“As everyone knows all too well, this has been a uniquely challenging year globally and from both a health and an economic perspective. So, the number one hope for 2021 has to be for a successful vaccine roll out, followed by a return to persistent economic growth and prosperity.”
Pensions tax
“But, even if economic growth returns, public finances will be under huge strain. One of the potential consequences is that significant changes are made to pensions tax to bring forward receipts. For example, introducing an ISA-style tax model where pension contributions are made from taxed income, while investment during accumulation and pensions and lump sum payments are exempt from taxation. In particular, that would disincentivise the young to save for their longer-term futures, at a time when they have arguably been hit hardest by the pandemic-induced economic crisis.”
Cyber risk
“Scams and cyber risk are an increasingly real threat across financial services and the UK pensions industry is no exception. It continues to suffer from these twin blights, with TPR analysis showing an average loss of £91,000 to each pension scam. My hope is that 2021 will see positive steps taken towards tackling both scams and cyber risks in order to protect pension savers.”
DB Consolidators
“The economic situation is also likely to leave its mark on defined benefit (DB) pensions, with rising corporate insolvencies leading to reduced member benefits if the pension scheme cannot afford to buy out full benefits. However, I am hopeful that 2021 might see the introduction of legislation for DB consolidators via a second Pension Schemes Bill, enabling Superfunds to become ‘PPF+’ vehicles. Superfunds could add real value by giving members the possibility of recouping some of their benefit reductions through discretionary benefit increases if assets outperform, rather than crystallising those losses if the scheme is bought out with reduced benefits or enters the PPF.”
DB Funding Code of Practice
“In 2019, the Pension Regulator (TPR) initiated the first consultation on the revised DB Funding Code, and I am hopeful that it will respond positively to the concerns the pensions industry has raised during the process. We believe that the requirement for schemes to target their long-term goal by a fixed date (based on that scheme's maturity) places additional burdens on UK companies. This is because they would be asked to underwrite the cost of investment underperformance – potentially at a time when they can least bear it. Additionally, bespoke compliance has to be just that, bespoke – not measured relative to the simplistic Fast Track measure, which is what was trailed in the consultation.”
TPR’s corporate strategy
“In October, TPR launched its 15-year corporate strategy which provided for the first time, a clear focus from the Regulator on defined contribution (DC) pensions. My hope is that the Regulator will use this focus to provide much-needed attention to the needs of upcoming DC retirees, so younger Baby Boomers and Generation X. In contrast to their DB retiree cousins, those retiring from DC are under-served when it comes to support for making informed decisions about their retirement options – decisions that typically need to involve considering complex investment, tax and cashflow factors. My hope is that the industry can provide improved support, guidance and advice to this group – without requiring DC savers to become financial experts.”
Clause 107, Pension Schemes Bill
“TPR also needs to provide pragmatic guidance swiftly in 2021 in relation to Clause 107 of the Pension Schemes Bill. This clause - infamously - carries the threat of criminal offences against anyone who is judged to have acted to reduce the likelihood of pension benefits being paid. If TPR doesn't deliver clear guidelines on acceptable and unacceptable actions, then I fear the result will be inaction and stagnation – which is bad news for both savers and sponsors.”
Collective DC (CDC)
“To end on a positive note, 2021 will prove to be the Year of CDC. It’s had a lengthy gestation but will finally be born in the UK. This offers the possibility for DC savers to achieve an income for life from their DC savings in an efficient way, and without having to make complex investment decisions. Sitting alongside familiar DB and DC benefit designs, CDC offers something different and welcome as we begin to build back better.”
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