It has been a challenging year in the pensions industry due to the way in which pensions have been used as a political football, breeding uncertainty for advisers, firms and clients alike. How can we collectively create long-term retirement strategies in the face of so much uncertainty?
The most prominent example of this is in respect of the lifetime allowance (LTA) abolishment. Announced in Jeremy Hunt’s bombshell Spring Budget earlier this year, the abolition of this key piece of pension legislation was a shock to the majority of us.
In principle, the removal of the LTA presents additional opportunity to save responsibly towards retirement by removing the upper limit on pension saving within schemes like a Sipp or Ssas.
However, the whole LTA abolition has become increasingly more complicated than it needs to be – surely by abolishing the LTA charge and therefore removing the penalty on those who save over and above the LTA, the government has achieved what it set out to do? Some would argue the addition of two new allowances around lump sums and death benefits adds inefficient and unnecessary complexity for pension savers.
Furthermore, Labour has already made clear its intention to reinstate the LTA should it take power at the next general election. Reasonably, how can advisers provide robust and futureproof advice to their clients without some kind of stability with the regulations? And if this is a challenge for advisers, what hope does it give unadvised clients?
Pensions are a long-term vehicle to save towards retirement. With the merry-go-round of pension ministers (Paul Maynard will be the fourth in five years) and the uncertainty in terms of delivering fundamental legislative changes, advisers are not being given the tools they need to provide their clients with good outcomes.
The crux of the issue is that current pensions legislation does not make pension saving easy for savers. There is a longstanding and well-earned view that pensions are full of jargon and are difficult to understand. The Consumer Duty sets out to simplify the way in which firms offer price and value, and communicate with clients, which will go so far in terms of addressing engagement with pensions. However, the government needs to offer substantial reform in order to make pensions more accessible.
A great step forward to achieve this would be to introduce pension dashboards. The project has been ongoing for some time and has a revised date of October 2026 for firms to connect to the dashboard ecosystem.
The dashboards will, in principle, offer a similar user experience to that of open banking, in that consumers will be able to log on and see all the pensions they hold in one secure place regardless of whether those pensions are held across providers.
This immediate and agile way to view pensions without streams of paperwork and various online logins removes known barriers to pension engagement. The introduction of the dashboards must be prioiritised by the government.
For the avoidance of any doubt, I am not suggesting dashboards will be the magic wand to fix problems with the pension industry. But it could be a catalyst for marrying up the £27bn lost pensions in the UK with their owners and will fundamentally offer a great opportunity to increase engagement. We can reasonably assume that increased engagement will result in better retirement outcomes.
Recent retirement confidence studies cited that pension savers identify security, knowledge and trust with achieving retirement confidence. However, pensions remain complicated to navigate – legislation is continually changing and key tools intended to help clients have been delayed. This will continue to undermine clients’ confidence in their retirement plans.
I hope that 2024 brings long-term clarity for the pension industry as a whole, alongside meaningful progress in delivering what’s already been promised. Only then can we start to build long-term retirement strategies that give clients much needed confidence.
Caitlin Southall is pension technical manager at Curtis Banks
I wonder if, accidently, C. Banks do their bit for keeping in Labour’s goody nose books re LTA by skimming off from the gross returns clients should be receiving?
I had a SIPP with CB at one stage, but they gradually reined in the wide range of investments – private company shares for example – so that they had an easier life and retained more fees. They also were very resentful of transfers out too – how dare the client.
Saving is not the problem…getting accurate news, commitment, and flexibility back is… dashboards would be a good start – I remember when funds allowed their underlying holdings to be seen – a cleansing beginning would be to publish which deposit holders look after those funds, AND also the gross/actual/real rates returned.
See LV article about 10 days ago re HL one year fixed cash ISA – the Coventry B. Soc. same product… just with 40bps deducted… Oh, and their fees of course –
I wonder how long the FCA will give them and similar to report how much extra management time this actually took… errm…changing a label. FCA gave managers 2 months over deposits!
They seek them here… they seek them there… but can’t find extra charges mentioned anywhere!!