Scottish WidowsDec 28 2022

Scottish Widows: ‘2023 will be a year of step change for pensions’

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Scottish Widows: ‘2023 will be a year of step change for pensions’
Pete Glancy, head of pensions policy at Scottish Widows

Although 2022 felt like a year full of “delayed footsteps" in pensions, the year ahead should see the pace pick up, according to Scottish Widows.

Speaking to FTAdviser, Pete Glancy, head of pensions policy at Scottish Widows, said the national ecosystem supporting pension dashboards will see the largest pension schemes and providers in the country connect in the summer of 2023.

However, Glancy said it will be another couple of years before dashboard users can expect to have full coverage of their pension provision. 

“The first dashboards available for the public to use probably won’t be available until the spring of 2024,” he said. 

“Pension dashboards could also be referred to as open pensions. In the same way a current account holder can log on to one bank and see all of their accounts in one place, the same will become true for pension savers.”

Glancy described this as the next step in the journey to open finance, where eventually people will be able to see all of their personal or household finances in one place.

He said that Britain has an opportunity to lead the world in open finance and open data, but it will need to ensure it has established a legal, regulatory and technological framework which is respected to the extent that it becomes the blueprint globally.

“The Financial Conduct Authority’s discussion paper on the role of ‘big tech’ is already open and I expect to see more in this space as the year goes on,” he said.

Meanwhile, Glancy said the Department for Work and Pensions is likely to consider the subject of collective defined contribution that will consider multi-employer schemes.

“I also expect ‘decumulation only’ schemes to be considered, where the challenge here could be the competing income promises made by competing schemes, each potentially exposing customers to different levels of income volatility in retirement to get that headline income level and how all of that might be presented to customers and regulated,” he said.

Although the advice gap will not close in 2023, the financial services and markets bill currently going through Parliament will give the FCA new powers and provide the ability for the government to legislate to move the advice boundary - which Glancy said would make a more “radical and more meaningful change a possibility”.

Glancy also said a discussion paper from the FCA is then expected early in 2023 that will look at this top down, with any remedies introduced as part of the planned reform of Mifid in two to three years time.

“We’re also likely to see consultations from DWP and FCA early in the new year considering the like for like comparison of value for money across the three workplace DC segments (occupational DC, Master Trust and GPP/GSIPP).  

“However, as we get closer to the next general election, I expect areas such as pension taxation, pensions for the self employed and the role which pension assets play in the UK economy, all to be postponed given the sensitivity of these issues with the electorate and key commentators.”

Glancy added: “2023 should be a step change for the pensions industry that will lay the foundations for better outcomes for long term retirement planning in the UK, which will begin to realised in 2024.”

Planning for retirement 

Reflecting on the past year, he said was keen to see progress from the government on closing the advice gap, a road map for auto enrolment 2.0, more on ESG and achieving net zero.

However, it became clear early in the year just as we were emerging from the pandemic that a fresh crisis was brewing, as rising inflation began to affect household finances and impact savings and investments, he explained.

“Let’s be clear - inflation is a pensions killer. The last time Britain experienced double digit inflation, interest rates ranged from 12 per cent to 14 per cent, offering risk-free real returns which were above inflation. 

“Currently, even with rising interest rates, these continue to lag by about 8 per cent. As most people save for retirement through a workplace pension, and wages have been rising at a rate which is below inflation, auto enrolment contributions have also been falling in real terms.”  

Political events earlier this year led to a new government, where under the Truss administration, the primary focus was on growing the economy.

There was some brief hope of reform of the annual allowance and the lifetime allowance, Glancy said, but the broader agenda was not welcomed by the markets and the public.

He explained that in the short-term, the government’s options may be limited but action will be required in the longer-term to rebuild the real value of pension pots and pension spending power.

“The year also started with the instruction by HM Treasury of an increase to the minimum pension age,” he said. 

“Anomalies in the way in which different scheme rules are written mean that some people may be able to continue to access some of their pension pots at age 55, but in the main, the earliest point that we’ll be able to access private pensions from April 2028 will be at age 57.” 

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