‘Surprising’ is a mild way to describe the shocks and twists 2016 has thrust upon us.
While the major political events of both Brexit and Trump ensure that the year is one for the history books, for many 2016 needs to hurry up and end. ‘Icon’ seems at risk of becoming an endangered species in 2016, with a high number of celebrities passing away this year. The pensions industry was not immune to this sadness. For instance, earlier this year we sadly and shockingly had to say goodbye to a much-loved industry presence, ITM director John Broker.
Saying goodbye to her role as Pensions Minister in July was Ros Altmann, who in the months since has once again become a far-more vocal champion of pensions than she was able to be while in office. Her successor, Watford MP Richard Harrington, was an unknown quantity on the subject of pensions until he revealed his strong opinions in a speech at the PLSA annual conference in October.
The ministerial changes that led to Harrington becoming the new – not Pensions Minister but Under Secretary of State for Pensions – was as a result of the biggest shock of the year: Brexit.
The summer’s EU referendum politicised the nation to a degree I’ve certainly never seen before. A generational divide emerged and even led to calls from the angry young to dismantle the triple lock on the state pension, arguing that older people, who mainly voted to leave the EU, should not have special protection from any negative economic impact of Brexit. The Chancellor did not use the Autumn Statement to dismantle the triple lock guarantee, despite growing concerns that it will become unaffordably expensive. However expectations are that the triple lock’s days are only safe until the next parliament in 2020 – after that, who knows?
Following Brexit, 2016 felt like a year where anything could happen. Therefore another surprise, this time on American shores, when Donald Trump was elected President against the predictions of the must-be-permanently-surprised-pollsters, was not quite the massive shock it may once have been. Racism and misogyny apparently being no barrier to running the most powerful country on Earth, there were fears that a Trump win would send the markets into turmoil. Thankfully the markets rallied quickly, with a ‘short intake of breath, followed by a shrug’, as Hargreaves Lansdown senior analyst Laith Khalaf said.
For the UK pensions system specifically, the biggest surprise was the Lifetime ISA (LISA). This was announced during the Spring Budget – which the industry warily watched for fear of pension tax relief erosion, something the Treasury is felt to be itching to do. Instead, the government cannily gave the industry exactly what it wanted and left pensions tax relief alone. And then, in a sleight-of-hand trick, announced the Lifetime ISA, with its flat level of 25 per cent tax relief on savings of up to £4,000 per annum when used to buy a house or fund retirement. Having to be under 40 to open a LISA and government tax relief only available up until age 50 are just two reasons why it is understandable for savers’ sakes, as well as the industry’s own, that LISA is being considered a dangerous interloper.
The Spring Budget gave us the LISA surprise, but thankfully the Autumn Statement left the industry pretty much unscathed. The first and last Autumn Statement to be delivered by the new Chancellor of the Exchequer Philip Hammond only gave a mild shock in the form of the Money Purchase Annual Allowance being cut to £4,000, while the other big industry announcement, to ban pensions cold calling in an effort to reduce pension scams, had been leaked in advance.
As the Autumn Statement showed, the year was not only about surprises. As expected following pensions freedom and choice, drawdown grew in popularity to become the dominant at-retirement choice of 2016. But so too grew concerns that retirees, many unused to handling such relatively large sums of money, may misinvest their funds or draw it down too rapidly to last throughout retirement. Therefore talks of providing blended products that mix the security of an annuity with the flexibility of drawdown is beginning to grow.
Blended retirement products are desperately needed to prevent savers taking on more risk than they can handle. But this was not the only time in 2016 where the benefits of sharing responsibilities and offering help were explored. Sir Philip Green has spent much of the year being called upon to bail out the pension scheme of his old company, BHS, while the industry is coming together to provide people with an overview of their entire retirement savings through the pensions dashboard. Talks about intergenerational fairness regarding retirement saving increased in late 2016, and even the spectre of defined ambition began to rise again in industry discussions.
The overriding theme of 2016’s changes is self-determinism. But if 2016 was the year of individualism at all costs, may 2017 be the year of – if not collective responsibility – at least collective help for retirement savers? I certainly hope so.