Brexit will no doubt consume the government next year, but do not presume that means pensions will be left untouched
When I think of how the pensions landscape has changed so dramatically over the past decade, 2018 was a relatively quiet year, thanks to large sections of the government having their hands full with Brexit.
The most significant changes were the first increase to automatic enrolment contributions and new FCA rules governing defined benefit to defined contribution transfer advice. But even these were implemented with little fuss or disagreement.
Politically, we did see three different secretaries of state running the Department for Work and Pensions. David Gauke moved on just eight days into the new year to become justice secretary.
He was replaced by Esther McVey, who then resigned in November over Brexit. Now we have Amber Rudd at the helm.
Which brings me nicely on to what is going to happen in 2019. It is not clear yet what ambitions the new secretary of state has or what her areas of focus are across her department. To be honest, given the uncertainty around Brexit and a potential general election, any political predictions are fraught with danger.
One thing we can be sure of in 2019 is that we will see the second auto-enrolment increase in 12 months. While most businesses and savers took this year’s rise in their stride, the next one is a stiffer test.
Contributions are rising in April to 8 per cent of earnings. Twelve months ago, that figure was just 2 per cent. Legislation compels businesses to offer a workplace pension but, for employees, this second increase may be more noticeable. In pounds and pence, someone contributing £10 a month in March this year will be contributing £50 by April 2019.
That said, we should remember auto-enrolment has been amazingly successful so far, with almost 10 million people introduced to pension saving and opt-out rates much lower than expected.
The timing of the increase is also crucial. It will coincide with increases to the personal allowance and living wage, and comes at a time pay rises typically kick in for many. If the impact on take-home pay caused by pension contributions can be minimised, we should not see a spike in people opting out.
Of course, people contributing the minimum to their workplace pension may not be the most likely to seek out the services of an adviser. But that can change.
We should remember that saving into a pension is very new for a lot of people. In 2012, just a quarter of 22- to 29-year-olds in the private sector were enrolled into a workplace pension. By 2017, that figure had risen to eight in 10.
And our research shows some people still do not understand that the money they save into a DC pension is theirs.
We asked more than 1,000 employed people what would happen to their workplace pension savings if they left their current job.
Only just over half correctly answered that the money is theirs and would remain invested, while 16 per cent of people thought they would lose some or all of their savings. This all comes back to a lack of financial education.
Elsewhere, the pension dashboard feasibility study has now been published, so we will hopefully start to see the industry and government establish a governing body to develop it. Pension dashboards are less politically sensitive as they enjoy cross-party support.
This year’s petition showed dashboards have broad public support too, so we hope to see real progress made in 2019.
Next year will also see the publication of the FCA’s final decisions on its retirement outcomes review, which mandates default pathways for non-advised retirement customers. It will also consider how customers can compare drawdown charges in a meaningful way.
Some initial findings from the FCA’s review of non-workplace pensions are likely to emerge too. This review should address historic charging structures and is expected to consider the potential introduction of independent governance committees to oversee individual pensions.
There is also talk of a possible pensions bill in 2019. While the details of it are unclear at this stage, it is likely to focus on collective DC schemes, pension dashboards and DB superfunds.
We will have to wait and see what materialises but that could make 2019 a pretty interesting year.
Of course, all of the above is taking place in the shadow of Brexit. It is still unclear what will happen at the end of March but there is no doubt it is going to be all-consuming for the government, which may mean any significant changes to the pensions and advice market take a back seat – for now.
John Lawson is head of financial research at Aviva