No-one can say with certainty what the future will hold for pensions, at least not in my experience. That was the case before the EU Referendum and continues to hold true after it. The prospect of Britain’s departure from the European Union has simply added some new variables to consider in the mix.
What hasn’t changed is the need for us to engender a spirit of saving, to build on the early successes of auto enrolment and to help guide people to good decision making in retirement. I’m confident we can do all this and I believe we have laid solid foundations on all counts.
Long term saving has always been an area of political focus and pensions have had their fair share of change in recent years. Wether Brexit will result in some additions or subtractions on the policy front remains to be seen.
One thing I believe we can predict with some certainty is that the government will need to divert considerable resources in the years ahead, and perhaps beyond to deal with the challenges Brexit is likely to bring. If its capacity for ‘business as usual policy development’ was running at high speed broadband rates before, it may be reduced on occasion to ‘dial up.’
It’s of limited value to start making wild predictions as to what will stay and what will go, and indeed what might be introduced for pensions as a result of the changes we are seeing.
The FCA has been clear on the interim position (i.e. between now and Brexit itself):
‘Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect.”
This makes perfect sense – no-one can simply break the law on the notion that it may one day change, so we carry on with the rules we have and the progression of those that were planned.
There is clearly a debate to be had, however, about anything that would be implemented close to or after Brexit, and where the UK has taken a contrary position to the EU on its views prior to now (reducing its chance of being sustained in a post-Brexit Britain). Obvious examples will be IORP II and another long awaited sequel, MiFiD II. The development of a ‘Pan European Personal Pension’ will almost certainly be in a post-Brexit EU.
The FCA also said;
“Consumers’ rights and protections, including any derived from EU legislation, are unaffected by the result of the referendum and will remain unchanged unless and until the Government changes the applicable legislation”
This is clearly an important point. Laws from the EU don’t simply drop away after Brexit. Most are enshrined in UK law so – even where there is a desire to do something different – such laws would need to be changed or repealed. Perhaps, then, more usefully, we can look at the impact of policy change derived closer to home when considering the impact on pensions.
Starting with the big ticket items, automatic enrolment is clearly well underway and continues to be a successful nudge to get people saving. It seems unlikely that would be halted and indeed will be largely complete – at least in terms of employer coverage – over the next couple of years.
People may well call into question the timing of contribution increases over the course of 2018/19, allied with regular increases in the new Living Wage, and the combined impact on business expenses. That said, both are clearly important in terms of adequacy of income now and in retirement. And next year’s review of auto enrolment will consider further increases beyond the 8% target for 2019, so the direction of travel is clear.
The flexibility offered under ‘Freedom & Choice’ for people over the age of 55 seems a relatively unassailable policy, politically at least. It seems unlikely further changes will be a consequence of the UK’s position in Europe, but the debate will continue as to how we best support people in their financial decision making in later life. Rightly so; this is a crucial point that mustn’t be lost in the mix.
The three main elements of savings policy which have not yet been implemented – namely, the pensions dashboard, the secondary annuity market and the introduction of a Lifetime ISA – give rise to a little more discussion.
First, the pensions dashboard.
While clearly being directed by Government (it’s target implementation date of 2019 was in the March Budget statement), this is largely a programme of work for the pensions industry to deliver upon. Despite some suggestions to the contrary, there is a collective will to deliver on this as it’s seen as something that can help rejuvenate interest and engagement with savers . As such, this looks like it will continue as planned.
Second, the introduction of a secondary annuity market.
The extension of the flexibility offered to over 55s to those who had previously purchased an annuity seemed a natural one, and continues to command support. Creating this market was already looking challenging, with few firms able for now to make a serious commitment to participate as buyers. The willingness though is there to enable annuitants to sell their future income, but it may not materialise within the April 2017 timescale that was set. Third, the introduction of the Lifetime ISA.
There were already some challenges with the timescales involved, given there is still an ongoing debate as to the design of the product. At this late stage in the development cycle, this will clearly impede the availability of the product amonst providers at outset. It seems likely that a simple, no ‘bells or whistles’ version will emerge as a result.
Arguably, none of these challenges relate directly to Brexit; they are simply a function of overlaying complex policy in an environment that constantly changes.
All in all, then, it’s difficult to be conclusive about anything at this stage, but there are certainly grounds for debate as to what continues to command everyone’s time in the coming months.
No change there.
Jamie Jenkins is the Head of Pensions Strategy at Standard Life