Prepare for a ‘building back better’ budget
With the Budget in March and Covid-19 cases still on the rise, the Chancellor is expected to remain focused on laying out his plans for protecting jobs and providing wider economic support for struggling business.
However, with optimism around the potential of vaccinations allowing life to return to some normality over the coming year, the next big question will be how the government plans to recoup the huge costs of the pandemic and who will bear the brunt of the Chancellor’s plans.
High on the list of possible targets for the Chancellor are pensions tax relief and wealth taxes. Equally, Sunak could be looking at increases to income tax and National insurance. The tax system can have a big impact on the most efficient ways of managing long-term saving and investment, something advisers are ideally positioned to support their clients in.
The changing nature of advice
Advisers will be keeping a close eye on the FCA’s response to its Call for Input into the Consumer Investments Market. Responses to this wide-ranging paper will be combined with the findings from the review of the effectiveness of the Financial Advice Market Review and the Retail Distribution Review, which unsurprisingly found the advice gap is alive and kicking. Areas under scrutiny are the definition of advice verses guidance, FSCS levies and the potential to increase the availability of ‘pay as you go’ or streamlined advice. The possible introduction of more personalised guidance could offer opportunities for adviser firms to expand into new segments of the population over the coming years.
There is another facet which could shape demand for advice in future: investment pathways. Providers will be launching their retirement investment pathways in February, for customers entering drawdown without advice. While this should help ‘DIY’ individuals avoid making particularly unwise investment choices, it won’t replace the personalised recommendations from an adviser on where to invest and how much income can safely be taken to last throughout life. Hopefully that distinction will be made clear and we could see pathways actually increase the demand for retirement advice.
Now the Brexit transition period is behind us, with the UK no longer bound by EU rules, there is the prospect of the FCA and Treasury reviewing both the approach to financial regulation, as well as removing some of the detail arising from the likes of PRIIPs and MiFID. This could include the definition of advice.
The government has also already laid its intentions to focus post-Brexit on green finance and encouraging investment in long-term illiquid assets such as infrastructure. With the launch of its first green gilts in 2021, the government is sending clear signals to pension schemes that it wants to see greater green pension investments, as part of helping the UK recover ‘greener’ from the pandemic.
Negative interest rates
Throughout the pandemic, the Bank of England base rate has remained at a record low of 0.1% and in 2021 it could even go into negative territory. This sets a very real prospect that savers may be asked to pay banks for holding their money. If we do see such a radical change, people will need support and advice to make sensible savings and investment decisions. Some people may take this as a prompt to invest excess cash in stocks and shares while others may decide to pay off debts or worryingly, withdraw their savings and keep them ‘under the mattress’.
State pensions and social care funding
For many, the state pension remains a significant element of retirement income. While the triple lock increase has been confirmed for April 2021, questions will inevitably resurface on its ongoing affordability and any changes will need factored into retirement planning.
One of the greatest uncertainties when planning financially for later life is the potential to have to pay for social care costs, which for some can currently be catastrophic. Many will be hoping for an announcement on a new deal on social care funding, with a clear division of costs between the state and individuals. This will generate huge demand for advice on how best to plan ahead under new rules.
The DWP will be consulting on a mandatory two-page template for simpler annual pension benefit statements in early 2021 along with a ‘pension season’ where all pension schemes will have to issue statements around the same time. This will give members a clearer picture of their overall pension savings and will be a useful stop gap before pension dashboards are rolled out in 2023. The government has yet to decide when this will start, but it’s something to look out for as it could be a catalyst for more people to contact advisers to help them review their pensions.