With 2016 firmly securing its place in the most shocking year hall of fame, especially when it comes to politics and celebrity deaths, Pensions Age takes a look at what is on the agenda for pensions in 2017.

DB green paper

The government has confirmed that a green paper on defined benefit pension schemes will be launched in the spring. Former Pensions Minister Ros Altmann thinks it is “vital” the government gets to grips with legacy DB problems.

“Employers will increasingly need to find ways to reduce or remove the risks of past liabilities but many will simply not have the resource to pay the extraordinarily high costs of annuitisation. Nor should they need to if the funds were managed on a long run basis,” she said.

She thinks that a kind of central pooled fund that can pay out pensions over time (perhaps as part of the PPF) and collect money that is judged to be sufficient on an ongoing basis without annuitising, is going to be needed. In addition, she thinks that more emphasis on liability management including encouraging offering DB to DC transfers, that also reflect any underfunding but may be attractive to members especially with small entitlements is needed.

Barnett Waddingham senior consultant Malcolm McLean notes that it is interesting that it is a ‘green paper’ not a white one as there hasn’t been green papers for many years now. “A green paper is a discussion document without necessarily including any views or proposals from the sponsor (i.e. the government) itself and will probably be followed up by a more definitive consultation document as the next stage. All this points to the likelihood of early decisions involving legislative change not being forthcoming for some considerable time,” he explained.

SPA review

We can also expect to see the outcome of the state pension age review headed up by John Cridland CBE, which McLean hopes will deliver some “definitive proposals” for a more flexible retirement age.

“We cannot simply go on pushing the SPA further and further backwards on the basis of a single SPA for all bearing in mind different life expectancy in different occupations and in different parts of the country. Some sort of early retirement option must surely be allowed, perhaps based on the current arrangements for delaying your state pension to secure a higher rate, only in reverse.

AE review

With its fifth anniversary this year, the government will conduct a review into automatic enrolment aimed at encouraging as many people as possible to save into a workplace pension and securing their financial future.

Gowling WLG principle associate Ian Chapman-Curry notes that two possible areas for review and possible change are individuals who have more than one job and who do not reach the auto-enrolment earnings threshold in any single job and the self-employed. He also highlighted that the government may be more radical and introduce auto-escalation to solve the problem of low contributions. This, however, would need to be done carefully otherwise opt-out rates could increase.

LISA launch

In addition, the new financial year in April will see the launch of the controversial Lifetime ISA, which Altmann sees as a “massive threat to pensions”.

“It’s just so frustrating that after so many scandals and years of poor policy decisions, we are on the cusp of making pensions more user-friendly and the product of choice for anyone saving for retirement. Yet at the eleventh hour, when auto-enrolment is about to bring in millions more people to pensions and we have an opportunity to help people see how great DC pension saving can be (with low opt out rates, improved governance and controls on charges) the government is undermining pensions with another and vastly inferior product,” Altmann said.

Master trusts

With the introduction of the Pensions Schemes Bill 2016/17 which introduces new powers for The Pensions Regulators when dealing with master trusts, as well as tougher regulation for master trusts, there may be a consolidation of schemes.

The explanatory notes in the Bill state there are 84 master trusts at present, with roughly four million savers and assets of £8.5bn. With the big three, NEST, The People’s Pensions and NOW Pensions making up the majority of the market, Chapman-Curry expects there will be consolidation, closure and managed transfers in 2017.

“For some master trusts, there is a lack of clarity about where the costs of merging or winding them up will come from, it is an areas fraught with difficult issues.”

The Budget

Due to Chancellor Philip Hammond scrapping the Autumn Statement last year, replacing it with an Autumn Budget from 2017 and a Spring Statement from 2018, there will be two Budgets in 2017. McLean hopes the chancellor will make some conclusive statements on the future of tax relief and allowances.

“I would personally not be averse to the introduction of a flat-rate of tax relief for all (30 per cent upwards) with perhaps a reduced annual allowance (£25,000) in return for the abolition of the Lifetime Allowance and the high earners “phased-out” annual allowance. The main thing is we have more certainty and an end to tinkering,” McLean said.

On the Budget, Gowling WLG partner Glyn Ryland notes that the pensions industry will be watching the Budget speeches with a “keener than usual interest” when it comes to higher rate tax relief. He thinks that the introduction of the LISA may be the catalyst the government needs in order to end higher rate tax relief.

“Commentators have suggested that too much tax revenue is lost providing tax relief for higher rate tax payers. LISAs could be a standalone addition to the savings landscape, but, they could also be the first stage in reducing or abolishing higher rate tax relief”.

Share Story: