Auto-enrolmentJan 11 2017

Signposts for the road ahead

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Signposts for the road ahead

This is the time of year when we all look forward to what we can expect and the pensions savings arena is no exception; with so much uncertainty, it might help to look at potential events with varying degrees of probability.

What is definitely happening

There will be a DWP review into the effectiveness of auto-enrolment. With nearly 7m employees automatically enrolled so far the policy is clearly a success; however, the DWP needs to check that these are the right people and if any groups are potentially losing out.

While the results of the review will not be published until the end of 2017 we can expect interested parties to be expressing their views on the earnings and trigger thresholds, age limits and how to tackle the self-employed and multiple job-holders who are not eligible employees.

During 2017 the restriction on transferring in and out of National Employment Savings Trust will be removed and we may see movement between schemes as the larger employers reach their re-enrolment dates as well as individuals looking to move or consolidate their plans.

In March, a prototype pensions dashboard will become available. This is a Treasury promise and undoubtedly something will be delivered. What it will not be is a functional system with live policyholder data on it but it will show the intended design and, more importantly, evidence of progress towards the end result.

The government has also confirmed in that the Lifetime Isa would be introduced in April  so this would seem to be definite, although there continue to be new announcements and calls for it to be delayed or abolished. My bet is it will happen but will only attract savers looking to use the money towards purchasing their first home.

What is likely to happen

We are likely to see the introduction of the Advice Allowance following the Treasury’s consultation into how it should work. This will allow payments of up to £500 to be deducted from a pension fund to pay for advice on an individual’s whole range of pensions, not just the one facilitating the payment, which is good because it is unlikely to be available from (legacy) products which do not have an adviser charging facility built in.

Along with the prototype dashboard there are likely to be more technology innovations reaching the market. I have deliberately not called this robo-advice as I believe that many of these tools will be designed to support advice processes rather than replace them.

That said, the introduction of the Advice Allowance and the availability of new technology will together make it probable that lower cost advice and guidance services will start to appear, particularly to assist with “simpler” consumer issues.

What might happen

“Will the government change the tax treatment of pensions?” has been the sixty-four million dollar question for the last two years (all right, much longer than that but it has been a lot more real since the consultation in 2015).

And we still do not know. Even the pensions minister does not know. The fact remains that increasing the number of pension savers will have a knock-on effect and the Treasury is bound to want to limit the amount of tax relief that will be lost to them in the future.

Add to this a government with continuing debts and the pressure to make a change is unlikely to go away. The political sweetener in this is the offer of fairer distribution for basic rate taxpayers and a simpler framework for consumers to understand. Much of the complexity in current pension planning is the result of constant tweaking of the existing rules rather than an overall saving policy and this should be addressed. All in all I suspect it will be a case of whether a review will happen in 2017 or later in this term of government.

What (probably) will not happen

The auto-enrolment review will include “an opportunity to strengthen the evidence around appropriate future contributions” but the DWP “do not expect” to announce any decision on this in 2017. This has already been termed “the elephant in the room” as it could have a greater impact on financial position of pensioners in retirement than any of the others discussed. It is understandable that the government would want to take time to get this right but it’s too important to be put off.

Fiona Tait is pensions specialist of the Royal London Group