He says: ‘There are potential hazards in store for employers in 2016. Awareness of the issues is the starting point, companies now need to get their plans in place: there will be no hiding places.’
1. Rush of lump-sum contributions in response to reduction in pensions tax relief
The March Budget statement is likely to include the outcomes of the ‘Strengthening the Incentive to Save’ consultation as a major feature. This could even be THE major statement in the March Budget.
The potential short-term fiscal wins to a cash-strapped government are significant – so we fully expect to see at least some reductions in the existing levels of tax relief available to pension savers. We therefore anticipate a last-minute acceleration of lump-sum pension savings (particularly for higher earners) as savers realise that the very generous tax reliefs currently on offer may not be available in the near future.
Assuming that major changes are announced, there will also be a period of uncertainty for savers and sponsoring employers whilst those announcements are digested, queried and better understood. The pensions industry will need to be ready and willing to advise employers and employees as to the best course of action throughout this transition.
Any new legislation change will bring into sharp focus the need for employers to provide financial education in the workplace so that employees can make sensible and informed decisions.
2. Auto-Enrolment enforcement action
2016 will see ever smaller employers reach their staging date. Evidence to date from The Pensions Regulator suggests that the number of enforcement actions and fines are accelerating, and we fully expect to see this increase dramatically during 2016 and 2017. Given that workplace savings are a hot political and media issue, this even has the potential to now become a national media story.
We therefore urge employers to take early action to comply with the legislation in order to avoid fines and possible reputational damage.
3. Workplace savings and the loss of commission
With the pensions commission-tap finally being turned off in 2016, there will be increasing numbers of employers seeking to manage pension issues without the support from pension consultancies as they look to avoid fees. Many will also opt to deal direct with pension providers, and this added strain on an already stretched system may well lead to some serious confusion for all parties.
With the likely major changes in (1) above, this could be potentially disastrous for the future of UK retirement savings. In a worst-case scenario this could even lead to a wave of poor member outcomes as savers may be unclear as to the best or most advisable course of action.
Employers will be looking for value, and intermediaries will have to demonstrate their value. But at a time when the need for professional advice has never been greater, employers may have to budget for consultancy fees to get the most for their employees.
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