Investments  

Charles Stanley on what 2016 held for pensions

Charles Stanley on what 2016 held for pensions

Rob Morgan, pensions and investments analyst at Charles Stanley Direct, has said for pensions, 2016 was fairly low key following the raft of changes ushered in during 2015.

He said the introduction of a new flat rate state pension payment to replace the unwieldy two-tier system was the most significant milestone that occurred during the year, coming into effect after 6 April.

He said: "The old state pension system was complex, had high levels of means-testing and resulted in inequality, although with the new system some people will lose entitlement altogether, as to qualify for any pension at all you will need to have 10 years of national insurance contributions.

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"Previously there was no minimum. In addition, to qualify for the full amount you will need to have 35 qualifying years rather than the previous 30. While the aim is to make it fairer for all and easier to understand, some will lose out with the overhaul."

Mr Morgan added the announcement of the Lifetime Isa was the most significant news of the year for the pensions industry.

"Despite widespread expectations of reform to pension tax relief, George Osborne revealed a completely different route forward for retirement savings.

"Accused of being over-complicated and mixing up different investment needs, the Lifetime Isa is nonetheless potentially attractive for basic rate tax payers saving for retirement, notably the self-employed. It could also appeal to those who value the ability to access savings before retirement age if needed."

He added the Financial Conduct Authority has pointed out the potential issues surrounding safeguarding consumers in regard to penalties for withdrawal from the Lifetime Isa and the potential opportunity costs, notably auto-enrolment.

However, he said it is clear that pensions will no longer have the monopoly on incentivised retirement saving, marking a major change the industry will be dealing with for years to come.

"As well the practical challenges involved in offering the new product from next year, proper communication will be a vital part of providers’ strategies to ensure consumers make informed choices that are right for them. 

"Whether 2016’s change of chancellor will, in time, herald a change of direction in policy for pensions remains to be seen, but the news from Phillip Hammond’s Autumn Statement was that there was no news – at least for now."

Mr Morgan noted the proposed pensions dashboard being unveiled, which is intended to be up and running by 2019, and will hopefully prove a lasting positive legacy, increasing engagement and improving knowledge.

"In contrast, 2016 marked the death knell for the much-criticised secondary annuity market as the challenges of developing a functioning market while protecting consumers proved too great."

ruth.gillbe@ft.com