 By Mike Morrison, Head of Platform Marketing, AJ Bell
At the beginning of the year we were told that, in the ancient Mayan calendar, 2012 was the year that the world would end. Well, so far so good, but I understand that the key date is the 21st of December, so writing this could be somewhat academic.
So, in the pensions world of 2012, what has happened and what have we learned?
The main event for me was the commencement of auto enrolment – this is an ongoing process which will move through the large employers to the small and micro employers and will ultimately complete in 2017. It will bring the largest ever number of people in the UK into contact with the pension world and, therefore, I think that we need to get it right.
This could be our last chance at some sort of voluntary pension system to cover anyone who is employed. As has been mooted, if this does not work then the next step could well be compulsory pension contributions with no opt out!
The rate of opt out and any trends will be discussed and analysed and is likely to be subject to much commentary and scrutiny.
Having started the process, we must keep the pressure on with engagement and information so that the inclination of those enrolled is not to opt out.
In the field of workplace pensions we have also had notice of a new concept ‘Defined ambition’ – or “how can a DC pension scheme look and behave more like a DB scheme?”
So far there has been little positive feedback, but it still seems to be on the agenda and the debate continues with the DWP’s recent paper ‘Reinvigorating Workplace Pensions’.
One pension proposal in 2012 which does not seem to have survived the year was the Liberal Democrat idea for using the tax-free lump sum from pension schemes to allow parents to be able to assist their children in getting onto the property ladder by allowing the lender to take a charge over the lump sum. This seemed to be the most poorly received pension idea I have ever seen, and would only really have been attractive to a very small number of people - and then only if the mechanics of the issue could be sorted out.
In 2012 the proposed reform to the state scheme did not move on much further. It seems to be one of those things that everyone wants, but the transition from the current system to the new one could cause a few issues – oh, and the cost of the whole thing!
2012 was the year of two Budgets - or one Budget, and one in all but name. The first was prefaced by rumours of changes to pension tax relief and even to the tax-free lump sum – nothing happened. The second was prefaced by rumours of changes to pension tax relief and the tax-free lump sum - this time we were not so lucky. The annual allowance and the lifetime allowance were changed, but luckily the lump sum wasn’t. These changes look like they will come into force in 2014, perhaps giving a bit of a pension planning opportunity before-hand. A new regime of protection will not go down well, and will be seen as just another layer of complexity.
The other change in the Autumn Statement was also an important one – the restoration of 120% of GAD for income drawdown.
A lot of the year has been dominated by stories of individuals in income drawdown who, coming up for review, have found themselves the victims of changes to GAD rates, the removal of the 20% uplift and the falling gilt yields - and possibly a reverse in their investment fortune.
This does seem somewhat hard if people were drawing an income without other resources, only now to find that their maximum income has been significantly squeezed.
Annuity rates have also been falling in 2012 and, unfortunately, the prognosis seems to be poor. Gender neutral annuity rates, Solvency II and the growth of enhanced annuities (which remove the higher rates from the annuity pool) all seem to be indicators that rates will not go up quickly!
SIPPs have had something of a challenging year, what with the requirement to produce key features like other personal pensions, a multitude of stories about UCIS, a thematic review thatshowed some shortcomings with internal systems and management information, and the recent capital adequacy consultation.
The effect of all this has been to prompt suggestions around consolidation and a smaller market - we will see what happens in 2013.
Add to this a little bit of RDR and a general mix of other miscellaneous issues, and it has been a busy year for pensions. However, this was also one of the years where the number of people reaching retirement age is at the highest it has ever been, and also one of the years when the retirement crisis has been reported in more documents than I have ever seen before, yet still without a real solution.
Oh well, here’s to 2013 – if we get past the 21st December!
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