Personal Pension  

What 2016 will bring for pensions

What 2016 will bring for pensions

As an industry, we have become accustomed to change but there are some things that, overall, we can predict will stay the same or, at least, change in a direction we can expect.

For example, we expect that advisers will continue to have concerns over market volatility and how they can protect clients in order to sustain their income in retirement.

Sales of lower risk funds and guarantees should continue to be popular while the economic outlook remains a little hazy rather than buoyant.

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It is possible that oil prices will continue to retract due to over production in Saudi Arabia and reducing demand from emerging markets, so inflation in the western economies - particularly the UK - will remain very low.

This make the outlook for interest rate rises in 2016 less likely. For pensioners relying on cash returns to support their retirement income, it means another year of continually low rates.

For some of these investors they may have to accept an element of risk by seeking higher returns through multi-asset managed solutions. So we expect to see strong demand for smoothed investment funds in instant savings accounts.

With this continued low yield, low interest rate environment I expect transfer values to remain attractive for many people.

With that in mind, it is feasible to see that defined benefit schemes will remain to have difficulty, perhaps even more so with the end of contracting out.

With client knowledge of pension freedoms increasing it is likely that more advisers will be asked to review the suitability of their clients old deferred occupational pensions in light of the new world.

Many advisers will choose to be on the front foot with this and will of course already be offering to conduct a review as part of their holistic final planning.

One recent tip I was given from an adviser is at your next client review or when you meet a new client for the first time, ask for a copy of their CV. This will list their employment history and of course draw attention to potentially old schemes that now require a review.

As more and more people with modest pots access the pension freedom we’ll see continued growth in sales of income drawdown products as people access their full pension over a short few years in the most tax efficient way.

I believe we should see a greater distinction made between these people and those using income drawdown for a sustainable income throughout retirement. It doesn’t make sense to compare ‘income drawdown’ with ‘pension fund clear out’!

One issue we are looking forward to seeing clarity on when it is announced in 2016 is the outcome a possible overhaul of pensions tax relief.

From a planning point of view, we expect to see many higher earners make use of the three months of funding opportunity ahead of the pending changes to the annual allowance.