What could the new-look govt mean for pensions

Nevertheless, the new prime minister is facing many stern challenges. There is not a day to waste in addressing the cost of living crisis, which is infiltrating all elements of consumer and business life.

To that end, it was positive to see one of Truss’ first announcements being the implementation of a two-year energy price cap, starting in October, meaning annual bills will hit a ceiling of £2,500.

It is a marked increase on what people were paying 12 months ago but will prevent bills spiralling out of control entirely – indeed, the cap will have been welcomed by most people across the country, but it is merely one piece of a very complex puzzle.

Big government and the new cabinet

Big government, as it is termed, is back in full swing. Following years when ‘devolution’ had become something of a political watchword, the pandemic and current inflationary pressures have forced a more traditional top-down approach to government, with Whitehall dictating day-to-day life to a greater extent than we have seen in recent decades. 

As such, Liz Truss’ new-look cabinet requires attention; the people chosen for key positions are going to have a notable impact on the path the UK steers out of the current economic crisis. 

Action is needed. People in their 40s, 50s, 60s and 70s are seeing their financial plans fall apart at the seams.

Where pensions are concerned, there are two key roles to focus on: Kwasi Kwarteng, the new chancellor; and Chloe Smith, the new work and pensions secretary.

Indeed, the actions taken by the triumvirate of Truss, Kwarteng and Smith will shape how people are able to ride out the cost of living storm. For financial advisers, monitoring these actions will be of vital importance – policy and reform could impact the pension plans of those approaching or in retirement.

Addressing a retirement and pension crisis

We would all like a clear overview of the new-look government’s economic strategy. But crystal ball gazing is foolish; it will be best to wait for the so-called ‘mini Budget’, which is likely to be delivered on September 21. This will shed light on the immediate priorities of the prime minister, chancellor and their teams. 

For now, we can stick with what we know. Namely, that there is a retirement and pension crisis gripping the UK. Advisers will no doubt be seeing this first hand. 

Indeed, in a letter to the Work and Pensions Committee (dated July 20 2022), pensions minister Guy Opperman stated that approximately 12mn people are currently under-saving for their retirement – equating to almost two-fifths (38 per cent) of the UK’s working population. 

And evidence suggests that chronic under-saving is having an inevitable knock-on effect on retirement plans.

Indeed, My Pension Expert’s own research, conducted among 2,000 UK adults, found that almost two-fifths (37 per cent) of over-40s believe the cost of living crisis has made retirement impossible for the foreseeable future.

Questions are arising as to whether Truss, Kwarteng and Smith will consider the money purchase annual allowance.

Just over one in five (21 per cent) have delayed their retirement date due to rising inflation.

Of those in retirement, 12 per cent say rising inflation has “upended” their retirement plans.

More than a third (34 per cent) of UK retirees are worried they will no longer be able to sustain their desired lifestyle in retirement as the cost of living increases so sharply.

Again, action is needed. People in their 40s, 50s, 60s and 70s are seeing their financial plans – which they have worked and contributed towards for decades – fall apart at the seams as bills and shopping receipts rise at a remarkable rate.

What action to take

Further government intervention seems inevitable. The price cap was the first such example of this, but we might also see other reforms to affect pension planners. 

We know that the prime minister has already committed to continuing with the state pension triple lock.

But questions are arising as to whether Truss, Kwarteng and Smith will consider the money purchase annual allowance of £4,000; legislate a 10-day pension switch guarantee; and will they consider options to boost consumers’ saving potential, such as cutting VAT.

Moreover, it will be important to monitor how the long-awaited pension dashboards initiative progresses. Designed to allows savers to quickly review all their pension pots online through a single platform, the scheme has been delayed time and time again. 

Any fiscal policy or new spending commitment must be combined with a keen focus on advice.

In July, the government pushed back its timetable for connecting the first two cohorts of pension schemes to the dashboards. Many people are expected to now have to wait until 2024 – five years behind schedule – to benefit from this advancement.

The new-look government needs to double down on the pension dashboards programme. Giving people easier, quicker access to their pension information is crucial in setting them on the path to seeking expert advice and consequently making prompt and informed decisions.

Smith and the DWP should do all they can to fast-track its implementation. 

Bridging the advice gap

For me, any fiscal policy or new spending commitment must be combined with a keen focus on advice. At turbulent times like these, it is imperative that pension planners engage with independent financial advisers to create robust, informed financial strategies.

At present, this is not happening. My Pension Expert’s aforementioned study revealed that despite concerns over their finances and potentially having to ‘un-retire’, just 5 per cent of retirees in the UK have sought financial advice in 2022.

Among over-40s still in work, only 13 per cent have spoken with an IFA this year.

These low figures are likely the result of longstanding misconceptions around the relevance, availability, and cost of advice. These are misconceptions that the government, working with advisers, must tackle head on. 

By educating Britons on the relevance of advice, the government can go a long way towards bridging the advice gap.

Independent financial advice is worthwhile for everyone, not just the super rich. It will ensure an individual is able to develop the right savings and investment strategy, choose the right pension pots or products, and ultimately achieve a financially secure retirement.

And in the current climate, having expert assistance to overcome the challenges of rising inflation and interest rates can be extremely beneficial.

In the weeks and months to come, I hope Truss et al work hard to champion the role of advice for pension planners.

By educating Britons on the relevance of advice, and how to find reputable and regulated advisors, the government can go a long way towards bridging the advice gap that is preventing millions from achieving a financially secure retirement.  

Andrew Megson is executive chairman at My Pension Expert