Speaking to FTAdviser, Jamie Jenkins, director of policy at Royal London, said this year will see the full implementation of the Financial Conduct Authority’s new consumer duty.
“Critics will say this is an expensive, box-ticking compliance exercise, and there is certainly a danger it becomes that,” he said.
“At its heart, though, it’s a culture shift. One which should move the industry from a mandate to treat customers fairly, to one that focuses on treating customers well, and demonstrating that they are doing so. That has to be a good thing.”
The implementation period for the consumer duty lasts till July 2023 for new and existing products and then there's an additional year to July 2024 for back-book or closed products.
In that implementation period, firms need to undertake the value assessments of all their products using the data and evidence about whether they are fair value or if not, then make necessary changes to the price or structure of the benefits to ensure that customers do receive that fair value.
The FCA has said that it is planning a programme of supervisory and if necessary, enforcement work to ensure that firms have implemented the duty correctly.
Normalised markets?
Jenkins noted that for all the doom and gloom of the UK’s economic position, markets have responded to the stability now after a month or two of the jitters.
Jenkins said he hoped this stability will continue in 2023 with more normalised market forces at play.
“There will be increased focus on how investments support growth in the economy, both through the implementation of Solvency II changes and a likely renewed focus on the use of pension assets for long term investment,” he said.
“Long Term Asset Funds (LTAFs) may well have their day.”
Meanwhile, Jenkins said as responsible investment continues to come of age, disclosure of ESG characteristics and the labelling of funds will be a major area of focus for the industry and its regulators.
“Pensions have been largely untouched from a policy perspective in recent years, following the heady days of automatic enrolment and the freedom and choice reforms,” he said.
“Workplace pensions held up well during Covid, in large part thanks to their inclusion in the furlough scheme, and they look to be resilient to the inflationary challenges we face now.
The war in Ukraine is first and foremost a conflict that is causing pain and suffering, and fast leading to one of the worst humanitarian crises Europe has seen for decades.“However, we are only in the foothills of the cost-of-living crisis and a cold winter and rocketing heating bills – allied with spiralling mortgage costs – could leave people searching harder for monthly expenditure they can cut back.”
The state pension triple lock survived against all the odds, promising a 10.1 per cent rise for pensioners in April.
This will notably take the basic state pension above £10,000 per annum for the first time.
Jenkins said: “The industry will undoubtedly continue the debate about how we increase pension contributions to levels that will provide people with a more adequate retirement income.
“Indeed, the government has yet to legislate for the changes proposed in the 2017 review; lowering the entry age to 18 and removing the lower earnings limit.
“These are important changes that will make a big difference to the retirement savings of lower earners.”
Elsewhere, Jenkins said it was a a great time for Laura Trott, the new pensions minister, “to take stock of the many ways” in which the pensions agenda could move forward.
“The pensions dashboard will make its first appearance, as providers start to provide data to the service in the summer,” he said.
“This is easily dismissed as a minor addition to the pensions landscape but, more accurately, the dashboard heralds the start of a digital journey which will likely take us towards an open finance world.
“Even those people who don’t make use of it will likely benefit from the cleansing of data as it is digitised.”
Jenkins said social care reforms for England were also “once again kicked down the road” during 2022, both in terms of their design and at least some elements of how such changes would be funded.
“Perhaps 2023 will see some more activity in analysing what was proposed, with further design changes to deal with some of the barriers that still stood in their way,” he added.
A reflection of 2022
Jenkins told FTAdviser that 2022 was widely hoped to be the year that the world emerged from Covid.
While that was largely the case, few would have predicted the cost-of-living crisis that followed.
Many governments – including that of the UK – have found themselves “lurching from one major intervention” in the form of lockdowns and furlough schemes to another, this time to curb rising energy costs, he explained.
“The war in Ukraine is first and foremost a conflict that is causing pain and suffering, and fast leading to one of the worst humanitarian crises Europe has seen for decades,” he said.
“But it is also a major catalyst for rising prices, when considering the knock-on impacts for daily living around the world.”
Jenkins explained that the true economic impact of the support the government has had to provide here in the UK is still to be fully understood, but it’s clear that the country’s credit card bill is of growing concern.
Rising interest rates and inflation have a significant impact on households, but also on the cost of government debt, and those debt repayments are now equal to or greater than the cost of running many of the country’s major public services.
The second half of the year saw a great deal of political turmoil, spanning three prime ministers and an even greater number of chancellors.
“Markets reacted badly to the first Autumn Statement (the "mini" Budget’) but the second one, under an almost entirely new cabinet, landed more smoothly,” he said.
“Commentators have different ways of looking at the measures announced in the more recent Autumn Statement.
“Some see them as progressive and targeted; raising taxes for the wealthy and focusing support on the least well off in society. Some see them as tactical – for example, tinkering with capital gains tax rather than reforming the way it works – and the ‘hard decisions’ largely deferred for a future government to worry about.”
He said there certainly “weren’t many reasons to celebrate”.
“For many young people today, they’ve yet to see what prosperous times look like.”
sonia.rach@ft.com
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