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John Lawson: 2017 vs 2018: Two contrasting years for pensions

Advisers should be prepared for a busy year ahead

Anyone who works in pensions is likely to look back on 2017 as one of the quieter years for legislative and regulatory change.

That is not to say we have all had a chance for a breather, of course. No matter what area of pensions you work in, there has been plenty to be getting on with, largely because of all the years of upheaval previously.

But the same cannot be said for 2018.

Auto-enrolment

The early part of the year is going to be dominated by auto-enrolment. In April, minimum contributions rise from 2 per cent of salary to 5 per cent. No one knows how people are going to react to that.

Our data shows just 4 per cent of people say they are definitely going to opt out. But when auto-enrolment was first introduced, it was predicted opt out rates would be much higher than the 10 per cent we have now.

It is really down to advisers, providers and employers to keep on pushing the advantages of staying in a workplace pension and hope the message sinks in.

Another interesting area for advisers could be the development of a secondary auto-enrolment market. Many mid-sized firms will have had their workplace pension scheme in place for three years and may be looking for an evaluation of whether it is performing as expected.

Employers will also want to make sure they remain compliant, which is something many will need some support with. This could be a potential growth opportunity for advisers willing to delve into a company’s scheme and offer an assessment.

DB transfers

It would not really be right to look ahead to 2018 without a word about defined benefit to defined contribution transfers. There are no signs of this market really slowing down, despite FCA warnings around whether those making the switch are getting the best outcomes.

Tantalising transfer values coupled with personal control and almost unlimited choice are making DB to DC transfers increasingly popular and 2018 is likely to continue to see growth in this area. Advisers will need to be wary, though, as headlines persist around some questionable practices going on.

Pension dashboard

2017 was a good year for the development of the pension dashboard project. The industry demonstrated it can get systems talking to each other to pull in an individual’s data from multiple sources. Expect to see further progress in 2018. I genuinely believe it could revolutionise the pensions market.

I realise there are some dissenting voices, mainly around adviser functionality. However, establishing a free-to-use, public dashboard is the bare minimum we are trying to achieve. Once it is out there, all kinds of developments can take place, including increased adviser functionality.

The Department for Work and Pensions has now taken on responsibility for the dashboard. Hopefully, the model it proposes will be one which can be used by other technology platforms, including IFA back-office systems.

So as we head into a busy New Year we should be glad pensions were allowed a moment of stability for 12 months. I doubt I will be able to say the same this time next year.

John Lawson is head of financial research at Aviva

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