Last year was a year of change for pensions in the UK, with the largest employers leading the way in automatic enrolment, which is potentially the most significant initiative in pensions in a generation.
Alongside this is what has been described by many in the industry as the biggest shake-up in the advice market for decades. It remains to be seen whether the ending of commission and increased minimum qualifications for advisers under the RDR will provide the benefits of increased transparency and enhanced professionalism, without shrinking the advice market.
We might now have hoped for some stability, but 2013 brings many new changes.
First among them, is the long awaited white paper on state pension reform. The introduction of a flat-rate state pension worth £144 a week, possibly from 2017, has been widely welcomed.
However, publication of the paper seems to have brought a more general realisation that a change designed to be revenue-neutral will lead to many losers as well as winners.
The paper also fails to tackle the difficult issue of how to calculate the state pensions of those who have been contracted out. First impressions were that the treatment could be relatively generous, but there could be some surprises in the detail.
The Government is also trying to boost the capped drawdown market by increasing the maximum income to 120 per cent of the ‘GAD’ rate. When combined with the adoption of male GAD rates for both sexes and interest rates creeping up, this could significantly increase the attractiveness of capped drawdown.
We should also see further developments in the flexible drawdown market, and perhaps more guaranteed retirement products, though it may take significantly higher interest rates and reduced market volatility before they begin to look attractive for most consumers.
The changes to the annual and lifetime allowances from April 2014 may boost the individual pensions market, both from those taking advantage of the £50,000 annual allowance while it lasts and for those aiming for a lifetime allowance of over the proposed £1.25m threshold for personalised protection. Carrying forward any unused allowance may be particularly important in the next year or so.
Finally, this year there is a great emphasis on transparency and clarity. Leading providers have signed up to a new agreement on charges disclosure which will lead to much clearer presentation, largely in pounds and pence.
There is also a new industry code on presenting charges to employers, and the FSA is proposing a move to inflation-adjusted projections for pensions. All of these are potentially very beneficial, though only if presented in a way that genuinely improves understanding.
There is no sign of any let-up in the pace of change on pensions. The good news is that most of the reforms are likely to produce real benefits for consumers. Change means large amounts of work, often for little apparent commercial benefit. However, if the industry works collectively to ensure our efforts are focused on delivering the best outcome for our customers, confidence will return and profits will follow.
Ian Naismith is head of pensions market development at Scottish Widows