension Expert Survey mentioned earlier, the vast majority (64%) of Britons polled said they felt that simplifying the pension system would benefit those saving for retirement. No doubt, this would be a positive way to kick off the new year, allowing pension planners to save for their futures with clarity and confidence.