It has been a busy start to the year for the financial services industry. At My Pension Expert, we are here to help you keep track of the latest important developments affecting pensions and retirement planners.
So, here are some of January’s headlines and what they might mean for retirement finances.
Inflation still soaring, despite a slight dip
Despite a slight easing in the rate of inflation from 10.7% to 10.5%, there will be very few sighs of relief from consumers. After all, double-digit inflation is still extremely high, and the cost-of-living crisis has left no room for complacency as households continue to feel the squeeze.
The economy may have avoided a recession, for now, thanks to a better-than-expected performance in November, but consumers are still adjusting to skyrocketing costs and real-terms pay reductions. The result is that thousands of people in their 50s and 60s are expected to leave retirement to increase their pension savings in the face of value-eroding inflation.
According to My Pension Expert’s most recent research, 7% of over-50s in the workforce “unretired” in 2022, a trend likely to continue well into the first half of this year.
Retirement age protests in France
Across the Channel, news broke this month that the French government plans to raise the retirement age two years to 64. It has sparked mass demonstrations across the country.
The proposal is aimed at increasing the amount of time people contribute to their pension. However, opinion polls have shown most French people oppose these plans.
Could the UK experience similar discontent? The state pension age is currently due to rise from 66 to 67 in 2028, while an increase to 68 is not due to happen until 2046. Yet, recent reports have suggested the government is set to bring forward the rise to 68 before the end of the 2030s.
It is a story that both the pension sector and those approaching state pension age will certainly be monitoring closely this year.
FCA announces review into advice
Elsewhere, the Financial Conduct Authority (FCA) has announced a thematic review of the level of advice consumers are receiving from independent financial advice firms on meeting their income needs in retirement.
Since the introduction of the pension freedoms, which allowed consumers to access their retirement savings from the age of 55, there has been a significant upwards shift in the number of pension options available. This has led to an increase in consumers drawing income from pension pots that remain invested.
A wider range of such retirement finance options to choose from has made creating a pension plan more complicated for consumers. At the same time, the soaring cost of living has significantly impacted consumer needs.
As such, it is crucial that pension planners receive helpful accurate advice tailored toward their unique circumstances from the moment they access their pension. And we are hopeful that this review – the findings of which will be published towards the end of this year – will ensure a strong and consistent quality of advice throughout the sector and, most importantly, improved outcomes for consumers.
Time ticking for firms
The July deadline for firms to implement the FCA’s new consumer duty rules is fast-approaching. Unsurprisingly, consumer duty is taking up a lot of column space among the financial press. So, it may be worth revisiting, what will these involve? According to the FCA, consumer duty will entail:
- A new Consumer Principle that requires firms to act to deliver good outcomes for retail customers.
- Cross-cutting rules requiring firms to act in good faith, avoid causing foreseeable harm, and enable and support customers to pursue their financial objectives.
- Four Outcomes rules requiring firms to ensure consumers receive communications they can understand, products and services meet their needs, and offer fair value, and the support they need.
The consumer duty will raise expectations for the level of care firms are expected to provide to consumers. In order to comply, firms will need to make changes to the price or structure of products and services to ensure they are fair value.
The new regulations will work to protect the rising number of vulnerable consumers turning to high-risk or unregulated investments in response to the cost-of-living crisis.
Expect to hear much more about the term ‘consumer duty’ in the months to come.
Supporting pension planners
Clearly, from a political, economic, and regulatory perspective, 2023 has started amidst a hive of activity.
Crucially, Britons must know that they are not alone during this challenging time. We have continuously fought to ensure the voices of consumers are heard and strongly believe in putting the concerns of savers and investors at the forefront.
Meanwhile, our team of expert advisers are always at hand to empower clients with all the information they need to support their financial decisions and make the most informed decision possible.
Do not hesitate to get in touch if you need our help in how to manage your retirement finances in light of anything you have read here.