I had expected to be penning this article, my last for Money Marketing as a Fidelity staffer, in the wake of another Budget that cut into pension tax reliefs. But no. Chancellor Philip Hammond did not slash higher rate relief or give a boost to younger savers as rumoured. In fact, the only real pensions news was that the lifetime allowance will be increasing by 3 per cent from April; the first rise in eight years.
While I am not complaining, the Budget was indicative of how things have gone in pensions more generally this year. Lots of discussion, lots of ideas but not much action. But let’s not kid ourselves: what did not get done this year will likely hit us next year, so enjoy the rest while you can.
Retirement outcomes review
We have a couple of big FCA consultations coming up in 2018. The retirement outcomes review will have taken nearly two years by the time we get the final report. The FCA analysis seems strong, though some of the remedies may need some work.
What will be crucial for providers and advisers is the position they take on drawdown advice. It seems there is a need for greater clarity here but if we get too prescriptive we could find pension freedom simply is not available for those that cannot afford advice.
Perhaps of more immediate interest is the FCA position on defined benefit transfers. Concerns are growing, with the Tata steel story getting a lot of attention.
I started my career in pensions interviewing mineworkers in Tyneside who had been missold DB transfers by a bancassurer. It was tragic. I hate to say I am reminded of those days now. I am sure they are isolated cases but the obvious consequence is that all advisers are tarred with the same brush.
Hopefully the FCA reacts to these cases proportionately and provides clear regulatory guidelines on what is expected here. While misselling has to be avoided, not giving people the opportunity to maximise their benefits through transfer is not the answer.
We are similarly awaiting some big policy announcements from the Department for Work and Pensions. The first is the outcome from the automatic enrolment review, due early December.
We are expecting this to cover how the self-employed can be included in this initiative, while also ensuring some of the other excluded groups can be brought into the fold. These include the lower paid and those with multiple employments. While the issue of contribution levels is not unimportant, I suspect we will not get much direction on this until we know the reaction of consumers to the rise in minimum contributions due from April next year.
Second is the regulation around master trusts. These collective pension schemes have become very popular with employers but, some would argue, have not been subject to the same regulatory oversight as other pension structures. While the main bill has been enacted this year, the detailed regulations have yet to be unveiled. We are expecting the first draft of those any day now. The crucial part of these will be the capital requirements master trust providers have to adhere to.
Elephant in the room
Lastly, there are a couple of important decisions that need to be made by the Government: where we are going with the pensions dashboard and how the proposed cold calling ban is implemented.
But the real elephant in the room is what is going to happen to tax relief in the medium term. I suspect the inaction this time was driven more out of political expediency than a belief the current system is in good shape. Given the gloomy outlook for growth and the Chancellor’s insistence on sticking to his deficit targets, it seems only a matter of time before the pensions honeypot gets raided again.
Richard Parkin is head of pensions policy at Fidelity International