The outlook for pensions in 2020
Pensions in 2020 - What to look out for
I joke with my clients that nothing happens quickly in pensions. This is often the case when trying to get information from pension providers or arranging a transfer. But the same be said of pension policy; nothing happens quickly.
So looking ahead at what may happen in pension industry in 2020 I see very few things that will have an immediate impact on advisers or their clients but I do see some policies and initiatives which will result in important changes in the future.
In the December 2010 Queen's Speech, the Government reintroduced pension schemes bill and it mentioned the creation of a legislative framework to allow people to access information for most pension schemes in one place for the first time. Therefore, it seems the Pension Dashboard has become one step nearer but are we are still left waiting to know when and how.
Other changes that advisers must keep an eye out for include the plans to ban contingent charging for DB transfer advice and the introduction of Investment pathways. In addition to these we should keep an eye on more practical matters such as changes in the Lifetime allowance and the outlook for global financial markets and the annuity market.
There is general agreement the pension dashboard is an important step forwards but the devil will be in the detail. For advisers, an important issue will be adviser access. It is good that people will be able to see their all the pensions in one place, but they will need help, guidance and preferably advice if they are to take full advantage of all this information.
If would be best if advisers could access their client’s pension dashboard but I don’t think this will be the case at the outset.
I have a good dashboard story. I was attending an ABI conference on the pension dashboard and I asked a question: “what will be done to provide context and explanation about the information displayed. I made the point that human nature is such that if people are shown they have access to money they will be tempted to take it”. I could tell by the response that the panel thought I was being a nuisance. However, in the last Q&A session of the conference the chairman was asked if the Government would fund the dashboard. The reply was along the lines: “when the treasury realises how much extra tax they will get form people cashing in their pensions early they will be rushing to fund it”. I don’t think I am wrong; some serious thought must be given to have the information is presented.
Contingent charging for DB transfer advice
The industry is divided on the issue of contingent charging with some high-profile advisers against and some high-profile firms against.
On the one hand, financial advice is a recognised and respectable profession so advisers should be paid for the work they do so why shouldn’t they charge for every hour of work they do?
On the other hand, prospective clients don’t understand how the advice profession works and are used to paying by results. They are told they the new pension freedoms means they can spend their pension in way this wish even if this is at odds with sensible financial norms so they are confused why it is so hard to get advice if they are considering a DB transfer and why it is so expensive.
Contingent charging applied by honest and trustworthy advisers will benefit many people but contingent charging applied by firms that shouldn’t be advisers in the first place will be harmful for people.
It is difficult for the FCA to balance these two different views but this is an issue which will continue to be a hot potato.
Investment pathways for new non-advised drawdown customers are due to be introduced in August 2020. The new pathways are for non-advised consumers, but it may impact advisers and their clients.
Customers starting a new drawdown plan without advice will be given a choice of four different pathways depending on their objectives: no plans to touch their money; set up a guaranteed annuity; start taking a drawdown income; or withdraw all their funds.
The aim is stop people defaulting to cash and to make a sensible investment decision. Hopefully one of the consequences of the new pathways is that people may realise they need advice on which pathway is best for them
The lifetime allowance will edge up from April, when it is likely to hit £1.073m. It is only a small increase (from £1.05m) but is useful for planning purposes.
There are still many unintended consequences of the lifetime allowance as evidenced by the problems it causes for senior medical practitioners. The government should show more urgency in addressing these problems.
Those involved with setting pension policy will no doubt be busy in 2020 working to make progress on the issues mentioned above.
Those involved at the coal face of pension advice will also be working hard but in a different way. Advisers will be working hard to get better solutions for their existing clients and to make advice more widely available to new prospective new clients.
Advisers must implement the rules and regulations passed down to them but policy makers don’t necessarily take note of the opinions passed up to them.